Chapter 8 - Test yourself Q&A's - Board Effectiveness Flashcards
Cite 5 factors that can limit decision making (excluding those relating to the supply if information)
Any 5 from:
- A dominant personality or group of directors on the board, inhibiting contribution from others.
- Insufficient diversity of perspective on the board, which can contribute to ‘group think’.
- Excessive focus on risk mitigation or insufficient attention to risk.
- A compliance mindset and failure to treat risk as part of the decision making process.
- Insufficient knowledge and ability to test underlying assumptions.
- Failure to listen to and act upon concerns that are raised.
- Failure to recognise the consequences of running the business on the basis of self-interest and other poor ethical standards.
- A lack of openness by management, a reluctance to involve non- executive directors, or a tendency to bring matters to the board for sign off rather than debate.
- Complacent or intransigent attitudes.
- Inability to challenge effectively.
- Lack of time for debate and truncated debate.
- undue focus on short term horizons.
What sort of significant decisions might the Guidance on Board Effectiveness have in mind when it suggests that boards may wish to consider extra steps?
Extra steps might be considered appropriate where the board is setting the company’s strategy, purpose, culture and objectives and in situations where there appear to be strongly divergent views.
What are the four main stages in development of a board pack?
- Identifying the information the board needs.
- Commissioning board papers.
- Writing board papers.
- Collating and distributing the board pack.
What are the typical features of board portal software?
Secure tools to facilitate the distribution and use of electronic agenda papers and board packs.
Archiving facilities that enable directors to refer back to the paper and minutes prepared for previous meetings.
Secure tools which enable directors to annotate and make notes on the agenda papers.
Voting tools.
Tools to facilitate the circulation and approval of minutes.
Secure messaging features.
What are the advantages of board portal software over traditional hard copy agenda papers?
Reduced time spent producing. collating and circulating board papers.
Secure storage of those documents.
Easier access to and portability of those documents.
Easier navigation of papers during meetings.
Quicker distribution.
Ability to centrally store annotations and notes made by participants.
Ability to refer back to papers for previous meetings.
Secure messaging features.
How is corporate culture related to a company’s strategt, 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 bad corporate culture?
Pay incentives may reward employees for behaviours 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. 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 SID to be the person who makes the decision. Even if the secretary if 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 to onto 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 tasks 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 evaluation should cover:
Board evaluation: the composition of the board, its diversity and how effectively members work together to achieve objectives.
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 the individual directors.
The outcomes and actions taken.
How the evaluation has or will infleunce 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.
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 NED’s on other company board 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.
Experience first hand what its is like to be a NED and what NED’s expect and require in order to perform effectively.
