7 - Board composition and succession planning

Question 1

What is the average number of directors on UK boards (and worldwide boards)

Answer 1

(roughly) 10

Question 2

5 requirements for a balanced board

Answer 2

• CEO/chair separation
• Appropriate balance of execs and independent NEDs
• Appropriate skills, experience, knowledge
• Gender balance
• Diversity

Question 3

Reasons why slightly smaller board (8-10) is preferable to larger board (12-14)

Answer 3

• More effective oversight of management
• More likely to dismiss CEO for poor performance
• More likely to be decisive, cohesive and hands-on

Question 4

What is often used by boards to track skills and competencies of board members?

Answer 4

A skills matrix

Question 5

Key benefit of skills matrix for nomination committee

Answer 5

Aids understanding of which skills proposed appointee should have as:
- Easily identify which skills nobody on board has
- If one board member is soon to step down, can identify which of their skills nobody else has

Question 6

2 reco’s by reviews/reports on diversity

Answer 6

• Hampton-Alexander Review - 33% women on board & exec committees by 2020, increase in the number of women in 3 key roles
• Parker Review - At least one director of colour on FTSE 100 by 2021, FTSE 250 by 2024, HR should identify and present people of colour to be considered

Question 7

2 key advantages to greater board diversity (other than in fairness by reflecting wider demographics)

Answer 7

• Wider range of perspectives and knowledge
• Positive and motivating signal to stakeholders

Question 8

Re. diversity, what are listed co’s required to disclose in nom. committee report?

Answer 8

• Policy on diversity and inclusion, implementation
• Gender balance of those in senior management

Question 9

Quoted co’s must show in their strategic report, a breakdown of the number of persons of each sex who were:

Answer 9

• Directors
• Senior managers
• Employees

Question 10

3 types of disclosures on diversity

Answer 10

• Listed co’s - nom. committee report
• Quoted co’s - strategic report
• CG statement disclosures under DTRs

Question 11

4 diversity disclosures required by DTR 7.2.8A(1)

Answer 11

• Diversity policy to board, management, supervisory re. age, gender, educational backgrounds
• Objectives of policy
• How policy has been implemented
• Results in reporting period

Question 12

How is ‘senior management’ defined in the Code?

Answer 12

The executive committee or the first layer of management below board level, including the CoSec

Question 13

Why are board evaluations useful for successional planning?

Answer 13

• Help identifying whether board appointments are needed if skills are lacking
• Help identify any improvements that can be made compared to previous nominations

Question 14

3 time horizons to be covered by succession plans

Answer 14

• Contingency planning - sudden/unforeseen departures
• Medium-term planning - orderly replacements
• Long-term planning - relating to skills needed on board to deliver strategy and objectives

Question 15

For which role is it most important to do contingency planning for the departure of?

Answer 15

CEO

Question 16

What is often a consequence of sudden departure of NED?

Answer 16

Temporary non-compliance with Code

Question 17

Which 2 documents are key as a starting point for medium-term planning?

Answer 17

• Directors’ succession timetable (retirement dates)
• Skills matrix

Question 18

Why are directors subject to to annual re-election? (3)

Answer 18

• Provides shareholders opportunity to express views on performance
• Gives boards incentive to listen and respond to shareholders concerns
• To avoid need for shareholders to propose own resolution to remove them

Question 19

How does a shareholder typically express disapproval of behaviour of specific director?

Answer 19

Vote against or withhold their vote on reappointment resolution

Question 20

When are rebellions of reappointment resolutions (voting against or withholding) deemed to have been a success? Why?

Answer 20

20%
Requires company to respond to concerns

Question 21

5 factors to consider when deciding on size of board - acronym

Answer 21

BUSAC

Question 22

5 factors to consider when deciding on size of board - BUSAC

Answer 22

• Requirements for a BALANCED board
• Requirements of UK Code (principle K)
• Need to SERVICE committees
• Ability of board to hold productive, constructive discussions leading to prompt rational decisions
• Complexity and size of company

Question 23

5 recommendations of Higgs report on diverse recruitment of NEDs

Answer 23

• Consider candidates from wide range of backgrounds
• Draw more actively from areas where women are better represented
• Consider recruiting from private co’s, charities and public sector
• Recruit talented individuals from diverse backgrounds to boards of subsidiaries to give them exposure on board as stepping-stone to listed parent

Question 24

Due diligence which should be done by NED prior to accepting appointment (6)

Answer 24

• Garner broad understanding of company through annual report and website
• Review recent regulatory and media announcements
• Arranging to meet board (or at least key members)
• Arrange meetings with third parties if taking on role of chair (auditors, remuneration consultant, etc.)
• Talk with stakeholders where possible
• Check scheduled board dates to ensure availability

Question 25

How much of board should be independent?

Answer 25

At least half, EXCLUDING chair