KCB revision - SLIDE DECK 7 - Board effectiveness

Question 1

What are the 5 areas listed under Guidance on Board Effectiveness?

Answer 1

The FRC Guidance on Board Effectiveness lists the following 5 areas:

Board leadership and company purpose
Division of responsibilities
Composition, succession and evaluation
Audit, risk and internal control
Remuneration

Question 2

According to the guidance, how can boards make effective decisions?

Answer 2

Para 29, FRC Guidance on Board Effectiveness states

Most complex decisions depend on judgement, but the decisions of well-intentioned and experienced leaders can, in certain circumstances, be distorted. Factors known to distort judgement are conflicts of interest, emotional attachments, unconscious bias and inappropriate reliance on previous experience and decisions.’

Question 3

List factors which may LIMIT successful decision making in boards

Answer 3

Para 29, FRC Guidance on Board Effectiveness states factors which may limit successful decision making. these include….

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’

Excess or insufficient focus on 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

a lack of openness by management, a reluctance to involve non-executive directors

Complacent or intransigent attitudes

Inability to challenge effectively

Inadequate information or analysis and poor quality papers

lack of time for debate and truncated debate

undue focus on short-term time horizons

insufficient notice

Question 4

What can the role of the chair do to contribute to good board room dynamics?

Answer 4

CHAIR
Maintains control of proceedings (Does not dominate)
Facilitates decision-making
Stimulates debate, encourages all to contribute
Encourages constructive discussions
Promotes airing and resolution of disagreements
Steers towards consensus
Ensures that decisions are understood and recorded
Creates a positive environment
Sets an example with respect to conflicts of interest

Question 5

What can the role of the NED do to contribute to good board room dynamics?

Answer 5

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
Evidences Independent enquiry
Shares information
Provides checks and balance
Gives access to networks

Question 6

What can the role of the Company Secretary do to contribute to good board room dynamics?

Answer 6

CO 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

Question 6

What does the CGI Guidance on Effective Board Reporting 2018 provide in the Co Sec role for good boardroom dynamics?

Answer 6

The company secretary’s role in this process is critical and will include:

1. 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
2. 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.
3. Co-ordinating the preparation of the board pack
4. Supporting those writing and presenting board papers
5. Acting as the ‘guardian’ of the house style and format for writing board papers
6. Co-ordinating the collation, storage and distribution of the board pack
7. Reviewing with the chair and other board members whether the board papers met their needs

Question 7

Principle F of the code states “The chair leads the board and is responsible for its overall effectiveness in directing the company. They should demonstrate objective judgement throughout their tenure and promote a culture
of openness and debate. In addition, the chair facilitates constructive board relations and the
effective contribution of all non-executive directors, and ensures that directors receive accurate,
timely and clear information.”

What other roles play a part in facilitating timely and clear information?

Answer 7

According to the FRC Guidance on Board Effectiveness

The CHIEF EXECUTIVE is responsible for ensuring that management fulfils its obligation to provide the board with accurate, timely and clear information (para. 73)

NON - EXECUTIVE DIRECTORS should insist on receiving high-quality information and should seek clarification or amplification from management where they consider the information provided is inadequate or lacks clarity (para. 77)

Under the direction of the chair, the COMPANY SECRETARY’S responsibilities include ensuring good information flows within the board and its committees and between senior management and non-executive directors (para. 81)

Question 8

List some benefits of boards using board portals such as Diligent boards and BoardEffect.

Answer 8

Some benefits of using board portals are:

They are a secure tools to facilitate the distribution and use of electronic agenda papers and board packs for board and committee meetings;

archiving facilities enable directors to refer back to the papers and minutes prepared for previous meetings;

secure tools which enable directors to annotate and 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, and

messaging features

Question 9

Define business ethics

Answer 9

The Institute of Business Ethcs defines business ethics as “The application of ethical values to business behaviour”.

Question 10

A company generally sets of their business ethics by publishing their code of ethics,. What kind of information might you find in a code of ethics?

Answer 10

A code of ethics would usually contain the following:

1. Company values
2. Company ethical principles

3.Company ethical standards towards:
employees;
customers;
suppliers and other business partners;
government; and
community, society and the environment.

4. Implementation of the code:
   statement of responsibility for complying with the code;
   means to obtain advice; and
   training.

Question 11

How would a company implement a code of ethics?

Answer 11

1. AGREE what the company’s VALUE’S are and considering how the company’s purpose and strategy are aligned with those values
2. Develop and adopt a company CODE OF ETHICS which sets out the company’s values and expectations as to behaviours
3. 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
4. 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
5. INTEGRATE the values into all of the functions and operations of the company
6. Ensure that the company’s employee PERFORMANCE MANAGEMENT AND REQWARD SYSTEMS ENCOURAGE BEHAVIOURS that are consistent with the company’s culture and values
7. Ensure that there is a CULTURE OF OPENNESS AND ACCOUNTABILITY, so that employees feel able to raise concerns about behaviour, INC. via an effective WHISTLEBLOWING policy and procedures
8. 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

Question 12

How can the board measure ethics and culture?

Answer 12

1. Using staff surveys to check employees’ views about the company’s culture
2. 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
3. Having culture and values as standing items for the Board meetings
4. Receiving a report of customer complaints
5. Receiving reports and feedback about the company’s whistleblowing policies and procedures, how effective they are and issues raised via any whistleblowing helpline.
6. 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.

Question 13

How can the Company Secretary assist the board in establishing and maintaining an ethical culture?

Answer 13

1. Suggesting that discussions about corporate culture are on the board’s agenda
2. Suggesting that culture indicators are selected based on the expectations of the organisation’s key stakeholders
3. 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;
4. 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

5.assisting in developing the reporting to stakeholders on the organisation’s culture

Question 14

Define Corporate Culture?

Answer 14

A company’s culture means its behaviours and the way it conducts its business and espouses its values.

Question 15

Why is having a good corporate culture important and what dies the UK CG Code provide around this topic?

Answer 15

A healthy corporate culture is a valuable asset, a source of competitive advantage and vital to the creation and protection of long-term value.

The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.
Principle B, UKCG code

Question 16

How should a board set a company culture?

Answer 16

SAME AS IMPLEMENT CODE OF ETHCIS….

1. Agree what the company’s values are and considering how the company’s purpose and strategy are aligned with those values
2. Develop and adopt a company Code of Ethics which sets out the company’s values and expectations as to behaviours
3. 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
4. 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
5. Integrate the values into all of the functions and operations of the company
6. Ensure that the company’s employee performance management and reward systems encourage behaviours that are consistent with the company’s culture and values
7. 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
8. 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

Question 17

How should a board measure culture?

Answer 17

SAME AS CODE OF ETHICS….

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.

Question 18

Can the board or a NED seek independent professional advice?

Answer 18

Yes - paragraph 83 FRC Guidance on Board Effectiveness & CGI Model Board Resolution both state they can.

It is the responsibility of the company secretary to ensure that directors, especially non-executive directors, have access to INDEPENDENT PROFESSIONAL ADVICE at the company’s expense where they judge it necessary to discharge their responsibilities as directors of the company

Para 83, FRC Guidance on Board Effectiveness

Directors of the company are given a right to consult the company’s professional advisers and, if necessary, seek INDEPENDENT PROFESSIONAL ADVICE at the company’s expense

This right only applies if it is exercised in the furtherance of their duties as directors of the company

Directors must give prior notice of their intention to seek independent professional advice under this procedure and must provide the name(s) of any professional advisers they propose to instruct together with a brief summary of the subject matter

The company secretary provides a written acknowledgement of receipt of the notification which states whether the fees for the professional advice sought are payable by the company under these procedures

A director must obtain the prior approval where the advisers’ fees are likely to exceed a stated amount.
Any advice obtained under this procedure must be made available to the board, if it so requests.

CGI Model Board Resolution

Question 19

What does provision 21 of the UK CG Code state around board evaluation?

NB - You’ll have access to this but need to know that it exists!

Answer 19

‘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 21, UKCG Code

Question 20

What should be included in board evaluations and where would you find more information in connection with this?

Answer 20

Para 106 - 116 FRC Guidance on Board Effectiveness

the mix of skills, experience and knowledge on the board, in the context of the challenges facing the company;
clarity of, and leadership given to, the purpose, direction and values of the company;
succession and development plans;
how the board works together as a unit, and the tone set by the chair and the CEO;
key board relationships, particularly chair/CEO, chair/senior independent director, chair/company secretary and executive/non-executive directors;
effectiveness of individual directors;
clarity of the senior independent director’s role;
effectiveness of board committees, and how they are connected with the main board;
quality of the general information provided on the company and its performance;
quality of papers and presentations to the board;
quality of discussions around individual proposals;
process the chair uses to ensure sufficient debate for major decisions or contentious issues;
effectiveness of the company secretary/secretariat;
clarity of the decision-making processes and authorities, possibly drawing on key decisions made over the year;
processes for identifying and reviewing risks; and
how the board communicates with, and listens and responds to, shareholders and other stakeholders.

Question 21

What is the chair’s, co secs and NED’s responsibilities in relation to induction and training?

Answer 21

The CHAIR should ensure that:
all directors receive a full, formal and tailored induction on joining the board; and
all directors continually update their skills, knowledge and familiarity with the company to fulfil their role both on the board and committees. (Para 61)

Under the direction of the chair, the COMPANY SECRETARY’S responsibilities include ‘facilitating induction, arranging board training and assisting with professional development as required’. (Para 81)

NON-EXECUTIVE DIRECTORS should, on appointment, devote time to a comprehensive, formal and tailored induction that should extend beyond the boardroom. Initiatives such as partnering a non-executive director with an executive board member may speed up the process of them acquiring an understanding of the main areas of business activity, especially areas involving significant risk. They should expect to visit operations and talk with managers and non-managerial members of the workforce. A non-executive director should use these conversations to better understand the culture of the organisation and the way things are done in practice, and to gain insight into the experience and concerns of the workforce.’ (Para 75)

FRC Guidance on Board Effectiveness

Question 22

What should a new directors induction program include?

Answer 22

What it should include:

Explanation of the role of a director and the legal framework

Key company documents

Board and senior management of the company

Board meetings and procedures

Company policies and procedures

Presentation from senior managers

Business information

Shareholders

Site visits

Question 23

What does the ICSA / CGI note on ‘Induction of Directors - May 2015’ state a co sec should take into account when designing an induction programme?

Answer 23

The company secretary should:

consult the new director before devising the induction programme;

prioritise and schedule various elements of the programme over a reasonable period to avoid overloading the new director;

vary the delivery of information, and limit the amount of data presented just as reading material;

organise site visits and make use of meetings with executives, advisers and stakeholders to cover off certain elements, and consider using external training courses;

plan the induction programme with reference to the directors’ training and development programme, as one should transition smoothly into the other; and

review the induction programme with the director mid-way through, and at the end of, the process.