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Corporate Governance > Lesson 5 Board Composition, Succession Planning, Board Effectiveness > Flashcards

Lesson 5 Board Composition, Succession Planning, Board Effectiveness Flashcards

1
Q

Board size

A

The size of the board depends on the SIZE of the COMPANY , COMPLEXITY of the BUSINESS and the INDUSTRY

Unless stated in the company’s ARTICLES , the size shall be determined by the board

Consideration must be given to:
BUSA

1-requirement for a BALANCED BOARD

2- UK CG PROVISION K

3-the need to SERVICE Board Committees

4-the ABILITY of the Board to hold
PRODUCTIVE, CONSTRUCTIVE DISCUSSIONS and make RATIONAL DECISIONS

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2
Q

UK Corp Gov Code Provision K - the Board and its committees should have a combination of skills, experience and knowledge

A

To make POSITIVE CONTRIBUTIONS the following are key

1-the right SKILL SETS and breadth of perspectives are present

2-DIVERSITY in the boardroom can have a positive effect on the quality of decision making by reducing the risk of ‘GROUP THINK’

3-DIVERSITY of PERSONAL ATTRIBUTES attributes is equally important (eg SOFT SKILLS)

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3
Q

Explain a ‘balanced board’

A

A balanced board includes
1- SEPARATE chair and ceo roles
2 - balance of ED, NED and INED
3 - appropriate SKILLS, EXPERIENCE, KNOWLEDGE
4 - GENDER balance
5 - DIVERSITY

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4
Q

Recruiting NEDs from diverse backgrounds

A

The Nomination Committee should recruit from a WIDE RANGE of BACKGROUNDS

And DRAW FROM AREAS where WOMEN ARE STRONGLY REPRESENTED

They should ALSO consider recruiting candidates from PRIVATE COMPANIES and CHARITIES

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5
Q

Diversity and UK corporate governance code

A

Per UK Corporate Governance code, appointments and succession plans should be based on merit AND within this context should PROMOTE DIVERSITY of gender, social, ethnic backgrounds

An evaluation of the board should consider its COMPOSITION, DIVERSITY and HOW EFFECTIVELY members WORK together

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6
Q

Diversity on the board

A

In 2003 Tyson report (Derek Higgs Report) report on recruitment and development of NEDS found that boards were too ‘male, pale and stale’.

Let’s consider recent reports and initiatives which led to updates to FRC guidance and reporting requirements

There have been two waves of initiatives 1- gender and 2- ethnicity

  • Women in Board Review 2011
  • Hampton Alexander Rev. 2016
  • Parker Review Ethnic Div. 2016

Spencer Stuart Report 2023
6% FTSE 100 no ethnic minority

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7
Q

Women in Board Review 2011

A

Women in Board review 2011

FTSE 350 companies
Should publicly adopt targets
For percentage of women on their boards and report on compliance

FTSE 100 companies
Should aim for minimum
25% female board by 2015

Periodically advertise NED board positions

Search firms should draw up voluntary code of conduct addressing diversity

Recognition that there are two populations
-execs in corporate sector
-execs outside mainstream corporate sector - academics, civil servants, etc

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8
Q

Hampton Alexander Review 2016

A

Hampton Alexander Review
Recommend

FTSE 350 boards
Target 33% female representation by end 2020

FTSE 350 companies increase
Number women in chair and SID roles and Executive Director roles on Boards

FTSE 100 executive committees/direct reports (combined)
Target 33% female representation by end 2020
(Target met - previously 12.5%)

Spencer report -
2023 female representation 40%
HOWEVER
This 40% is comprised of
46% female NEDs
16% female EDs

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9
Q

Parker Review on Ethnic Diversity 2016

A

FTSE 100 and 250 companies
Should DEVELOP and PROMOTE
People of colour

board directors should MENTOR
And/or sponsor people of colour

Companies should ENCOURAGE and support candidates drawn from diverse backgrounds including
People of colour to take Board roles

As of 2020
37% FTSE 100 no ethnic minority

69% FTSE 250 no ethnic minority

As of 2023
6% FTSE 100 no ethnic minority

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10
Q

Reporting on Diversity CA 2006

A

Company’s Act 2006
Requires quoted companies
To include breakdown by gender
For

Directors
Senior managers
Employees (s414c)

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11
Q

Reporting on Diversity UK corp gov code

A

Annual report should
Describe the work of Nomcom

Process to appoint
How evaluation conducted
Policy on diversity & inclusion
Gender balance in sr mgt

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12
Q

FCA DTR 7.2.8A(1)
Reporting on diversity

A

The FCA requires listed companies to disclose

Diversity policy applied to admin, management and supervisory bodies with regard to age, gender, educational and professional backgrounds

The objectives of diversity policy

How the diversity policy was implemented

Te results in the reporting period

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13
Q

Board Appointments
UK Corporate Governance Code

A

Appointments to Board should be subject to formal, rigorous, and transparent procedure and effective succession plan

Appointments to the board are managed by the nomination committee.

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14
Q

Nomination Committee

A

Nomcom should be comprised of primarily INEDs

Board chair can chair NomCom but not when dealing with the appointment of a successor

Nomcom should

  • lead the appointment process
  • Ensure plans in place for orderly succession
  • Develop diverse pipeline for succession
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15
Q

Nomination Committee Report within Annual Report - UK Corp Governance Code requirements

A

Explain appointment process

Board evaluation process

Policy on D&I

Gender balance in senior management

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16
Q

Accepting an offer of appointment to the board

A

Board directors should
1- review the annual report

2-review regulatory and media announcements

3- meet with chair, ceo, cfo, cosec, nomcom, entire board before accepting appointment

4- if chair role or chair of Audi co meet with auditors, internal head audit / RemCom remuneration consultants

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17
Q

Succession planning - UK corporate governance code

A

A succession plan should be maintained for the board or senior management

Ensure plans are in place for orderly succession to board and senior management positions and oversee the development of a diverse pipeline for succession

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18
Q

Board Evaluations and Succession planning

A

Board evaluations should INFORM and INFLUENCE SUCCESSION planning

They are an OPPORTUNITY for boards to REVIEW SKILLS , assess their composition and agree plans to FILL SKILLS GAPS

They can help companies IDENTIFY when new board APPOINTMENTS may be needed and the identify the TYPES of skills required to maximize board effectiveness

Succession plans should cover

Contingency planning - sudden or unforeseen departures

Medium term planning - the orderly replacement of current board members and senior executives

Long term planning - skills needed both now and in the future

19
Q

UK corporate governance code - board membership and Annual re- election

A

Consideration should be given to the length of service of the board as a whole and membership should be refreshed regularly

Directors should subject to annual reelection

The board should set out the specific reasons why the directors contribution is / continues to be important to the long term sustainable success.

20
Q

Decision making at the board

A

Many complex decisions depend on JUDGEMENT ,

But the decisions of well intentioned and experienced leaders, in certain circumstances can be distorted

FACTORS which can DISTORT JUDGEMENT include

*COI- Conflicts of interest
*EMOTIONAL attachments
*Unconscious BIAS
* Inappropriate reliance on PRIOR EXPERIENCE or decisions

21
Q

Factors limiting EFFECTIVE DECISION MAKING

A

*a DOMINANT personality or group of directors on the board which inhibit the contributions of others

*EXCESS or INSUFFICIENT focus on RISK

*a COMPLIANCE MINDSET and failure to treat risk as part of the decision making process

*FAILURE to LISTEN and ACT upon concerns raised

22
Q

Boardroom dynamics

A

NEDs should

*ATTEND regularly and PREPARE in order to be an effective decision maker

*ACT OBJECTIVELY and be OPEN to other PERSPECTIVES

*NOT DOMINATE the discussion

*recognize COLLECTIVE decisions

*foster CONSTRUCTIVE CHALLENGE

23
Q

CoSec in the boardroom

A

*Register ATTENDANCE
*determine QUORUM
*maintain record of proceedings to produce MINUTES+ACTION log
*Advise chair on PROCEDURAL matters
* Monitor CLIMATE of meeting
*Advise on GOVERNANCE issues

24
Q

CoSecretary boardroom dynamics

A

*facilitate discussion between board and management on FUTURE PRIORITIES - PLANNING

*plan a SCHEDULE of MEETINGS + maintain PROVISIONAL AGENDA

*coordinate prep of BOARD PACK

*SUPPORT those WRITING and PRESENTING board papers

*act as guardian for style and FORMAT of papers

*COLATE, store, DISTRIBUTE board packs

*REVIEW with CHAIR and other board members whether PAPERS MEET their needs

25
Q

Board information

A

CHAIR ensures that directors receive accurate, timely advice clear information

CEO- ensures MANAGEMENT fulfills its obligation to provide the board with accurate timely and clear information

NED - should INSiST on receiving HIGH QUALITY INFORMATION and SEEK CLARIFICATION from management where necessary

COSEC under direction from Chair should ENSURE GOOD INFORMATION FLOWS within BOARD and its Committees AND between SR MANAGEMENT and NEDS

26
Q

Board portals

A

Such as Diligent facilitate secure digital communication between board members

Electronic distribution of agenda and board packs

Archive facilities

Enable directors to annotate and make notes

Voting tools

27
Q

Corporate culture

A

What - the behaviors/ way it conducts it’s business

Why - healthy corporate culture is a valuable asset, source of competitive advantage and vital to creating and protecting long term value

Per CG Code, Board should establish the company’s purpose, value, strategy and satisfy themselves that these align to culture

Directors must
ACT with INTEGRITY
LEAD by EXAMPLE
PROMOTE desired CULTURE

28
Q

Wates Guidance on culture page 49

A
29
Q

How to SET CULTURE

A

Agree company’s values
Ensure purpose + strategy align
Develop / Adopt Code Conduct
Ensure values incorp in policy
Publicize values
Integrate values

Reward systems should encourage behavior that is consistent with company culture and values

Ensure there is a culture of openness and accountability

Set tone from the top

30
Q

MEASURING CULTURE

A

Staff engagement survey

Stakeholder engagement survey

Culture and value standing agenda item at board

Receive report on customer complaints

Receive whistleblowing report

Ensure board have direct interaction with staff and other stakeholders

31
Q

Role of company secretary in relation to culture

A

Suggest culture DISCUSSION at board

Suggest that culture INDICATORS are selected based on expectations of key stakeholders

Develop DASHBOARD for culture indicators

Ensure info drawn from VARIETY of SOURCES

Assist in DEVELOPING reporting to stakeholders

32
Q

Code of ethics

A

Should contain

  • COMPANY VALUES
  • COMPANY ETHICAL PRINCIPLES
  • COMPANY ETHICAL STANDARDS
  • INFO ON IMPLEMENTATION
33
Q

How to implement Code of Ethics

A

Agree company values

Develop adopt code of ethics

Ensure values integrate in policies

Publicize values

Integrate values into operations

Reward system must encourage behavior consistent with these ethics

Ensure the culture is open and accountable

Set tone from top to bottom

34
Q

INDEPENDENT PROFESSIONAL ADVICE

A

CO SEC is responsible for ensuring directors, particularly Non executive directors, have access to Independent Professional Advice at the Company’s expense where necessary to discharge their director responsibilities

Directors must give prior notice of intention to seek independent professional advice

Advice should be made available to the entire board

35
Q

Performance Evaluation

A

There should be a formal and rigorous annual evaluation of the performance of the board, its committees, chair and individual directors

FTSE 350 companies should have an external board evaluation every three years

36
Q

Board Evaluations

A

Items to consider

1-mix of skills, experience, knowledge

2-clarity of leadership

3- succession and development plans

4-how board works together

5-effectiveness of individual directors

6-effectiveness of board committees

7-quality of info provided

8-quality of discussions

9-effectiveness of CoSec

10-process for identifying and reviewing risk

11-how board communicates / listens to / responds to shareholders and other stakeholders

37
Q

Induction and professional development

A

The chair should ensure

  • all directors receive full, formal, tailored induction training on joining the board
  • all directors continually update their skills knowledge and familiarity with the company

Under direction of the chair the Company Secretary should facilitate induction arranging board training and assisting with personal development

Needs should devote time to comprehensive and formal induction training beyond boardroom

NEDs should visit operations and talk with managers and members of workforce

38
Q

Induction programs

A

Induction programs should include

1-explain the role of the director and the legal framework

2- share key documents

3- provide info on the board and senior management

4- share info on board meetings and procedures

5- company policies and procedures

6- share presentations from senior managers

7- business information

8-shareholder information

9-offer site visits

39
Q

What were the recommendations of the Tyson Report by Derek Higgs 2003

A

Derek Higgs examined the recruitment of NEDs and he found Boards were male, pale and stale

He recommended that

1- Nomination committees consider candidates from a wide range of backgrounds

2- they draw more actively from areas where women tend to be strongly represented

3-companies consider recruiting from private companies, public companies and charities

4 that companies bring on staff from their subsidiary companies as possible stepping stone to their development

40
Q

How can chair improve Boardroom dynamics

A

Maintain control of proceedings and do not dominate

Facilitate decision making

Stimulate debate and encourage all to contribute to discussions

Create a positive environment

41
Q

Co sec arranging induction training

A

Consult the new director before devising the induction programme

Prioritise and schedule items over a reasonable timeframe to avoid overloading the new director

Vary the delivery of information (it should not be solely comprised of written info

Organize site visits and meetings with executives, advisors and stakeholders

Also consider external training

Review the induction with the director midway through and at the end of the process

42
Q

Establishing a code of ethics

A

Code of ethics should contain:

  • Company values
  • Ethical principles
  • Ethical standards toward employees, customers, suppliers, government, community, environment
  • implementation of the code including
    Statement of responsibility
    Means to obtain advice and training
43
Q

Externally facilitated board evaluations

A

Per the Code, FTSE 350 companies are required to have externally facilitated board evaluations at least every three years

Externally facilitated reviews provide greater objectivity.

Methods of review can vary greatly depending on the provider

Can include questionnaires, individual meetings with board members, observing meetings, etc

There should be a final report listing recommendations and actions

Evaluator can share info on best practices

44
Q

Implementing a company code of ethics

A

Agree the company’s values and consider how the company’s purpose and strategy align to these values

Develop and adopt a code of ethics

Ensure values are taken into account when developing company policies and procedures

Corporate Governance (10 decks)

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