Assessment of the effectiveness of the board

Transcription

1 Assessment of the effectiveness of the board One of the recommendations contained in the UK Corporate Governance Code is for the Board to review and assess its performance annually. Boards of FTSE 350 companies should have their performance evaluation externally facilitated at least every three years. We firmly believe that there is real benefit to be gained from an in-depth review of all areas of Board activity, preferably facilitated by a third party to ensure open and frank views are obtained. The review should encompass the Board s composition and processes and its activities and behaviours. PwC has developed a formal methodology that can be tailored to individual Boards to assist with such a review. As a starting point, this simple tool has been put together to give an indication of the principal areas that a Board effectiveness review should cover. The tool, which is set out on pages 2 to 4, takes the form of a series of assertions which should be awarded a rating on a scale of 1 to 5, as shown on page 2. The assertions are split between the Board s composition and processes and its activities and behaviours. You should rate your response to each assertion by marking a cross in the relevant box. Any comments you have on specific questions can be added on page 4. It is recommended to add comments for any questions you have scored 1 or 2. Once complete, either return your assessment to the Chairman, or to the Company Secretary, in accordance with any separate instructions, or bring it along to the next Board meeting so that returns from all directors can form the basis for discussions. If you have any questions regarding this tool, please contact either the Company Secretary, or the PwC audit engagement partner, on the usual telephone numbers.

2 A Composition and processes N/A Size of Board The Board is of sufficient size that the requirements of the business can be met, without being so large as to be unwieldy. 2. Meetings a) The number of meetings of the Board is appropriate, including ad hoc meetings where necessary. b) Board members attend and actively contribute at meetings. 3. Terms of reference The terms of reference for the Board are appropriate, with defined roles and responsibilities and clarity over matters reserved for the Board. 4. Committees of the Board a) The Board s committees are properly constituted and perform their delegated roles under clear terms of reference ; b) Are subject to appropriate refreshment; and c) Report back effectively and promptly to the Board, with sufficient time for the Board to consider matters arising. 5. Mix of skills, experience and knowledge & diversity a) The Board has an appropriate mix of skills, experience, and knowledge; and b) Is made up of individuals from a diversity of gender, background and psychological type. 6. Independence The Board has the right balance of independent Nonexecutive Directors and Executive Directors. 7. Succession planning There is appropriate succession planning for key Board members and senior executives. 8. Appointment process There is a formal, rigorous and transparent process for the appointment of new directors to the Board. 9. Time commitment Non-executive Directors are able to commit sufficient time to the company to discharge their responsibilities effectively. 10. Induction and training Board members receive proper induction on appointment and ongoing training is available to meet development needs. 11. Timeliness and quality of information The information that is supplied to the Board is: a) Provided on a timely basis; and b) Of a quality that enables the Board to determine whether the company is on track to meet its strategic objectives and is acting within its risk appetite. 1 = Hardly ever/poor/strongly disagree 2 = Occasionally/Below average/disagree 3 = Sometimes/Average/Neutral PwC 2

3 4 = Most of the time/above average/agree 5 = All of the time/fully satisfactory/strongly agree B Behaviours and activities N/A Tone from the top a) The Board creates a performance culture that drives value creation without exposing the company to excessive risk or value destruction; and b) Sets an appropriate tone from the top that permeates through the organisation. 13. Board discussions Board meetings are characterised by a high quality of debate with robust and probing discussions and no no-go areas, consistent with the FRC s Guidance that An effective board should not necessarily be a comfortable place. Challenge, as well as teamwork, is an essential feature. 14. Understanding of the business All Board members have a clear understanding of the company s core business and strategic direction. 15. Setting strategy a) The Board sets the company s strategic aims robustly and effectively, with appropriate challenge from the Non-executive Directors; and b) Ensures the necessary financial and human resources are in place to implement them. 16. Risk appetite and risk management a) The Board is sufficiently involved in establishing the company s appetite for risk in respect of its strategic aims; and b) Satisfies itself that the integrity of the financial controls and systems of risk management are robust and resilient. 17. Monitoring performance a) The Board has appropriate data to monitor the company s performance, including financial and nonfinancial information and peer and industry information; and b) Uses the available data effectively. 18. Remuneration and performance The Board satisfies itself that there is appropriate consistency and linkage between the strategy, risks and performance of the company and the remuneration offered to the Directors. 19. Crisis management The Board responds positively and constructively in the event of a crisis, and has well-established crisis management plans to protect the company s reputation. 20. Major developments and transactions The Board is involved in major developments in the business (for example M&A activity or significant legal claims) in the right level of detail and at the right time. 21. Quality of decision-making a) The Board makes well-informed high quality decisions based on clear line of sight into the business; and PwC 3

4 B Behaviours and activities N/A b) Appropriate processes are used to facilitate complex judgements for example obtaining input from experts, establishing separate sub-committees or allowing additional time for debate and decisionmaking. PwC 4

5 B Behaviours and activities N/A Demonstrating the Board s stewardship a) The Board communicates effectively with all of the company s stakeholders and takes into account their interests; b) Ensures that the standard of external reporting is high and that the annual report, taken as a whole, is fair, balanced and understandable; and c) Reports on board effectiveness including the role of the chairman, diversity, succession planning and board evaluation. 23. Role of the Chairman a) The Chairman has sufficient time to commit to the role; b) Exhibits a leadership style and tone that promotes effective decision making, constructive debate and ensures that the Board works as a team; and c) Sets an effective agenda for the Board and ensures it is debated fully. 24. Chairman and CEO relationship The Chairman and the chief executive work well together and their different skills and experience complement each other. 25. Role of the Senior Independent Director ( SID ) The SID is effective and fulfils the role in a way commensurate with the circumstances of the Board. 26. Executive directors a) The Executive Directors carry out their duties as directors as members of the Board rather than as senior management; but also b) Represent an effective link through to senior management. 27. Company Secretary The Company Secretary is effective and works well with the Chairman, Non-Executive Directors and Executive Directors. 28. Performance evaluation a) The Board sets itself objectives; b) Carries out a rigorous annual evaluation of its own performance; and c) There is effective external facilitation at least every third year. 1 = Hardly ever/poor/strongly disagree 2 = Occasionally/Below average/disagree 3 = Sometimes/Average/Neutral 4 = Most of the time/above average/agree 5 = All of the time/fully satisfactory/strongly agree This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity JP-OS

6 Comments on particular questions can be entered here It is recommended to add comments for any questions you have scored 1 or 2 This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity JP-OS