Chapter 8 - Board Effectiveness Flashcards
What are the main topics covered by FRC Guidance on Board Effectiveness?
Follows the layout/setout of UKCGC
- Board leadership and company purpose
- Division of responsibilities
- Composition, succession and evaluation
- Audit, risk, internal control
- Remuneration
According to FRC Guidance on Board Effectiveness, what are the characteristics of an effective board?
- Provides direction for management;
- Demonstrates ethical leadership, displaying (and promoting throughout the company) behaviour that is consistent with the culture and values it has defined for the organisation;
- Creates a performance culture that drives value creation without exposing the company to excessive risk of value destruction;
- Makes well-informed and high-quality decisions based on a clear line of sight into the business;
- Creates the right framework for helping directors meet their statutory duties under the CA2006, and other relevant statutory and regulatory regimes;
- Is accountable, particularly to the providers of the company’s capital (shareholders); and
- Thinks carefully about its governance arrangements and embraces evaluation of their effectiveness.
What does Pearse Trust identify as key qualities that make a successful chair?
- Ability to chair meetings
- Understanding the business
- Ability to influence others, without dominating
- Strong and resilient personality
- Good comms skills and able to comm overall strategy to external stakeholders.
Provide actions that the Chair can undertake to improve boardroom dynamics
- Create a positive environment
- Facilitate decision-making
- Steer to consensus
- Stimulate debate- encourage all to contribute
- Promote airing/resolution of disagreements
- Set an example with respect to conflicts of interest
- Maintains control but does not dominate
- Encourage discussion and contribution
How can NEDs contribute to board effectiveness?
- Attend regularly, prepares to be an effective decision-maker
- Objective - open to other perspectives
- Does not dominate
- Recognises collective decisions
- Fosters constructive challenge
- Shares information
- Provides checks and balance
- Gives access to networks
What should all information be per Code/FRC Guidance?
Accurate, timeley, high quality
What is the CoSec’s role in the supply of information?
- Responsible, under direction of chair, for good information flows.
- Implement processes required to achieve the objective of accurate, timely and high quality information that flows all levels.
- CoSec is the facilitator, promoter and guardian of high standards.
What are the 4 main stages in the developing a board pack?
1) Identify information the board needs
2) Commission board papers
3) Writing board papers
4) Collate and distributing the board pack
What is the Company Secretary’s role regarding ‘board effectiveness’?
Facilitate discussion on future priorities, type and format of info required and coordinating planning
Responsible, under direction of chair, for good information flows - implement processes required to achieve flow of high quality, accurate and timley information at all levels..
Plan schedule - maintain provisional agenda
Coordinate prep of board pack (commission papers, ensure authors/sponsors ok regarding requirements on them, timetable and tracking)
Support those writing/presenting papers - ex. check understandable to a non-specialist
Act as guardian of house-style/format for papers
Ensure submitted on time
Coordinate collation, storage and distribution of board pack
With Chair/other board members - review whether the board papers meet their needs
What are the typica beneficial features of bespoke software packages (electronic board portals)?
- Secure tools to facilitate distribution and use of electronic agenda papers and board packs
- Archive facilities enabling directors to refer back to papers/minutes for previous meetings (especially beneficial for NEDs)
- Secure tools enabling directors to annotate & make notes on the agenda papers
- Tools to enable secure access to additional papers of interest to board members;
- Voting tools;
- Tools to facilitate the circulation and approval of minutes
- Quicker to draft, collate and distribute board packs
- Easier access/portability of documents
- Easier navigation of papers during meetings
- Secure messaging facilities
What is corporate culture?
A company’s behaviours and the ways in which it conducts its business and espouses its values.
Why is it important to set a company’s corporate culture?
A healthy corporate culture is a valuable asset which can be a source of competitive advantage and vital to the creation and protection of long-term value
What are some ways in which a company can monitor culture?
- Site visits by NEDs
- Hosting town-halls - open meetings
- Becoming a customer/mystery shopper
- Talking to external stakeholders
- Meetings with jr managers without bosses
- Review/follow up customer complaints
- Review/follow up on reports/breaches from whistleblowing-process
- Others as listed in FRC G.B.E para 23
What Watest Principle is applicable, and what does it recommend, re corporate culture?
PRINCIPLE 1
Company’s purpose and values should inform expected behaviours/practices throughout organisation
- Values should be explained/integrated into the diff functions and operations of the business
- Board, SHs & mgmt must make & maintain committment to embedding the desired culture throughout organisation
- Boards should consider how culture can be monitored effectively.
How is corporate culture related to a company’s strategy, values and purpose?
FRC G.B.E : ‘An effective board defines the company’s purpose and then sets a strategy to deliver it, underpinned by the values and behaviours that shape its culture and the way it conducts its business.
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A company’s values and behaviours (its culture) should therefore be aligned with its purpose.
Why, in particular, might pay and performance structures lead to a bad corporate culture?
Pay incentives may reward employees for behaviour that is not in the best interests of the company’s clients and customers leading to a breakdown of trust, e.g. the payment protection insurance mis-selling scandal in the UK (ex. PPI)
What is business ethics?
‘… application of ethical values to business behaviour’
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Business ethics is relevant both to the conduct of individuals and conduct of the org as a whole. It applies to any aspect of business conduct…beyond the legal requirements…therefore, about discretionary decisions and behaviour guided by values’
