3. Effective Board practices Flashcards
Board evaluation
Purpose: formal rigorous evaluation of performance of Board, Committees and individual directors.
Not statutory, but good practice
Listed companies - annually (review of
FTSE 350 - external evaluation once every three years.
Details of BE in the annual report (issues found, steps taken).
What is reviewed: structure, composition, processes. competence, experience, diversity, independence
- board processes (meeting, papers, agenda items, drafting minutes
Performance of chair is evaluated by NEDs led by SID
Director education and guidance
Directors are encouraged to become NEDs in other companies as part of succession planning. On appointment, NEDs should undergo tailored induction training, items should include: Role of a director; Rules, regulations guidance; Operation of B; Meetings; Procedures; Business background; Third party relationships; Practical issues
CPD
Availability of internal and external support
Best practices, policies and procedures
Matters reserved GC: Responsibilities of the chair, CEO, SID, B and Committees should be clear, set out in writing, agreed by board and made publicly available. it should set out: Authority limits: Code of conduct; Tenure policy; Expenses policy; Independence standards;
Every Committee should have terms of references, containing: membership; quorum; notice of meetings duties reporting responsibilities authority
Other policies:
Share dealing policy
Whistleblowing policy
Risk management policy
What are the benefits of the Board evaluation?
Succession planning
Find gaps in knowledge of the Directors
Diversity
Build confidence of shareholders
Ensure effectiveness / capable of undertaking the role
Compliance with CGC / Listing Rules
Board embodies the desired culture
Transparency / accountability to stakeholders
Identify problems before they are too big
Meeting objectives of strategy
Improve board dynamics / collective performance as a Board
Improve performance of the board
Improve director satisfaction
Identify areas for improvement
What systems should be evaluated?
Financial performance
Internal control
Risk management
Managing related parties
Managing controlling shareholders
Whistleblowing process
Who should oversee the evaluation?
The Chair with support of the CoSec
The Senior Independent Director is responsible for the evaluation of the Chair
Should evaluation be made public?
Listed companies:
In the Annual Report:
Report findings and recommendations of evaluations
Provide details of implementation
In following years, an evaluation of the changes
What should be included in Director Induction programme?
Checklist – Director induction for a listed company (Anagram: RT dB pro)
Running of Business (risk profile, policies, financial/treasury, insurance, litigation)
Third party relationships (investors, s/h, advisers, key customers/ suppliers/ stakeholders)
Director Role (duties, share dealing policies, related parties, advisors, insurance, restrictions)
Background to Business (history, structure, customers, market, annual report)
Practicalities (contacts, support, expenses)
Rules, Regulation, Guidance (unitary board, articles, LR, DTR, SEC/LSE rules, CGC, FRC)
Operation (composition/committees, meetings/minutes, procedures/inside info/evaluation)
Matters reserved for board - what should be included?
Code of Conduct Whistleblowing Authority Risk Tenure Independence Expenses Share dealing Terms of reference
Terms of reference for Committees - what should be included?
Membership Secretary Quorum Frequency Notice Minutes AGM Reporting Authority Duties Benefit of written terms of reference: Clear objectives, authority and parameters for matters delegated to them, useful for evaluating the committees.
