Corporate Governance - Boardroom Effectiveness

Question 1

Which five Factors are relevant to Board Effectiveness?

Answer 1

FRC Guidance on Board Effectiveness:
1. Board leadership and company purpose.
2. Division of responsibilities.
3. Composition, succession and evaluation.
4. Audit, risk and internal control.
5. Remuneration.

Question 2

What Factors may inhibit or promote effective Board Decision-making?

Answer 2

1. Limiting factors (para. 29, FRC Guidance on Board Effectiveness):
   - Dominant personalities or groups of directors.
   - Insufficient diversity, resulting in ‘group think’.
   - Excess or insufficient focus on risk.
   - Compliance mindset and failure to consider risk as part of decision-making.
   - Inability to challenge effectively.
2. Promoting factors for significant decisions (para.32, FRC Guidance on Board Effectiveness):
   - Description decision-making procedure and challenge in board packs, enabling directors to appraise both the decision and the procedural propriety of the consideration process.
   - Use of additional, external or independent safeguards to scrutinise decisions (e.g. committees, ‘devil’s advocates’, external advisors).
   - Ensuring board minutes reflect discussions leading to the decision, issues raised and reasoning for decision.

Question 3

What five things should the Chair do to aid Boardroom Decision-making and Dynamics?

Answer 3

1. Maintain control of proceedings without dominating.
2. Facilitate decision-making.
3. Encourage constructive discussion.
4. Create a positive environment.
5. Steer towards consensus.

Question 4

What five things should a NED do to aid Boardroom Decision-making and Dynamics?

Answer 4

1. Not dominate discussions.
2. Foster constructive challenge.
3. Act objectively and remain open to different perspectives.
4. Share information and insights.
5. Support procedural checks and balances.

Question 5

What five things should the Company Secretary do to aid Boardroom Decision-making and Dynamics?

Answer 5

1. Register attendance.
2. Determine quorum.
3. Maintain record of proceedinga and prepare minutes/actions logs.
4. Advise Chair on procedural matters.
5. Advise on governance issues.

Question 6

How should Information be shared and cascaded amongst Board Stakeholders?

Answer 6

1. Chair is responsible for ensuring directros receive accurate, timely and clear information (Principle F, Code).
2. CEO responsible for ensuring management providing the board with accurate, timely and clear information (para.73, FRC Guidance on Board Effectivness).
3. NEDs should insist on receiving high-quality information and clarify with management, if they consider tendered information is inadequate (para.77, FRC Guidance).
4. Under Chair’s direction, CoSec should promote effective information flows across Board, committees and senior management, and amongst senior management and NEDs (para.81, FRC Guidance).
5. Board portals (e.g. BoardEffect) may be used to secure cascade board information, and facilitate voting and approval of board minutes.

Question 7

What is Corporate Culture?

Answer 7

1. Culture refers to a company’s behaviours, its business conduct and how it espouses its values.
2. Healthy culture provides competitive advantage, and is vital to creating and protecting long-term value.
3. Board responsible for establishing a company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned (Principle B, Code).
4. Effective boards define their purposes and strategy, together with the underpinning values and behaviours that shapes its culture and business conduct (para. 11, FRC Guidance on Board Effectiveness).
5. Board defines values framework within which the desired culture can evolve and thrive (para.18, FRC Guidance).
6. An effective board develops and promotes the purpose of a company, ensuring its values, strategy and purpose are aligned with that purpose (Wates Principles on Corporate Governance).

Question 8

How should Culture be defined by a Company?

Answer 8

1. Company values are agreed, with consideration of aligning purpose and strategy with those values (Principle B, Code).
2. Develop code of ethics specifying values and related behavioural expectations.
3. Ensure values are considered when developing operational policies.
4. Publicise company values/CoE (e.g. via employee induction/training).
5. Integrate functions into all company functions and operations.
6. Ensure performance management/remuneration policies are consonant with culture and values.
7. Adopt whistleblowing procedures to enable openness and accountability regarding behaviours that offend culture and values.
8. Ensure top-down board adherence to culture and values, with transparency and integrity.

Question 9

How may Culture be Measured?

Answer 9

1. Use of staff surveys, sourcing views about culture.
2. Including culture as discussion point with customer and supplier stakeholders.
3. Retaining culture as a standing board meeting item.
4. Reviewing customer complaints feedback.
5. Reviewing whistleblowing feedback.
6. Ensuring board are able to receive first-hand feedback as to culture from employees and other stakeholders.

Question 10

What is Business Ethics?

Answer 10

Application of ethical values to business behaviour.

Question 11

What would a Code of Ethics usually contain?

Answer 11

1. Company values.
2. Company ethical principles.
3. Company ethical standards re. employees, customers, suppliers/partners, government and society/environment.
4. Code entrenchment/implementation re. responsibility statement, means to source advice and training.

See corporate culture slide as to implementation of CoE.

Question 12

How should a Company Secretary support a Company’s Business Ethics?

Answer 12

1. Suggest corporate culture discussions are a board agenda item.
2. Suggest culture indicators are predicated upon key stakeholder expectations.
3. Devleop culture indicator dashboard for periodic board review.
4. Ensure broad sourcing of data to support monitoring of cultural performance perceptions.
5. Organise site visits for board to meet employees and assess culture first-hand.
6. Assist with stakeholder reporting as to culture.
7. CoSeco also responsible for ensuring directors, especially NEDs, have access to independent professional advice at company’s expense if necessary in discharge of responsibilities (para. 83, FRC Guidance on Board Effectiveness).

Question 13

What is required by way of Board Evaluation?

Answer 13

1. Should be formal and rigorous performance evaluation of board, committees and individual directors (at least every three years for FTSE 350 companies), ideally with external evaluators (to be identified in AR&A with any company connection) (Provision 21, Code).
2. Chair ultimately responsible for appropriate evaluation approach; however, the senior independent director should evaluate the Chair and may lead the entire process (e.g. if Chair and CEO roles are combined).
3. Board chairs are responsible for evaluating their own committees.
4. Chair should summarise evalulation outcomes and actions in Chair statement within AR&A.
5. Areas for evaluation may include:
   - Board mix of skills, experience and knowledge;
   - Clarity of company purpose, direction and values;
   - How well the board works together;
   - Effectiveness of individual directors;
   - Effectiveness of board committees;
   - Quality of discussions and board papers.

Question 14

What is the Purpose of Inductions and Professional Development?

Answer 14

FRC Guidance on Board Effective:
1. Chair should ensure all directors (i) receive full, formal and tailored induction upon joining and (ii) continually update their skills and experience to fulfil board and committee responsibilities (para. 61).
2. Indictions should enable directors to better understand the company’s business and markets, link with company personnel, comprehend key business relationships and the framework within which the board operates.
3. CoSec’s responsibilities include facilitating induction arranging board training and assisting with required professional development (para. 81). CoSec should consult with new directors to develop inductions, priortise/schedule programme over a reasonable period, vary information delivery, organise site visits and meetings, and review the induction mid-way through and at the end of the induction.
4. NEDs should pay particular care to devoting time to a comprehensive induction. This should extend beyond the board room and may inlcude visiting operational divisions, liaising with management and other workforce stakeholders to better understand the company culture and key development opportunities (para.75).