Past Exam Questions - Board Effectiveness Flashcards
NOVEMBER 20021 - MY ANSWER
Marathon Gyms Limited (Marathon) is a private, unlisted company which operates around 30 gyms in the UK. It has a small team of staff at its head office and the rest of its staff are based in the individual gyms.
The shareholders of Marathon are the family who started the business. The Board of Marathon consists of four directors: a non-executive Chair, a non-executive director, a Managing Director and a Finance Director. There is also an Executive Committee of senior managers below the Board but there are no Board committees.
The Marathon business is struggling financially. The eight gyms that are on smaller sites with fewer facilities have not been doing well, and five of these have been loss making over the last year. The Executive Committee at Marathon has recently been carrying out a strategic review of its operations and has concluded that the company should focus on its larger gyms. The Executive Committee is therefore proposing that Marathon should close all eight of its smaller gyms. This would involve making the 40 staff at those eight gyms redundant and some of the towns where the gyms are based would lose their only local gym facility. The Executive Committee is preparing a report to seek Board approval for the new strategy, including the gym closures, at the next Board meeting.
In order to broaden its skill set, the Board has recently agreed to appoint two new directors, Paul Dyas and Susie Shapiro, who will be joining in a few months’ time.
Paul is to be the executive Sales Director. He has had a lot of experience as a director of other companies, particularly in the travel business, but has not been involved in a gym business before.
Susie will be appointed as a new non-executive director and is well-known in the gym business as asocial media influencer but has not been a director of a company before.
You are the Company Secretary of Marathon.
(b) Discuss how you would prepare induction programmes for the two new directors of Marathon when they join the Board, including the aims of the induction, the factors you would take into account and examples of key elements that you would include.
(14 marks)
REVIEW - DIDN’T COVER ALL AREAS OF THE QUESTION!!!
Should have been set out as:
AIMS
Factors you’d take into consideration
Key elements
Paragraph 61 of the FRC Guidance on board effectiveness states that it is the chairs responsibility to ensure that all directors are aware of their responsibilities. This includes providing guidance and mentoring to new directors as
appropriate. The induction process and professional development of new Directors would normally be delegated or carried out by the company secretary delegated by the chair.
As Paul will be a board executive director and has experience as a director before and Susie will be a new NED, it is important that the co. Sec/ meets with them both to create a full, formal and tailored induction on for their board responsibilities.
For Paul, as he has been a executive director before, this may include:
A re-familiarisation of the legislation and codes / guidance that will be applicable. In this instance, as Marathon are a LTD, this would be the Wates Principals for large private companies.
Directors duties and reporting requirements under CA2006,
An explanation of the roles and responsibilities of each of the board members and any committees which may exist including any TOR
A discussion around skills experience and updating the skills matrix of the board
Any relevant board processes or procedures he may required such as matters reserved for the board, delegated authority and Articles of association
Information and demonstration around board portals - expectations of what the deadlines etc from executive committee around board papers / submissions.
The co. Sec. should ensure a plan is timetabled relevant to experience and that Paul has already been a board member therefore may already be familiar with some of these aspects such as board portals etc.
The Co. Sec should also arrange for Paul to meet major shareholders, other members of the executive committee and all other board members inc. spending time with the chair.
A copy of the annual reports and any other non financial reports should be provided for information as well as copies of previous board meetings and any forthcoming agenda. The board date should be provided.
For Susie, the information above would all be relevant however as Susie has not been a NED before, the co. sec should ensure that the induction is planned and tailored accordingly so not to over load Susie’s initially.
Susie would also benefit from meeting employee and key stakeholders as she may not have the same day to day dealings with them that perhaps Paul would have.
Para 41 in the FRC guidance on Board Effective states The company’s
approach to stakeholder engagement will be an important topic in
the induction programme for new directors. Therefore it is important that the co. Sec. ensures that Susie meets, union reps, employee suppliers, community councils etc as she may not have the same day to day dealings with them that perhaps Paul would have. This will assist Susie in challenging the senior mgt and exec. committee and help her fulfil her duties in s172 of the CA2006.
As well as tailoring the induction to each board member, the induction design should form part of the overall annual evaluation of the board and feedback should be sought from those involved around how this went and could be improved in the future.
NOVEMBER 20021 - MARKERS ANSWER
Marathon Gyms Limited (Marathon) is a private, unlisted company which operates around 30 gyms in the UK. It has a small team of staff at its head office and the rest of its staff are based in the individual gyms.
The shareholders of Marathon are the family who started the business. The Board of Marathon consists of four directors: a non-executive Chair, a non-executive director, a Managing Director and a Finance Director. There is also an Executive Committee of senior managers below the Board but there are no Board committees.
The Marathon business is struggling financially. The eight gyms that are on smaller sites with fewer facilities have not been doing well, and five of these have been loss making over the last year. The Executive Committee at Marathon has recently been carrying out a strategic review of its operations and has concluded that the company should focus on its larger gyms. The Executive Committee is therefore proposing that Marathon should close all eight of its smaller gyms. This would involve making the 40 staff at those eight gyms redundant and some of the towns where the gyms are based would lose their only local gym facility. The Executive Committee is preparing a report to seek Board approval for the new strategy, including the gym closures, at the next Board meeting.
In order to broaden its skill set, the Board has recently agreed to appoint two new directors, Paul Dyas and Susie Shapiro, who will be joining in a few months’ time. Paul is to be the executive Sales Director. He has had a lot of experience as a director of other companies, particularly in the travel business, but has not been involved in a gym business before. Susie will be appointed as a new non-executive director and is well-known in the gym business as asocial media influencer but has not been a director of a company before.
You are the Company Secretary of Marathon.
(b) Discuss how you would prepare induction programmes for the two new directors of Marathon when they join the Board, including the aims of the induction, the factors you would take into account and examples of key elements that you would include.
(14 marks)
Answers should demonstrate a good understanding of the nature of an induction programme for a director in practice, including how an induction programme should be tailored to the particular circmstances and the new director’s needs, taking into account the facts in the scenario, and should include valid examples of the key elements of an induction programme.
Answers could include the following content
Aims of an induction programme
A Company Secretary needs to ensure that the new directors receive an effective induction programme when they join the board. The aim of an induction programme is to ensure that anew director can become an effective director as quickly as possible. An important source of guidance for a Company Secretary about induction programmes for new directors is the ICSA guidance on induction of directors, which includes best practice points about designing an induction programme and a checklist of topics and materials that may need to be included. The guidance emphasises that the induction programme needs to be tailored to the particular company and the particular individual. The guidance says that the aims of the induction process should be to enable the director to understand the company’s business, people and relationships and to understand the director’s role and board
governance arrangements.
Factors to be taken into account
The factors that should be taken into account when designing an induction programme in this case, based on the facts in the scenario, include:
- The nature of the Marathon business – The business is a gym business. We are
told that the new executive director, Paul, does not have any experience in the gym
business and so his induction will need to focus on what is needed to ensure that he
understands all aspects of the gym business, in particular those that relate to his
sales role. Susie, the new non-executive director, does know about the gym business
and so will need less of an induction in that respect. - Financial position and new strategy – It will be important for both of the new
directors to be fully briefed on Marathon’s financial position and its new strategy of
focusing on its larger gyms, including the gym closures and acquisition, which will
have been approved by the Board (assuming the Executive Committee proposals are
accepted) but probably not fully implemented before they join. - Business locations – There is a head office which is clearly a location that needs to
be included in the induction programme for the new directors. There are 30 gyms and
so it is not feasible for the new directors to see all of them as part of their induction,
but there should be a tour of at least a couple of sample gym locations as part of the
induction site visits. - Private company – Marathon is a private company, and so the induction programme
does not need to cover all of the items that would be covered in a listed company
programme, such as Listing Rule requirements and Board Committees, but should be
tailored to the governance arrangements that Marathon has and should also cover its
family shareholding structure. - Executive versus non-executive directors – The induction programme for the new
executive director, Paul, will need to be different to that for the new non-executive
director, Susie. As he will be an executive director, Paul will need to have an
induction which covers all of the points that an induction for a new employee would
cover (for example in terms of company policies and procedures) and he will need to
have an in-depth induction in relation to all aspects of the business.
As a nonexecutive director, Susie will not need such an intensive business induction and will not need to cover the same policies and procedures as Paul. Her induction will need to cover all aspects of the Board procedures from a non-executive director point of view.
- Previous experience of directors – We are told that Paul has had a lot of previous
experience as a director and so he should already have a good knowledge about the
role of a director and a director’s responsibilities. Susie on the other hand has not
been a director before and so the Company Secretary should ensure that particular
attention is paid to ensuring that Susie is fully briefed on the role and responsibilities
of a director and on Board processes and procedures.
Examples of the key elements to include in the induction programmes
Examples of the key elements of an induction programme include the following (full credit should be given for including 3 or 4 of these examples or other valid suggestions, which could be set out separately or integrated into the answer about the factors to take into
account):
* Explanation of the role of a director and the legal framework. All new directors
should be briefed on their roles and responsibilities, even if they have been directors
before. So this includes Paul, but, as mentioned above, there should be a particular
focus on briefing Susie as this is her first director role.
* Key company documents. This includes, for example, providing copies of the last
annual accounts, the latest management accounts and budget and the articles of
association.
* Board and senior management of the company. This would include information
about the other directors on the board and the Executive Committee members,
including their roles, skills and experience.
* Board meetings and procedures. This would include the schedule for Board
meetings, Board procedures, how Board papers are distributed, copies of minutes
from recent Board meetings, and governance issues such as the schedule of matters
reserved to the Board and Board role descriptions.
* Company policies and procedures. All relevant policies and procedures, for
example as regards confidential information, data protection, expenses,
whistleblowing and any code of ethics. As mentioned above, Paul will need to have
information about all policies and procedures relevant to employees whereas the
policies and procedures applicable for Susie will be less extensive.
* Presentation from senior managers. There could be a presentation by key
members of the senior management team to brief the new directors on the company’s
business, finances and strategy.
* Business information. This could include, for example, details of the company’s
history, HR chart, business plan, suppliers and competitors, and the regulatory
framework in which it operates.
* Shareholders. The directors will need to be briefed on the family shareholding
structure and should meet with the key family shareholders.
* Site visits. As mentioned above, there should be site visits to the head office and to
a sample of gym locations. These should also include an opportunity for the new
directors to meet more junior members of the workforce.
JUNE 2021 - MY ANSWER
Explain the purpose and benefits of a company’s Code of Ethics.
(5 marks)
The purpose of a companies code of ethics is to set out how the company will behave and set expectations of others in order to achieve the mission, vision, values and strategy. The document is normally published in a code to all employees, with some annual refresh training requirements and is also shared with key stakeholders such as customers and supplier.
The benefits of having a code of ethics are:
Clear precise ethics and behaviours for employees to adhere to
Clear precise ethics and behaviours for the board to set the tone and culture of the company
Expectations set for suppliers and other stakeholders so they can choose to deal (or not deal) with the company
May be used in company presentations / easier to gain capital / attractive for an information investor Can be helpful in developing whistleblowing policies and procedures as the code of ethics display standard of what is expected
JUNE 2021 - MARKERS ANSWER
Explain the purpose and benefits of a company’s Code of Ethics.
(5 marks)
Purpose of a Code of Ethics:
- A company’s Code of Ethics (Code) is a document or policy setting out the company’s ethical values and standards. Its purpose is to set out the standards of ethical behaviour that the company expects of its Board and workforce. (1)
Award up to 4 marks from the following:
Benefits of a Code of Ethics:
- It ensures that the company’s values are agreed by the Board. (1)
- It allows the company’s values to be communicated to all of the workforce. (1)
- It informs the expected behaviours in the company, so that these can be reflected in the company’s policies and practices and embedded in the company’s operations. (1)
- A company can, in its design of staff salaries and benefits, reward workforce behaviour that is in line with the values set out in the Code.(1)
- A Code can allow staff to speak out against behaviour which is out of line with the Code. (1)
- In the case of a company that complies with the UK Corporate Governance Code, a Code can be a means of complying with the Code Principles (B and E) which state that the Board should establish
the company’s values and ensure that its workforce policies and practices are consistent with the company’s values. (1) - In the case of a company that complies with the Wates Corporate Governance Principles, a Code can be a means of complying with Principle 1, that the company’s purpose and values should inform
expected behaviours and practices throughout the company. (1)
Reward other valid responses.
JUNE 2022 - MY ANSWER
- Ravi Khan is the Chair and Chief Executive of Starlight Connections Limited (Starlight), a social
media consultancy which provides companies with advice and training on their social media
strategy. Starlight is a private company which started business three years ago. Starlight has been
very successful, and its business has been growing rapidly. The company now has about 50
employees. There are a small number of staff who work in the head office, with the remainder of
the employees spending most of their time working from home.
Jason Baring is Starlight’s Company Secretary. Ravi has recently been talking to Jason about
improving the governance of Starlight to reflect the growth of the business. Jason has suggested
that Starlight should take into account best practice, including the Wates Corporate Governance
Principles for Large Private Companies (Wates Principles). The Board of Starlight currently
consists of three people: Ravi, an executive Finance Director and one non-executive director. Ravi
has told Jason that, in order to improve the Board structure and governance of Starlight, he would
like the following changes to be made:
* appointing three new directors to the Board: an executive Commercial Director and two more
non-executive directors, with one of the new non-executive directors becoming Chair of the
Board (and Ravi remaining as Chief Executive);
* creating a Board audit committee and remuneration committee, with the members being the
three non-executive directors and, for the remuneration committee, the HR manager who is
not on the Board;
* having a formal delegation of authority by the Board to Ravi, as Chief Executive, and giving
the company’s management team authority to manage the day-to-day business of the
company without having to refer back to Ravi or to the Board.
Jason has told Ravi that he needs to check the provisions in the company’s articles of association
before these Board and committee changes can be made.
Starlight recently conducted a staff survey, allowing staff to give anonymous feedback. The
responses to the survey indicated that the staff think that the company’s culture and values need to
be improved and be clearer. A significant number of the staff who work from home said that the
company’s management had not been taking their views into account when making decisions.
Also, some of the junior employees complained that the directors and senior managers were rude
and aggressive during staff meetings. In response to the staff survey, Ravi has asked Jason to
propose steps for the Board to take to improve Starlight’s culture and values, taking into account
best practice, including the Wates Principles.
Prepare briefing notes from Jason to Ravi:
Analysing what is meant by a company’s culture and what steps the Board could take to
improve Starlight’s culture and values.
(12 marks)
directors and senior managers were rude and aggressive during staff meetings
what steps the Board could take to improve Starlight’s culture and values best practice,
Briefing note
From: Jason Baring - Co. Sec. Starlight
To: Ravi Khan - CEO Starlight
IMPROVEMENTS TO CULTURE & VALUES
Company Culture Best Practice
A company’s culture are the behaviours and values displayed by all in the course of achieving the company’s strategy and purpose. It is a combination of the values, attitudes and behaviours displayed by a company.
It’s important that the board sets the correct tone from the top to establish the culture and employees know the values of the company.
It is only by knowing, displaying and implementing these values through the course of their work will a culture be brought to life rather than being a policy or procedural document.
The Wates Principals under the header “Values and Cultures “advise “A company’s purpose and values should inform expected behaviours and practices throughout the organisation. The values should be
explained and integrated into the different functions and operations of the business. This may include internal assurance, employment practices, risk management and compliance functions. “
There are many benefits and advantages of ensuring the correct culture is established at Starlight, which I have summarised below.
Having the correct culture is beneficial as:
As a growing company, it will help us attract and retain talented employees
A good culture is important for reputational management - perhaps particularly more relevant in our line of work with numerous some employee review sites such as glassdoor etc
A good culture is important for stakeholders such as outside investors and suppliers
Improvements to be considered
As the company’s culture and values can up as an area in the recent ESS, I would recommend that we put this as an agenda item for the next board meeting.
We need to review the current values and ensure they are aligned and fit for purpose in acheveing our strategy and purpose.
As a growing company, it may have been some time since we last did this.
With additional new members of the board, it would be beneficial to have their input in this area.
Once the values have been updated or agreed, we should embark on a relaunch of the values, setting out the culture, our expectations and clear communications. This should also be shared externally with our stakeholders and we should consider sharing these on out website.
We should continue to monitor and engage with the workforce in connection to the culture and out progress made. This may be through employee surveys, engagement with trade unions, absenteeism rates, exit interviews and board feedback sessions.
Not been taking their views into account when making decisions
As part of the director duties (s171-177 of the CA2006), the board have a duty to promote the long terms success of the company. Part B of s172 advises “A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company
for the benefit of its members as a whole, and in doing so have
(b) the interests of the company’s employees;
Therefore it is not only creating the correct culture, but part of the statutory duties as a director to ensure that employees view are considered and there is a vehicle for obtaining these views.
Additional the Wates principals advise “Effective boards are able to demonstrate how the sharing of this purpose has informed the decision-making process to achieve long-term sustainable success.
Directors and senior managers were rude and aggressive during staff meetings
As the culture is combination of many areas including behaviour and attitude, performance should be evaluated on not only the delivery of targets but other matrix. Our culture, values and implementation of these perhaps should be considered to be linked to the code of ethics which should be communicated and agreed by all.
JUNE 2022 - MARKERS ANSWER
- Ravi Khan is the Chair and Chief Executive of Starlight Connections Limited (Starlight), a social
media consultancy which provides companies with advice and training on their social media
strategy. Starlight is a private company which started business three years ago. Starlight has been
very successful, and its business has been growing rapidly. The company now has about 50
employees. There are a small number of staff who work in the head office, with the remainder of
the employees spending most of their time working from home.
Jason Baring is Starlight’s Company Secretary. Ravi has recently been talking to Jason about
improving the governance of Starlight to reflect the growth of the business. Jason has suggested
that Starlight should take into account best practice, including the Wates Corporate Governance
Principles for Large Private Companies (Wates Principles). The Board of Starlight currently
consists of three people: Ravi, an executive Finance Director and one non-executive director. Ravi
has told Jason that, in order to improve the Board structure and governance of Starlight, he would
like the following changes to be made:
* appointing three new directors to the Board: an executive Commercial Director and two more
non-executive directors, with one of the new non-executive directors becoming Chair of the
Board (and Ravi remaining as Chief Executive);
* creating a Board audit committee and remuneration committee, with the members being the
three non-executive directors and, for the remuneration committee, the HR manager who is
not on the Board;
* having a formal delegation of authority by the Board to Ravi, as Chief Executive, and giving
the company’s management team authority to manage the day-to-day business of the
company without having to refer back to Ravi or to the Board.
Jason has told Ravi that he needs to check the provisions in the company’s articles of association
before these Board and committee changes can be made.
Starlight recently conducted a staff survey, allowing staff to give anonymous feedback. The
responses to the survey indicated that the staff think that the company’s culture and values need to
be improved and be clearer. A significant number of the staff who work from home said that the
company’s management had not been taking their views into account when making decisions.
Also, some of the junior employees complained that the directors and senior managers were rude
and aggressive during staff meetings. In response to the staff survey, Ravi has asked Jason to
propose steps for the Board to take to improve Starlight’s culture and values, taking into account
best practice, including the Wates Principles.
Prepare briefing notes from Jason to Ravi:
Analysing what is meant by a company’s culture and what steps the Board could take to
improve Starlight’s culture and values.
(12 marks)
