Chapter 8 - Board Effectiveness Flashcards
How is corporate culture related to a company’s strategy, values and purpose?
According to the Guidance on Board Effectiveness:
‘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.’
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.
How might the company secretary be involved in the procedures to enable the directors to obtain independent
professional advice?
The secretary should propose that the board adopts a procedure to be followed by directors seeking to take independent
professional advice. This could be done by way of a board resolution or as part of a board procedures manual.
If that procedure sets certain conditions or imposes any financial limits, some sort of pre-approval mechanism will be required.
The secretary could be the person whose approval is required.
However, this could compromise the secretary’s impartiality, particularly if the conditions require difficult judgement calls to be made. In these circumstances, it makes more sense for the chair or the senior independent director to be the person who makes the decision.
Even if the secretary is not personally involved in the approval process, it may be sensible for the initial application by a director to be made through the secretary, who then forwards it on to the appropriate person for approval.
Someone will need to record the fact that an application has been made and whether the necessary approval has been given (or refused).
This information will also need to be reported to the board, particularly where approval has been given and advice has been obtained. Somebody also needs to authorise the payment of any invoices to the independent advisers. These task will
typically fall to the secretary
Under the Code what should the annual performance evaluation cover?
According to Principle L of the UK Code, the annual performance evaluation should cover:
- board evaluation: the composition of the board, its diversity and how effectively members work together to achieve objectives; and
- individual evaluation: should demonstrate whether each individual director continues to contribute effectively.
Code Provision 21 clarifies that the annual evaluation should extend not only to the performance of the board and individual directors, but also to board committees and the chair.
What information should be disclosed in the annual report and accounts on the annual performance evaluation?
Code Provision 23 requires the nomination committee report to state:
- how the board evaluation has been conducted;
- the nature and extent of an external evaluator’s contact with the board and individual directors;
the outcomes and actions taken; and
* how the evaluation has or will influence board composition.
A company that does not comply with Code Provision 21 on annual performance evaluation will also need to include an explanation in its corporate governance report.
Under the Code, how often should a company have an externally facilitated evaluation?
Code Provision 21 requires FTSE 350 companies to have an externally-facilitated board evaluation at least every three years. It requires chairs of other companies to consider having a regular externally facilitated board evaluation.
What should the aims of an induction process be?
Induction programmes should ultimately seek to enhance the effectiveness of new directors.
According to the ICSA Guidance on Induction of Directors, they should aim to:
- build an understanding of the nature of the company, its business and the markets in which it operates;
- build a link with the company’s people;
- build an understanding of the company’s main relationships; and
- ensure an understanding of the role of a director and the framework within which the board operates.
How might a company benefit from having its executive directors serve as NEDs on other boards?
Executive directors serving as NEDs on other company boards will:
- gain experience of how other boards operate;
- be able to compare different practices and recommend the adoption of those that appear to be better; and
- experience first-hand what it is like to be a NED and what NEDs expect and require in order to perform effectively.
Boardroom Dynamics 1 - The Chair
CHAIR
- Maintains control of proceedings (Does not dominate)
- Facilitates decision-making
- Stimulates debate, encourages all to contribute
- Encourages constructive discussions
- Creates a positive environment
- Ensures that decisions are understood and recorded
Boardroom Dynamics 2 - NED
- Attends regularly, and prepares so as to be an effective decision-maker
- Acts objectively, and is open to other perspectives
- Does not dominate discussion
- Recognises collective decisions
- Fosters constructive challenge
Boardroom Dynamics 3 - Company Sec
- Registers attendance
- Determines quorum
- Maintains a record of the proceedings in order to produce the minutes and an action log
- Advises the chair on procedural matters
- Monitors climate of meeting
- Advises on governance issues
The company secretary’s role in prep for board meetings includes?
- Facilitating discussion between the board and management on future priorities, the type and format of information the board requires and also for co-ordinating the planning process
- Planning a schedule of board meetings, maintaining a provisional agenda for those meetings and ensuring that those who will be required to submit board papers are kept informed of the timetable.
- Co-ordinating the preparation of the board pack
- Supporting those writing and presenting board papers
- Acting as the ‘guardian’ of the house style and format for writing board papers
- Co-ordinating the collation, storage and distribution of the board pack
- Reviewing with the chair and other board members whether the board papers met their needs
How to set a company culture?
- Agree what the company’s values are and considering how the company’s purpose and strategy are aligned with those values
- Develop and adopt a company Code of Ethics which sets out the company’s values and expectations as to behaviours
- Ensure that the values that have been agreed are taken into account when developing the company’s operational policies and procedures – the Board also needs to ensure that this message is clear to the company’s senior managers
- Publicise the company’s values, or its Code of Ethics, for example in public and internal documents and by including them in employee induction and training
- Integrate the values into all of the functions and operations of the company
- Ensure that the company’s employee performance management and reward systems encourage behaviours that are consistent with the company’s culture and values
- Ensure that there is a culture of openness and accountability, so that employees feel able to raise concerns about behaviour, including via an effective whistleblowing policy and procedures
- Set the tone from the top – ensuring that the behaviours of the Board members individually, and the Board as a whole, are in line with the company’s values, for example by acting with integrity and transparency
Measuring Culture?
- Using staff surveys to check employees’ views about the company’s culture
- Including corporate culture as one of the matters discussed or surveyed as part of the company’s engagement with other stakeholders such as suppliers or customers
- Having culture and values as standing items for the Board meetings
- Receiving a report of customer complaints
- Receiving reports and feedback about the company’s whistleblowing policies and procedures, how effective they are and issues raised via any whistleblowing helpline.
- Ensuring that the Board are able to get first-hand experience or indications of the culture within the company by being able to have direct interaction with employees and other stakeholders
Role of the company secretary in culture?
- Suggesting that discussions about corporate culture are on the board’s agenda
- Suggesting that culture indicators are selected based on the expectations of the organisation’s key stakeholders
- Developing a dashboard for the culture indicators that should be reviewed from time to time by the board
- Ensuring that information is drawn from a variety of sources to support and monitor perceptions of performance for the selected indicators
- Organising site visits so that members of the board can get out and about and meet employees to assess for themselves the culture embedded within the organisation
- Assisting in developing the reporting to stakeholders on the organisation’s culture
