Board Effectiveness

Question 1

FRC Guidance on Board Effectiveness

Answer 1

• board leadership and company purpose
• division of responsibilities
• composition, succession and evaluation
• audit, risk and internal control
• remuneration

Question 2

Factors that can limit effective decision making (learn 5)

Answer 2

• 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
• failure to listen to and act upon concerns raised
• insufficient knowledge and ability to test underlying assumptions
• lack of openness by management, a reluctance to involve NEDs
• complacent attitude
• inability to challenge effectively
• inadequate information or analysis and poor quality papers
• lack of time for debate
• undue focus on short-term horizons
• insufficient notice

Question 3

Role of Chair in Board dynamics

Answer 3

1. Maintains control of proceedings (does not dominate)
2. Facilitates decision making
3. Stimulates debate, encourages all to contribute
4. Encourages constructive discussions
5. Promotes airing and resolution of disagreements
6. Steers towards consensus
7. Ensures that decisions are understood and recorded
8. Creates a positive environment
9. Sets an example with respect to conflicts of interest

Question 4

Role of NED in boardroom dynamics (learn 5)

Answer 4

1. Attends regularly, and prepares so as to be an effective decision-maker
2. Acts objectively, and is open to other perspectives
3. Does not dominate discussion
4. Recognises collective decisions
5. Fosters constructive challenge
6. Evidences independent enquiry
7. Shares information
8. Provides checks and balance
9. Gives access to networks

Question 5

Role of company secretary in boardroom dynamics (learn all)

Answer 5

1. Registers attendance
2. Determines quorum
3. Maintains a record of the proceedings in order to produce the minutes and an action log
4. Advises the chair on procedural matters
5. Monitors climate of meeting
6. Advises on governance issues

Question 6

CGI guidance on effective board reporting 2018

Answer 6

The company secretary role includes:
- facilitating discussion between board and management on future priorities, the type and format of information the board requires and also for coordinating the planning process
- planning a schedule of board meetings, maintaining a provisional agenda for the meetings and ensuring that those submitting papers are kept informed of timetable
- coordinating the preparation of the board pack
- supporting those writing and presenting board papers
- acting as ‘guardian’ of the house style and format for writing board papers
- coordinating the collation, storage and distribution of the board pack
- reviewing with the chair and other board members whether the board papers met their needs

Question 7

Board information

Answer 7

Principle F, UKCGC - ‘The chair….ensures that directors receive accurate, timely and clear information’. (This is also often delegated to the cosec)

FRC Guidance on Board Effectiveness:
- para 73 - the chief executive is responsible for ensuring that management fulfils it’s obligation to provide the board with accurate, timely and clear information
- para 77 - NEDs 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 81 - under the direction of the chair, the company secretary’s responsibilities include ensuring good information flows within the board and it’s committees and between senior management and NEDs.

Question 8

Board portals

Answer 8

Board portals such as Diligent Boards and BoardEffect facilitate secure digital communication between board members and typically provide:
- secure tools to facilitate the distribution and use of electronic agenda papers and board packs for board and committee meetings
- archiving facilities that enable directors to refer back to the papers and minutes 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
- messaging features

Question 9

Corporate Culture

Answer 9

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

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

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

Question 10

How to set/implement a company culture/Code of ethics

Answer 10

1. Agree what the company values are and considering how the company’s purpose and strategy are aligned to 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 management
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 11

Measuring culture

Answer 11

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 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. E.g. site visits

Question 12

Role of cosec in culture/business ethics

Answer 12

1. Suggesting that discussions about corporate culture are on the boards agenda
2. Suggesting that culture indicators are selected based on the expectations of the organisations key stakeholders
3. Developing a dashboard for the culture indicators that should be reviewed from time to time by the board
4. Ensuring that information is drawn from a variety of sources to support and monitor perceptions of performance for the selected indicators
5. Organising site visits so that board members can get out and about and meet employees to assess for themselves the culture embedded within the organisation
6. Assisting in developing the reporting to stakeholders on the organisation’s culture.

Question 13

Business Ethics

Answer 13

WHAT
The application of ethical values to business behaviour.

A Code of Ethics would usually contain:
1. The company’s values
2. The company’s ethical principles
3. The company’s 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 14

Independent professional advice

Answer 14

It is the responsibility of the cosec to ensure that directors, especially NEDs, 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.

Directors of the company are given the right to consult the company’s professional adviser and, if necessary seek independent professional advice at the company’s expense. This right only applies if it is exercised in furtherance of their duties as directors.

Directors must give prior notice of their intention to seek independent professional advice and give the name of any advisers they propose to instruct together with a brief summary of the subject matter. Any advice obtained must be made available to the board if requested.

Question 15

Performance evaluation

Answer 15

Provision 21, UKCGC- ‘There should be a formal and rigorous annual evaluation of the performance of the board, ots committees, the chair and individual directors. The chair should consider having a regular externally facilitated board evaluation. In FTSE 350 companies this should be at least every 3 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’.

Question 16

What should be evaluated?

Answer 16

• the mix of skills, experience and known the board
• clarity of, and leadership given to, the purpose, direction and values of the company
• succession and development planning
• how the board works together as a unit and the tone set by the chair and the CEO
• key board relationships i.e. Chair-CEO, Chair-SID, Chair-Cosec and Execs-NEDs.
• Effectiveness of individual directors
• clarity of SID role
• Effectiveness of committees
• quality of general information provided
• quality of papers and presentations
• quality of discussions
• process the chair uses to ensure sufficient debate for major decisions
• Effectiveness of cosec
• clarity of decision making processes
• processes for identifying and reviewing risks
• how the board communicates with and listens to shareholders and other stakeholders

Question 17

Induction and professional development

Answer 17

• 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 facility with the company to fulfil their role both on the board and committees.
• under the direction of the chair the company secretary’s responsibilities include ‘facilitating induction, arranging board training and assisting with professional development as required’.
• NEDs should, on appointment, devote time to a comprehensive, formal and tailored induction that should extend beyond the boardroom. Initiatives such as partnering a NED with an Exec 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 NED 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.

Question 18

Induction programmes should include:

Answer 18

1. Explanation of the role of a director and the legal framework
2. Key company documents
3. Board and senior management
4. Board meetings and procedures
5. Company policies and procedures
6. Presentations from senior managers
7. Business information
8. Shareholders
9. Site visits

Question 19

Role of cosec in induction programmes

Answer 19

• consult the new director before devising the induction programmes
• 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 onto the other
• review the induction programme with the director mid-way through, and at the end of, the process.