Ethnicity and Diversity Flashcards
UK CG Code on Diversity?
UK CG Code on Diversity:
Principle J: […] Both appointments and succession plans should be based on merit and objective criteria5 and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.
Principle L: Annual evaluation of the board should consider its composition, diversity and how effectively members work together to achieve objectives. […]
Provision 23: requires the annual report to describe the work of the nomination committee, including diversity and gender balance of senior management
Gender Diversity (Davies Report)?
Gender Diversity:
- Davies Report: ‘Women on Boards’ (2011)
Presented benefits in favour of boardroom representation - Recommended that minimum of 25% of FTSE100 board be female by 2015
- Disclosure of ‘meaningful information’ in Annual Report
Advertise positions - New target set in 2015 for 33% representation by 2020 for all FTSE350 companies
Gender Diversity Hampton-Alexander Review (2016)?
Hampton-Alexander Review (2016)
- Recommended target (2016) of 33% of women on FTSE350 boards by 2020; 33% on FTSE100 executive committees and direct reports to it on a combined basis by 2020; FTSE350’s increase the number of women in roles of chair, SID and executive directors.
- In 2017 Report called for FTSE350 companies to comply with the executive committee/direct reports target as well
2020 Report revealed that 33% of FTSE100 companies’ board members are women and 29.6% of FTSE250 board positions are held by women
Ethnic Diversity (Parker Report into Ethnic Diversity of UK boards (2016))?
Parker Report into Ethnic Diversity of UK boards (2016)
- ‘Do not reflect the ethnic diversity of the UK’
- Recommendation to increase the diversity, develop pipeline of candidates and enhance transparency and disclosure
- Recommended that each FTSE100 board should have at least one director of colour by 2021; and each FTTSE250 by 2024
- The PLSA expects listed companies to report on ethnic diversity against the Parker Report targets
2020 Parker Report found 37% of FTSE100’s and 69% of FTSE250’s had no ethnic minority representation on their boards.
FRC research (2020) found that over 52% of FTSE250’s failed to mention ethnicity in their board diversity policy; and just 14% of FTSE100’s set measurable targets for board ethnic diversity.
Reporting on diversity?
Reporting on diversity…
UK CG Code Provision 23 requires listed companies to disclose in the nomination committee’s report:
- their policy on diversity and inclusion, its objectives and linkage to company strategy how it is has been implemented and progress on achieving the objectives; and
- the gender balance of those in the senior management and their direct reports
- Companies Act 2006 requires listed companies to include in the Strategic Report a breakdown showing the number of persons of each sex at the end of the financial year who were: directors; senior managers; and employees of the company.
- DTR 7.2 8A(1) requires listed companies to make disclosures in their corporate governance statement regarding their diversity policy, or an explanation as to why no policy is applied by the company if that is the case
Accepting an offer of appointment?
Accepting an offer of appointment…
CGI Guidance recommends that prospective directors should conduct due diligence prior to joining a board, including:
- reviewing annual report, website and other information;
- reviewing regulatory and media announcements issued since the last annual report;
- arranging to meet the chair, CEO, CFO, company secretary and all nomination committee members, if not the entire board;
- where taking on board or committee chair role, arranging meetings with the auditors, head of internal audit or remuneration consultants as appropriate;
- talking to any other external advisors, senior management, employees, suppliers and customers; and
- checking scheduled board dates for the year ahead to ensure attendance.
UK CG Code - Succession Planning?
UK CG Code - Succession Planning:
Principle J: […] an effective succession plan should be maintained for board and senior management. Both appointments and succession plans should be based on merit and objective criteria
Provision 17: The board should establish a nomination committee to lead the process for appointments, ensure plans are in place for orderly succession to both the board and senior management positions, and oversee the development of a diverse pipeline for succession. […]
Succession Planning
Succession Planning
- Aware of directors intending to resign when current contract expires
- Aware of which directors will be standing for re-election at AGM
- Monitoring directors who are nearing 9 years on the board (per Provision 10 and 19(chair))
- Consider performance of current board
- Consider balance of the current board
Consider diversity of board - Prepare roles and responsibilities for vacancies
- Prepare recommendations for the board
Succession Planning time horizons?
Succession Planning time horizons..
- Contingency planning – for sudden and unforeseen departures
- Medium-term planning – orderly replacement of current board members and senior executives (e.g., retirement)
- Long-tem planning – relationship between the delivery pf the company strategy and objectives to the skills needed on the board now and in the future
Refreshing board membership / Annual re-election
Refreshing board membership / Annual re-election…
- Principle K: Consideration should be given to the length of service of the board as a whole and membership regularly refreshed
- Refreshment can be used to cover a NED not making an effective contribution, to meet diversity targets, to bring in a new director with critical skills
- Provision 18: All directors should be subject to annual re-election
- Biographical details required to support resolutions to re-elect with reasons why contribution is and continues to be important for long-term success of company
- Listing Rules: annual remuneration report to include a statement of unexpired portion of any service contract of a director being elected or re-elected
Board effectiveness factors?
Board effectiveness factors….
- Regular meetings and decision-making processes being well-informed and high-quality
- Dynamics at board meetings – executive directors should not see themselves only as members of the CEO’s team
- Roles of chair, executives, non-executives and company secretary at meetings
- Characteristics of successful meetings
- Supply of information – accurate, timely and clear
- Board packs – 4 stages of development: identify information the board needs; commissioning of board papers; writing board papers; collating and distributing the board pack
- Use of board portals, electronic board papers and virtual meetings and of social media
- Corporate culture and business ethics
- Performance evaluation – board, committees and individual directors; external facilitation
Induction?
Induction…
- Aim of induction – build an understanding of the company and the main relationships, build a link with the company’s people, ensure an understanding of the role of a director and the framework in which the board operates
- Programme should be tailored to the needs of specific director
- Time taken to complete will depend but may take 12 months in order to cover a full board cycle
Programme for Induction of Directors?
Programme for Induction of Directors…
- Role of the board
- Role of Directors
- Statutory duties (Listing Rules/DTR/MAR, D & O insurance)
- Board and committees
- Board meetings
- Board behaviours
- Rules, Regulations and guidance
- Current Issues
- Nature of the company
- Company’s people
- Main relationships, including shareholders and stakeholders
- Useful documents/Information
UK CG Code - Performance Evaluation?
UK CG Code - Performance Evaluation….
Principle L: Annual evaluation of the board should consider its composition, diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively
Provision 21: There should be a formal and rigorous annual evaluation of the performance of the board, its committees, the chair and individual directors. The chair should consider having a regular externally facilitated board evaluation. In FTSE 350 companies this should happen at least every three years. The external evaluator should be identified in the annual report and a statement made about any other connection it has with the company or individual directors.
Provision 22: The chair should act on the results of the evaluation by recognising the strengths and addressing any weaknesses of the board. Each director should engage with the process and take appropriate action when development needs have been identified.
UK CG Code - Performance Evaluation (continued..)
UK CG Code - Performance Evaluation (continued..)
Provision 23: Requires the nomination committee report to include
- How the board evaluation was conducted
- The nature and extent of an external evaluator’s
contact with the board and individual directors - The outcomes and actions taken
How the evaluation has or will influence board composition
