P2 - 12. Oversight by regulators

Question 1

What is the recommendation of the Governance code in relation to FTSE350 companies and board evaluations?

Answer 1

They should undertake an independent board evaluation exercise at least once every three years complemented by formal and rigorous annual evaluation

of the performance of the board, its committees and individual directors (Governance Code principle L, provision 21).

Question 2

What are the two distinct areas board evaluations often comprise?

Answer 2

The structure of the board in terms of composition and procedures

The behaviour and activities of the directors individually and collectively.

Individual evaluation should demonstrate whether each director continues to contribute effectively

Question 3

What is the fundamental key to an evaluation exercise?

Answer 3

For the board to understand what the purpose of the evaluation is expected to achieve.

Question 4

Benefits of an external evaluator?

Answer 4

Useful insight and comparison to how other boards operate

Insight into how other boards have dealt with similar issues.

Question 5

What are the four main reasons cited for undertaking board evaluations?

Answer 5

1. to address a specific need identified by the board;
2. a requirement to benchmark board performance externally;
3. to ensure the board is as effective as it can be; and
4. directors observing the benefits flowing from previous board evaluations.

Question 6

How often should listed companies undertake a board evaluation?

Answer 6

i) Internally every year

ii) Externally facilitated At least every three years – FTSE 350 companies

Question 7

Must every director be evaluated every year?

Answer 7

UK Corporate Governance Code provision 21 provides that for listed companies there should be a formal and rigorous annual evaluation of the performance of the board, its committees, the chair and individual directors.

Question 8

Should evaluations follow the same format and cover the same topics each year?

Answer 8

No

Question 9

What are the two main options available to members under the Act to take action against directors?

Answer 9

Actions for unfair prejudice or derivative action claim

Question 10

Of whose interests should directors be most mindful?

Answer 10

The members

Question 11

In general how is the power of entry and search granted and who to?

Answer 11

By the courts/magistrates to a police constable

Question 12

Can a HMRC inspector with the power of arrest make an arrest for any criminal offence?

Answer 12

No, their power is limited to HMRC offences

Question 13

What are the broad categories stakeholders can usually be divided into?

Answer 13

• members;
• directors;
• creditors;
• suppliers;
• local community;
• employees (present and former);
• the environment; and
• the government.

Question 14

What are the six Wates principles?

Answer 14

1. Purpose
2. Composition
3. Responsibilities
4. Opportunity and risk
5. Remuneration
6. Stakeholders

Question 15

The largest companies are required to make a new corporate governance statement that includes what?

Answer 15

1. The directors’ report must include a statement (a ‘statement of corporate governance arrangements’) which states:
   (a) which corporate governance code, if any, the company applied in the financial year;
   (b) how the company applied any corporate governance code reported under sub-paragraph (a); and
   (c) if the company departed from any corporate governance code reported under sub-paragraph (a), the respects in which it did so, and its reasons for so departing.
2. If the company has not applied any corporate governance code for the financial year, the statement of corporate governance arrangements must explain the reasons for that decision and explain what arrangements for corporate governance were applied for that year.