Stephen Peak

Kontrolle ist besser - Board Performance Evaluation and the Hedge Fund Board

2012-01-11T08:19:00.000-08:00

Late last year I was asked to be the keynote speaker at a financial services conference being held in Luxembourg, with their prime interest was the work I have been doing on Board Performance Evaluation in Financial Services. With the Financial Services Sector being under increasing pressure to prove good governance, there was significant interest in this work.

My presentation covered the case study of a recent Board Performance Evalution review for a Mutual Society and although the delegates at the conference were largely representing Funds, and although the structure of Funds is quite different, they were comfortable in drawing the parallels.

Gratifyingly, there was significant interest in my work and I hope to be returning to Luxembourg soon to undertake some research in the governance of Funds and the application of the models I have developed.

For those who might be interested (and if I can work it out!) I will upload the powerpoint presentation I used at the conference. If you have any questions, feel free to ask,

All change!

2012-01-03T07:41:00.000-08:00

You may wonder why I haven't made any posts to my blog for some time... well, that's because changes were underway and are only now coming to fruition.

On the 31st of December 2011 I left my post at De Montfort University (DMU). After nearly 20 years I thought a change was a little overdue! I thoroughly enjoyed my time at DMU and remain an ardent supporter. However, the opportunity arose for me to cut loose and focus solely on the topics I am passionate about - rather than all the responsibilities attendant to a senior management position (especially in the public sector!).

I am now free to pursue my interest in Corporate Governance and especially Board Performance Reviews. I intend to spend the next couple of months refining my thoughts and developing some new tools and materials in this area.

Watch this space... please.

Long-time-no-post!

2011-10-14T05:11:00.000-07:00

I couldn't believe it was the 14th of June when I last updated my blog! I do plead mitigating circumstances: firstly there were the wedding preparations for my daughter, then her wedding in Canada, then her UK reception... then our holiday to recover - I think you get the picture.

The Corporate Governance front has been equally busy: working on the on-line questionairre, developing the marketing material, shooting and editing a corporate video, developing the web presence, arranging speaking events...

Oh, and there's always the day job.

Enough of the excuses. I hope soon to have some great news about web availablity and feedback from speaking engagements - it won't be another three months...promise!

NED Wanted - no crooks, cronies or cowards need apply!

2011-06-15T05:22:00.000-07:00

You are recruiting a NED, what should you be looking for?

Relevant experience
Adequate knowledge of the company (can be gained through induction and in-post)
Integrity and high ethical standards
Sound judgement
Strong interpersonal skills
High levels of engagement
Independance of mind

It's not a new list (see the Tyson reprt on the Recruitment and Development of Non-Executive Directors 2003), so why do we still seem to be struggling? Is it that these people are just not there, or is it more likely that we are not casting the net widely enough? Do we in many cases have too narrow a definition of "relevant experience"?

The barriers to entry for NED postions, especially in listed companies, are artificially high. You can trawl through the annual reports on line and the "old boys network" still screams at you with deafening veracity.

"The best boards are composed of individuals with different skills, knowledge, information, power..." (Conger and Lawler, 2001)

Cast the net wider, seek out diversity but stick to Pehr Gyllenhammar's suggested guidelines for the selection of NEDs: no crooks, no cronies, no cowards.

They are out there!

Risk Management and the KISS principle

2011-06-03T00:58:00.001-07:00

A chart from some research RBS commissioned from the Econimic Intelligence Unit. (Management Today "In Focus").

There was not much detail from this "global" survey, but the chart is never the less interesting.

How would you align your risk management strategy against this basket of "Big Issues"? Are they really all that different to the normal cycle of problems that face business regularly?

Paul Howard (former head of group insurance and risk management, J Sainsbury) is quoted as saying "You can take away the risk from risk management and say it is just good management"

I agree with Paul, however, the discipline of risk management does give us a framework and a methodology for identifying; managing, mitigating and monitoring risk in a structured way that was not previously the case. It also affords us a way of setting our risk appetite and boundaries.

The Executive and senior management still have to "walk the talk", set the example, model the behaviour; but risk management systems allow us to draw on knowledge throughout the organisation, capture and analyse those thoughts, set the agenda, develop the action plans and responsibilities and then cascade that back through the whole management structure.

Too many I have worked with in organisations see risk management as just a "pain in the neck" that gets in the way of doing the job. It's not, as Paul Howard says "it is good management" - it is the job!

Where it can be a pain in the neck and get in the way of the job, is when it is over complicated, shrouded in jargon and seen as the domian of some pedantic experts. You could read endless books on risk management, go on courses and seminars, pay consultants a fortune - or, you could run it back to the principles of good management and have a simple, understandable, jargon-free system that integrates with the organisation's current management and reporting cycles and systems.

Let's apply the KISS principle to risk management and help CEOs sleep at night, rather than give them something else to keep them awake.

Who undertakes the External Board Performance Evaluation at the Bank of England?

2011-05-24T01:19:00.000-07:00

"Fears over governance at the Bank of England"

"Banks corporate governance under scrutiny"

(FT 23/05/11)

It seems that the Bank of England, the FSA, the Government, are all insistant that UK companies comply with the UK's Corporate Governance Code 2010 but do they comply with it themselves?

In my last blog I reflected on good governance in Government but now we turn to the Bank of England.

The question being posed by commentators is "are the non-executive directors robust enough to hold it's executives to account for the central bank's greatly expanded functions?"

The UK Code clearly states in section B.1:

"The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively"

The Code also states in section B.6:

"The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors"

And in section B.6.2:

"Evaluation of the board of FTSE 350 companies should be externally facilitated at least every three years"

Interesting then that the the Bank "declined to discuss its corporate governance".

The Bank clearly operates in a complex environment with a role to protect and enhance the stability of the financial system of the UK. It is pulled in one direction by the Government and in another by the Banks, tugging at its middle are the Corporates and Joe Public. Not an envious position. However, it can't be allowed to ignore any of these constituents. The Court of Directors needs to be made up of a mixture of these constutuents and not just from the pretty incestuous world of financial services.

Even a cursory reading of the history of banking will show how it has always sought to shroud itself in mystery and operate with terminology that effectively allows it to operate in a kind of shadowland with its own rules.

It is time for banking and financial services to come out in the full light of day and to stop hiding under the lie that "the ordinary man in the street just wouldn't understand" - well, let's give them a chance and see. I think they will understand a lot more than they are given credit for. Or is it more that the industry doesn't want them to understand? Are they being allowed to operate under some kind "super injunction" of secrecy???

Let's insist that they operate with the same transparency and accountability that they demand of the rest of us?

Time for Good Governance in Government?!?

2011-04-20T01:27:00.000-07:00

An article in the FT yesterday reminded me of an experience I had with civil servants a few years ago.

The article starts "The poor quality of Westminster policy-making comes under fire in a report that will sound all too chillingly familiar.......and goes on.... a former secretary of state said he was stunned when he actually went round the room and asked civil servants for their thoughts on a policy he himself had some doubts over - only to discover that every single one of agreed that it was the wrong policy. A civil servant added that some ministers have been so scary and so unwilling to consider actual evidence that stuff has been withheld from them. Policies have sailed on without the benefit of that evidence."

Well I suppose we had always guessed as much!

A few years ago we were asked to bid for the continuation of some research for a Government Dept. We presented our proposal to a group of senior civil servants, showing them that the research that had been undertaken previously was flawed and what we would do in its place. Summing up at the end the most senior civil servant presents said "We can clearly see from your presentation that the previous research was flawed and I agree that what you are now proposing is the correct way to approch this. However, am I right in assuming that if we make these changes, the downward trend line would be reversed? To which we answered "yes". The civil servant then said "well in that case we can't do this because the Prime Minister has said this trend will go down".

So my experience certainly confirms the findings of this study in which a senior civil servant said of Whitehall "if we built aeroplanes the way we build policy, none of them would ever fly". This is stunning...isn't it? Is it any wonder our Country is not "flying"?

The Government is insisting on levels of good governance for UK businesses, how can UK businesses effectively insist on the same for the UK Government. The ballot box certainly seems to make little difference.

It is said that power corrupts and when you marry that with incompetence it is an unholy affair!

Zero women on over 40% of the World's largest Public Company Boards!

2011-03-09T13:53:00.000-08:00

A new report from GovernanceMetrics International has found that more than 40 percent of the world’s largest publicly listed companies have not appointed even one woman to their boards. Even in major markets like Japan, Italy, the United Kingdom, and the United States women continue to be grossly under-represented on corporate boards.

What can be done? Quotas are almost certainly not the way. Personally, I believe the answer to be much more emphasis on Board Performance Evaluation measured against the Corporate Governance Code 2010. The Code does, in my view, provide a template for best practice and an external board evaluation done well will highlight the requirement for diversity on the board. Organisations are short changing themselves if they exclude women from the board - either purposefully or because of poor legacy practices. It is almost certain that many of the excessive risks taken by all-male boards would not be have got through an appropriately diverse board.

Director Development - Strategy

2011-02-25T01:54:00.000-08:00

I am in the process of developing some on-line strategy development workshops for Board Directors. I would welcome your views on the approach I am taking and perhaps even your help.

To deliver the content in a vibrant and interesting way much of it will be video and I am thinking of:

videoing the "talking bit" from various boardrooms around the Country
showing some footage of real strategic facilitation days
interviewing Chairmen, CEOs, Executive and Non-Executive Directors

If you are a Board Director: -

Is this something you would find helpful?
Does the approach generally seem right?
Would you allow filming in your board room
Would you allow filming of a strategy facilitation day (if the day was free!)?
Would your board be prepared to be interviewed?

If you are not a Board Director, do you know any that you could pass these questions on to?

Bank of England MUST raise interest rates!

2011-02-15T04:22:00.001-08:00

Now if you borrow money you may not think this is good news, but it probably is! The whole financial system struggles with rates so low. If like me you don't borrow money, it is of course excellent news.

FT Exclusive comment:

The UK’s high inflation rate is not simply the result of “one-off” factors but reflects an overly-loose monetary policy stance that has resulted in rapid growth in nominal spending. An early rise in interest rates is necessary to prevent the overshoot being built into inflationary expectations, which would make an eventual return to target more painful to achieve.

Doves argue that inflation would be close to the target but for indirect tax increases over the past year. This is wrong. January’s figures show that consumer price inflation, excluding indirect taxes, was 2.4 per cent in January. This, moreover, is an underestimate of where inflation would be if tax rates had stayed constant, since it assumes that increases are passed on in full to consumers. A more realistic estimate of tax-adjusted inflation is 2.75 per cent.
http://link.ft.com/r/8P1R88/D40Y1A/11EP1/WL9OWI/18J6I1/E4/h?a1=2011&a2=2&a3=15

"Russian Dolls", "Alphabet Soup" and...Shadow Banking!?!

2011-02-04T06:19:00.000-08:00

Great article in the FT 03/02/11. New to me, is the term "shadow banking", a practice apparently not new! A seemingly unregulated billion dollar business. The FT article picks up on this shadow banking, refering to "collateralised debt obligations" and "structured investment vehicles". Shadow banking previously refered to as "Russion doll financing" or "alphabet soup". I don't think anybody outside of the system would comprehend the complexities of what is going on, but it is worth (apparently) an eye watering $15,000bn, yes that's $15,000,000,000,000!!! It would seem that the regulators (like the rest of us - but then they shouldn't be...should they?) had assumed that banks are the only really important parts of the financial system. Some of these funds are said to have bigger loan books than Wall St banks.

For me at least this is raising the lid on another fascinating can of worms...is there no end...probably not!

What are the governance issues..........................

Straw Poll on Corporate Governance

2011-01-25T07:15:00.000-08:00

I recently commissioned some market research, and whilst the sample was far too small to validate any specific conclusion, it would be fair to say that the following comments typified something like 50% of respondents' attitude to corporate governance and specifically the UK Code:

"We are reluctant converts"

"We tick all the boxes"

"They wouldn't opt in"

"A lot of it is frankly gobbledegook"

What use is UK's Corporate Governance Code?

I have been working with the application of business models for some 20 years now: TQM, BPR, TOC, BEM, EFQM, Lean, etc; all of which have been readily accepted by business and have enjoyed wide use in their time - all are generally seen as effective tools. In developing strategy I have worked with many widely accepted methodologies and tools: Boston matrices, Porter's work, Peter's, Handy, Cole, etc. etc., - all good and accepted with little argument.

"But these are all practical" I hear you cry - well to me, so it the Corporate Governance Code.

For me the Code is both a plumbline and a pathway for improvement. A board can use it to measure where it is, and to shine a light on where it could be - even outlining how! It is a board tool as opposed to a management tool and yet it is often passed to management to "deal with it".

What would it take to get boards to embrace the Code rather than just tick the boxes or shun it altogether? Answers on a post card...

No one is beyond improving their game and when we stop learning and developing we start dying. Even FTSE 100 board directors!

The results of poor governance?!?

2011-01-12T04:25:00.000-08:00

Whilst most headline economic indicators might be positive, the above (FT 11/01/12) is definitely not!

It must be Christmas!

2010-12-21T03:47:00.000-08:00

The spycam in the board room reveals the truth - there's nobody there, it must be Christmas!

Wishing you all a very merry Christmas and a prosperous New Year - see you in 2011.

Lord Abersoch and Women on the Board - too little

2010-12-15T00:41:00.000-08:00

Has anything much changed or is this still too often the reality? BIS released the following text today regarding women in UK board rooms - too little movement?!?

"The CBI has today submitted a detailed response to the call for evidence as part of my review into women on boards. I welcome the hard work that has been put into this and their recommendations will help to inform the final report that I will present to Government in February.

"I am pleased to see that this issue has got a strong push behind it from business, but as the recently published Cranfield report highlighted there has been too little movement on diversity in the boardroom for too long. To see a step change on this we need to everyone to pull together, British businesses and their shareholders, the Government and the headhunting profession, to deliver the changes that will help women to achieve these roles."

Notes to editors
1. Lord Davies was tasked by Vince Cable on 6^th August to develop a business strategy to increase the number of women on the board of listed companies in the UK. Lord Davies is expected to report his findings to government in February 2011.

2. The call for evidence as part of Lord Davies review of the lack of women on British boards closed on Tuesday 30^th November 2010, after receiving more than 2,600 responses.

3. BIS' online newsroom contains the latest press notices, speeches, as well as video and images for download. It also features an up to date list of BIS press office contacts. See http://www.bis.gov.uk/newsroom for more information.

TERMS OF REFERENCE FOR MERVYN DAVIES REVIEW

To consider options for promoting gender equality on the Boards of listed companies. In doing so to consider the obstacles to women becoming directors of listed company boards including looking at existing research about women on listed company boards and recent developments in international practice and to make proposals on what action should be taken to improve the position.

It should involve interested parties including Board members, executive search firms, investors and other interested parties in considering proposals for change.

The business strategy will be presented jointly to the Secretary of State for Business, Innovation and Skills and the Minister for Women and Equalities. The business strategy should deliver a set of recommendations with supporting material outlining the thinking behind the recommendations and the views of key interested parties. The final recommendations should be provided by February 2011.

"Governance reporting poor in UK" FTfm 06/12/10

2010-12-07T04:55:00.000-08:00

Monday's FTfm comments on the poor level of Governance reporting in the FTSE 350 - according to a Grant Thornton FTSE 350 Corporate Governance Review Dec 2010 http://www.grant-thornton.co.uk/thinking_blogs/publications/corporate_governance_report_20.aspx

The article and report are worth reading. Is it true, or are Grant Thornton drumming up trade for their compliance team? Only you can decide...

Has the Board Lost Touch???

2010-12-06T05:24:00.000-08:00

The current issue of Management Today has a great cartoon depicting the remoteness of senior management. Having spent the weekend putting together a rough first-draft of a Board Performance Self-evaluation Questionnaire, I thought I would share the cartoon with you and the first section of the questionnaire as I think they go together rather well!

If the cartoon reflects the performance of your organization (which I am sure it won’t) then you would almost certainly be scoring very low in each of the questions.

Please have a look at the questions and the scoring mechanism and let me have your thoughts for improvement.

Please read the statements below and give your opinion as to the performance of your organisation based on the following scale:

1. Poor

2. Mediocre

3. Acceptable

4. Good

5. Best-practice

The Board...

1 works collectively in taking responsibility for the long-term success of the organisation

2 delivers entrepreneurial leadership, identifying areas of opportunity, taking calculated

risks

3 members each understand their statutory duties as directors

4 members each act in the best interest of the organisation

5 clearly defines its risk appetite

6 effectively assesses and manages risk

7 effectively sets the organisation’s strategic aims

8 effectively sets the company’s values and standards

9 ensures that the necessary financial resources are in place

10 ensures that the necessary human resources are in place

11 effectively and regularly reviews management performance

12 ensures it fully understands its obligations to its shareholders and others

13 ensures it fully meets its obligations to shareholders and others

14 meets sufficiently regularly to discharge its duties

15 has an appropriate and formal schedule of reserved matters

16 operates with a clear division of responsibility between the running of the board and

the executive responsibility of running the organisation

17 operates with a clear and documented division of responsibility between the Chairman and the Chief Executive

18 ensures that concerns that cannot be resolved about the running of

the company or a proposed action are recorded in the board minutes

Corprate Governance USA & today's FT article

2010-11-26T07:02:00.000-08:00

A very interesting article in the Harvard Business Review this month; some highlights:

"When the world's largest financial institutions had to be rescued from insolvency in 2008 by massive injections of governmental assistance, many blamed corporate boards for a lack of oversight"

Mastery of the understatement there then! And:

"The Citigroup board was filled with luminaries from many walks of life. Yet in early 2008 only one of the independent directors had ever worked at a financial services firm"

The Harvard cartoon had added poignancy when I read, therefore with hightened interest, an article in today's FT: "Citigroup looks to revive European presence"

The Harvard article went on with the following:

"The model for corporate governance is broken. Despite having boards crammed with eminent independent directors following detailed procedures, many of the world's largest financial institutions had to be rescued from insolvency in 2008....yet all the firms that failed were SOX (Code) compliant."

The article overall is making a plea (and a good case) for the introduction of "Professional Boards" and I hope we are moving, however slowly, toward that. In the interim, it highlights further the need for excellent external board performance evaluation and an end to a "tick-box" approach. Well, you have to have a dream!!!

There was certainly some irony in both these landing on my desk on the same day!

The Changing Role of 21st Century Chairmen

2010-11-22T02:58:00.000-08:00

If you are, or are thinking of becoming, the Chairman of a board, the following paper is probably an essential read! I have included a few snippets as well as a link to the full paper.

Recommended read: Heidrick & Struggles insightful paper on the changing role of 21st Century Chairmen:

http://www.heidrick.com/PublicationsReports/PublicationsReports/HS_PurposefulPartners.pdf

"Chairmanship is a totally different job to anything that one might have done up to that time-it is distinct from any other form of senior business leadership"

'The 'safe pair of hands' mentality is not good enough any more"

The role of chairman is often seen as a prestigious-but gentle-way to complete a distinguished business career: the chairman is a respected name who oversees board meetings and reassures shareholders while the executive team gets on with the real business of running the company. Recent high-profile failures have highlighted the complexity and risk of running a large listed multinational business, prompting calls for tougher corporate governance.

Do you have any thoughts or observations to add? If so please comment.

External Board Performance Review - What does it look like?

2010-11-09T04:45:00.000-08:00

External Board Performance Review Research

The Corporate Development Directorate of De Montfort University (DMU) wishes to develop an External Board Review methodology that adds real value to the Board whilst also satisfying the requirement of the Corporate Governance Code June 2010.

Approaching this research from first principles and then by comparison with existing methodologies, DMU has developed the following outline:

1. Introduction and presentation of process to Board

· Arrange Non-disclosure agreement

2. Analyse a selection of agendas, papers, and minutes from Board and Board Committee meetings

· Feed back findings/comments to Chairman (/Senior INED)

· Gain approval for next phase

3. Observe Board and Committee meetings

· Feed back findings/comments to Chairman (/Senior INED)

· Gain approval for next phase

4. Interview all Board members

· Feed back findings/comments to Chairman (/Senior INED)

· Gain approval for next phase

5. Write and present 1^st draft of report to Chairman and agree (iterative process)

6. Finalise report and present to Board

(Questionnaires may also be used at various stages where appropriate)

To allow completion of the process within a three-month time frame it should, if possible, be planned to take place at a phase in the cycle where the Board and all its Committees are scheduled to meet within such a period.

By engaging in this research the Board of the host organisation will have gained much beneficial insight into its operation and should have a report that it could use as an External Board Assessment Report should it wish to do so.

Sir David Walker - Annual External Board Performance Reviews?

2010-11-09T04:03:00.000-08:00

The Chairman of a City firm I met last week referred to comments made by Sir David in a dinner speech earlier this year. It was reported to me that Sir David would have liked to have recommend that external board performance reviews were undertaken annually but that there were not sufficient (in number and or quality?) suppliers in the market to undertake this work.

In some senses this was music to my ears as we undertake the research and development to allow us to offer this service!

We are currently offering a no-fee external board review as part of the research. One organisation has already taken us up on this offer and we are looking for two more. If your organisation would be interested, or if you know of an organisation that might be interested, please get in touch.

Vince Cable wants your opinion

2010-10-25T04:43:00.000-07:00

Vince Cable, Secretary of State for Business today launched a review to consider whether there are failures in corporate governance and the markets. He is calling on company directors, shareholders and other investors to contribute their views.

The call for evidence launched today, ‘A Long Term Focus for Corporate Britain’, aims to investigate issues including; the problems of short-termism, investor engagement, directors’ remuneration and – following on from last week’s announcement by the Takeover Panel – the economic case for takeovers. It also asks:

Do boards understand the long-term implications of takeovers, and communicate the long-term implications of bids effectively?
What are the implications of the changing nature of UK share ownership for corporate governance and capital markets? Whether disclosure of directors’ pay should be more transparent?
Do shareholders and investors focus too much on the short-term?

Vince Cable, Business Secretary said:

“The UK has led the world in developing high standards of corporate governance. The first stewardship rules for investors, the first corporate governance framework for companies and the most comprehensive takeover code.

"Now is the time to look to the future and take a wider view on how these can work together. Well functioning capital markets are vital to productivity, growth and the future prosperity of the UK.

"We need to ask ourselves what are the factors influencing short-term decisions, the reasons for the growth of directors’ pay and why economically damaging takeovers still take place? I recognise that the best solutions will come from businesses and that regulation is not the only option. That is why today I am calling on all companies and individuals to put forward their ideas.”

The consultation will run for 12 weeks, from today until Friday 14^th January 2011.

Notes to editors:

1. Today BIS launched a consultation, ‘A Long Term Focus for Corporate Britain’. This will run for 12 weeks and closes on Friday 14^th January 2011.
2. Company directors, shareholders and other investors are invited to contribute. The consultation document can be found on the BIS website here: http://www.bis.gov.uk/Consultations
3. BIS' online newsroom contains the latest press notices, speeches, as well as video and images for download. It also features an up to date list of BIS press office contacts. See http://www.bis.gov.uk/newsroom for more information.

Risk Appetite - Hungry or Averse?!?

2010-10-25T01:03:00.000-07:00

The whole area of risk assessment and risk management is increasingly important and under ever increasing scrutiny from regulators and investors alike. The Corporate Governance Code 201o re-inforces this emphasis, with requirements of the FSA for financial institutions taking it even further. Clarity about what is specifically required by regulators is however in short supply.

Looking at the response required by the FSA from his organisation, a CEO recently asked me about risk appetite represented numerically. In searching out an answer to this questions one of my researchers uncovered some interesting papers that may be of help to anyone looking at risk. I have inserted some graphical extracts below with the links to these papers should you want to read them in detail.

The KPMG paper gives a good oversight and the HM Treasury papers is excellent for detail.

"Understanding and articulating risk appetite" KPMG

http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublica tions/Documents/Risk-appetite-O-200806.pdf,

Adapted from above

"Risk appetite - How hungry are you?" PWC

www.pwc.com/en_GX/gx/banking-capital-markets/pdf/risk_appetite.pdf

"Thinking about risk. Managing your risk appetite: A practitioners guide" HM Treasury

http://www.hm-treasury.gov.uk/d/tar_practitioners_guide.pdf

2010-10-13T04:25:00.000-07:00

The FRC on Auditor Independence: It takes... four?

The use of auditors to carry out non-audit work for clients has long been contentious because the independence of the audit could be compromised by these additional ties. But exactly who is in charge of safeguarding auditor independence?

The Financial Reporting Council (FRC) has recently criticised the four biggest auditors, Deloitte, Ernst & Young, KPMG and PwC for doing too little to avoid conflicts of interest in providing clients with auditing services. The annual evaluations of the Big Four auditors, conducted by the FRC’s Audit Inspection Unit (AIU), have come amid increased regulatory scrutiny of the profession and its role in the financial crisis.

The AIU said Deloitte had committed an ethical breach in this area when it assigned two staff to an audit client to advise management for six months. PwC was also deemed to be guilty of an ethical slip when it acted as an actuary to an audit client’s pension scheme.

Paul George, director of the Professional Oversight Board which carried out the inspections, said the auditors “need to think more carefully about whether they can accept [certain types] of non-audit services.” (http://www.ft.com/cms/s/0/c09a15ea-bf6d-11df-965a-00144feab49a.html)

However, the auditors are not the only party responsible for avoiding conflict of interests in this area. Provision C.3.2 of the 2010 UK Corporate Governance Code states that a Board’s audit committee should

develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non audit services by the external audit firm.

In the same provision, the role is further extended to the Board as a whole to whom the audit committee should report, “identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken.”

And if the auditing companies, their clients, and the Boards of audited companies all flout their duties, there is provision for shareholders to step in. According to Code section C.3.7,

the annual report should explain to shareholders how, if the auditor provides non-audit services, auditor objectivity and independence is safeguarded

If shareholders are on the ball, they should challenge the Boards of investee companies over questionable external auditor engagement, especially given Principle 3 of the Stewardship Code detailing the ways in which “institutional investors should monitor their investee companies”.

The question arises whether the proportion of blame placed on auditing companies since the global financial downturn should be spread more widely. More importantly, is the FRC’s plethora of guidelines, published by multiple departments and aimed at numerous parties, blurring the lines of responsibility for some of the most crucial corporate governance issues?

Unlocking the Code: What do the changes mean for you? Continued...

2010-10-06T10:09:00.000-07:00

The final major change to consider is the new Code’s guidelines on directors’ performance-related remuneration. Revisions around this issue appear in three places.

Remuneration

Firstly, new supporting principle D.1 instructs that the performance-related elements of executive directors’ remuneration should be designed to promote the long-term success of the company, as well as being stretching.

There is also an expanded provision, the new D.1.3, that discourages all forms of performance-related remuneration for NEDs, not only share options.

Finally, Schedule A includes amended performance-related remuneration provisions. The main changes are that:

· Performance conditions should be designed to promote the long-terms success of the company

· Non-financial performance metrics should be reflected in performance criteria where appropriate

· The company should consider using provisions that permit the company to reclaim variable components in exceptional circumstances of misstatement or misconduct

· Remuneration incentives should be compatible with risk policies and systems. The previous suggestion that incentives should be specifically risk-adjusted has been removed

Although, in most instances, performance-related elements of executive directors’ remuneration will already be aligned to the company’s long-term interests, remuneration packages should be revisited in light of the Code’s changed tone and focus in this area. In particular, the changes to Schedule A could require alterations to the terms of incentive schemes.

2010-09-28T01:39:00.000-07:00

BP’s less than Best Practice

BP recently published the results of its internal inquiry into the causes of the Gulf of Mexico oil spill. Other oil majors have said they are examining their safety procedures in light of the report, and its release has sparked a wider debate about how the industry as a whole operates.

Among the accident report’s recommendations were strengthening procedures for conducting and interpreting well tests, bolstering the insurance on blow-out preventers, well control, cement testing and rig audit and verification.

But such practical safety recommendations are only effective if there are good communication lines between the Board, management and rig workers so that instructions and concerns are passed back and forth promptly.

In the dialogue between BP and Congress occurring soon after the spill, it emerged that, while BP engineers were exchanging emails long before the accident stating serious concerns over the safety of the Gulf’s Macondo well, the company’s House Energy Committee found no trace of those concerns reaching senior management.

The case points to a dangerously stubborn corporate culture that, according to a Financial Times article on the case, prevails in many well-established companies like BP that carry decades of distinguished history (http://www.ft.com/cms/s/0/5b89e194-820a-11df-938f-00144feabdc0.html). This culture can corrupt despite external signs of good practice. BP’s Board committee on Safety, Ethics and Assurance comprises four non-executive directors and met seven times last year with the then serving CEO, Tony Hayward, presenting to each meeting in person. Furthermore, the BP safety and operations audit team was in the midst of a three year task to audit all major operating sites worldwide and, according to a so-called independent expert appointed to report on safety at the US refineries, the tone of senior management and the Board was supportive in delivering optimum safety standards.

In response to this apparent discrepancy between the measures taken and the disastrous outcome, several investment professionals have insisted that the BP affair underlines the duty of owners to examine companies on safety. The argument runs that they should challenge companies based on such guidelines as the UK Corporate Governance Code, which states the responsibility of the Board for “determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives” and maintaining “sound risk management and internal control systems” (Main Principle C.2).

But even if an institutional shareholder had questioned the Board on its adherence to these guidelines prior to the spill, the Board would have responded with a rehearsed reassurance about the activities of the safety committee and audit team and the shareholder, obliged not to meddle with operating specifics, would have had little option for further action.

This state of affairs points to a lack of provision in global corporate governance for dealing with companies that display good Board level intentions that suffer weak execution down the management line. Unless shareholders, or another suitable party, are given the right and responsibility to dig deeper than policy statements and tick-box compliance messages, companies have the scope to quietly go on grossly mishandling safety – as well as economic and CSR – issues, with little disruption from onlookers.

2010-09-14T05:47:00.000-07:00

Unlocking the Code: What do the changes mean for you? Continued...

Continuing the thread on the changes contained in the revised UK Corporate Governance Code, this post will look at the implications of Section B.7:

Re-election

The previous 2008 version of the Code provided that directors should seek re-election at least every three years. It was following overwhelming support from institutional investors, who felt it would promote better engagement with shareholders, that the new Code now recommends the annual re-election of all directors of FTSE 350 companies.

The change is significant for most Boards; only a few listed companies already voluntarily re-elected directors annually. The IOD, among others, has expressed concern that the new provision encourages short-term thinking and creates the potential to destabilise the Board (http://press.iod.com/2010/05/28/iod-reaction-to-uk-corporate-governance-code-revision/).

It should be noted that, on past indications, the failure to re-elect directors is rare. The effect of the requirement, therefore, is largely to tilt the power balance towards investors as directors coming up for re-election could feel subtle pressure to engage, or at least to appear to engage, more with investors.

FTSE 350 companies should consider the exposure which may be created by the new recommendation for annual re-election of directors. For example, if an executive director is not re-elected this may trigger immediate termination provisions under his or her service agreement which may not necessarily work in the company’s best interests. This would have a serious impact on the continuity of the company’s business which, in the current market, could be very detrimental.

2010-09-06T10:39:00.003-07:00

The ball’s in... whose court?

Last week, chairman of Leicestershire County Cricket Club Neil Davidson hit the news. He is refusing to step down amid calls from the head coach and team to resign on the grounds of alleged interference in team matters.

Davidson insisted, “My job as chairman is to represent the members ... the players are trying to set the agenda ... as a members’ club, it is the board who are supposed to run the club’s affairs on behalf of those members. I was appointed by the board, and am accountable to it.” (http://news.bbc.co.uk/sport1/hi/cricket/counties/leicestershire/8940096.stm)

Everything Davidson stated here is true. But the controversy raises bigger questions over the corporate governance practices in sports clubs. Where exactly do the interests of shareholders and fans overlap (bearing in mind that fans themselves are often shareholders)? Can and should the performance on the pitch and the performance in the boardroom be kept separate?

Closely related to this is the emergence of issue-centred groups that contribute to a debate about the future governance of various sports. An example of this is the campaign led and orchestrated by Manchester United Supporters Trust (MUST) to secure a meaningful ownership stake in their football club in light of the takeover of Manchester United by the Glazer family. The latter also led to the formation of FC United of Manchester (FCUM) a semi-professional football club set up by supporters, disaffected by the Glazer takeover.

The formation of MUST and FCUM can be located within a wider attempt by supporters to try and influence the running of the game - raising questions of regulation and control - but also of participation and exclusion, of the organisation and exercise of power in sports. There are now over one hundred supporter trusts across England, Wales and Scotland, formed as democratic, transparent, representative bodies for fans whose aim is to ensure supporter representation at boardroom level through the collective ownership of shares.

Sports clubs are notoriously poor, compared with other corporations, at complying with corporate governance regulation and codes of practice. One report found, for example, that less than a quarter of football clubs responding to their survey had an internal audit committee and, even where clubs had an audit committee, almost one third of those clubs reported there being no regular board review of risk assessment reports: practices which are now seen as foundational to good corporate governance. (Sean Hamil et al., (2004) "The corporate governance of professional football clubs", Corporate Governance, Vol. 4 Iss: 2, pp.44 – 51).

It seems that sports clubs would need to implement dramatic changes in order to come into line with the UK Corporate Governance Code. An alternative is for sports to be issued with a tailored set of guidelines that are more suited to reconciling the conflicts of interest underlying decision making in this sector, not unlike the guidelines published for the voluntary sector and building societies by NCVO and BSA respectively. Without some regulatory action, disputes over the division of responsibility, authority and fiduciary duty are bound to continue, with everyone wondering in just whose court the power lies.

2010-08-26T13:49:00.000-07:00

Robert Swannell: the Gordon Brown of the Corporate World?

Stuart Rose is to step down as chairman of Marks and Spencer several months earlier than planned, the retailer recently announced, and will be replaced by current HMV chair, Robert Swannell.

There are expected to be complaints from M&S’s army of loyal small shareholders, most of who appear to be charmed by Rose. The charismatic figure’s bravura AGM performances, where he delivers sparkling discourses on anything from lingerie to luggage, have earned him popularity with many during his two years of leadership, and the executive chairman is “adored” by the small shareholders according to retail analyst Neil Saunders.

Incoming Swannell, meanwhile, is not necessarily the first name that comes to mind for chairman of Marks and Spencer. Sky News City Editor Mark Kleinman believes that Swannell will not be as “high profile” as his predecessor. Saunders likewise commented, “he’s not as big a personality as Sir Stuart,” adding that the veteran investment banker has “a very tough act to follow.”

This has to raise the question, what exactly is the ‘act’ that we demand of any chairman? There are few statutory requirements for the role but the seminal 1992 Cadbury Report takes the view that:

Chairmen are primarily responsible for the working of the board, for its balance of membership ... for ensuring that all relevant issues are on the agenda, and for ensuring that all directors, executive and non-executive alike, are enabled and encouraged to play their full part in its activities ... Chairmen should be able to stand sufficiently well back from the day-to-day running of the business to ensure that their boards are in full control of the company’s affairs and alert to their obligations to shareholders (provision 4.7)

Though we talk of the chairman of the company, his or her role is actually to lead the board of directors. Through effective leadership, the chairman fosters an environment for establishing effective strategies to protect the company and move it forward. And for this, Swannell is well qualified.

Swannell has been an investment banker since joining Schroders in 1977 where he stayed through the takeover by US bank Citigroup in 2000. It was Citigroup that defended M&S against the Green takeover six years ago. Currently, Swannell holds non-executive posts on the boards of British Land and 3i Group as well as chairing FTSE 250 company HMV.

Perhaps it is rash to rain down with pessimistic predictions on the newcomer. Perhaps Swannell isn’t doomed to Brown’s demise simply for his lack of charisma, and, in the role of chairman, expressiveness can be replaced by experience and knowledge shown to outlive novelty.

2010-08-25T04:48:00.000-07:00

Unlocking the Code: What do the changes mean for you? Continued...

Here we consider another of the changes appearing the new UK Corporate Governance Code.

Risk Management and Internal Control

A new, clearer statement of a board’s responsibility relating to risk is laid out in Main Principle C.2:

The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems.

This idea is expounded in provision C.1.2 which states:

The directors should include in the annual report an evaluation of the basis on which the company generates or preserves value over the longer term (the business model) and the strategy for delivering the objectives of the company.

In other words, by setting out in layman’s terms the company’s strategy for generating long term value, a company can illustrate to investors, and other readers of the report, how the board has applied the new principle on risk.

The Code’s publishers, the Financial Reporting Council (FRC) have stated that it was not their intention to “promote particular methodologies for dealing with risk”; boards must merely recognise that it is their responsibility to consider how much risk the company can bear and how willing it should be to take risk on.

It makes sense to include this description in the same part of the annual report as the Business Review. This will not require a major change in reporting practices for most companies. Those that are properly applying the Accounting Standards Board’s voluntary Reporting Statement on the Operating and Financial Review will already be providing this information. See the Reporting Statement for detailed guidance on how this provision can be complied with.

2010-08-19T06:45:00.000-07:00

Unlocking the Code: What do the changes mean for you? Continued...

This blog continues to consider the impact of the changes contained in the new UK Corporate Governance Code.

Time Commitment

No minimum time commitment for directors is prescribed by the Code, but the new Main Principle B.3 states:

All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively

Individuals who are non-executives in one company will often be executive directors in another – and vice versa. It is generally thought to be a good thing that an executive gets experience of the workings of another company and another industry.

However, it is important that the demands on the individual are realistic – the Code says that the board should not agree to a full-time executive taking on more than one FTSE 100 company non-executive directorship or the chairmanship of such a company.

A more encompassing guideline is that board members should limit their board memberships consistent with their ability to discharge their responsibilities diligently. More than three to four directorships could be burdensome, and may result in absences at board meetings and a lack of ability and willingness to act quickly in a crisis.

Worth noting on the topic of time commitment, is this comment by Ed Marks, President of Marks Consulting Inc.:

A director’s role in a troubled company is very different from that of a director of a healthy business. The increased emphasis on directors assuming larger roles in managing a company’s affairs means that their responsibilities and time commitments must also increase. Troubled companies require deeper involvement from their boards

Also bear in mind: risks of incurring director liability may rise when the number of board memberships increase beyond a manageable level.

The issue of time commitment links to the new emphasis placed on performance evaluation in the 2010 Code. Part of the appraisal of individual directors should ask the question, are they giving the job the time it requires?

Unlocking the Code: What do the changes mean for you?

2010-08-14T03:33:00.000-07:00

The UK Corporate Governance Code, in effect from 29^th June this year, replaced the previous Combined Code. It applies to all companies with a premium listing on the London Stock Exchange regardless of where the company is incorporated. Over the next few blogs, I’ll look at some of the major changes contained in the latest revision and what they might mean, practically, for any particular company, starting with:

Diversity on the Board

The new Code makes explicit for the first time the need for gender equality, and diversity generally, to be taken into account in hiring decisions. Provision B.2 Supporting Principle states:

The search for board candidates should be conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender.

Responses to this addition have been plentiful and various. Regardless of whether you believe this advice should or should not have appeared in the Code, the fact remains that, at present, only 10% of directors in Britain’s top 100 companies are women, and 25 of these top firms have no women board members at all: shareholders and other readers of the Code are going to ask questions of under representative boards.

Because the new requirement is phrased as a principle, not a provision, companies will not be forced to explain publicly the absence of women directors. This is not tantamount to a get-out or loophole; instead, it means that companies have the time to work on building a diverse board membership. There is no pressure to appoint new directors purely for their contribution to gender or ethnic diversity (as the IOD pessimistically predicts: http://www.continuitycentral.com/news05179.html).

Boards skewed towards the white, British male should take action now to amend their nomination committees’ processes. Descriptions of the role and capabilities required for a particular appointment should be carefully prepared, open advertising employed and/or an external search consultancy engaged in the recruitment process. If these behaviours become established and well-used, diversity will be a natural outcome. Take care of your nomination procedures and board diversity will take care of itself.

A closer look at the board review process...

2010-07-23T13:02:00.000-07:00

What are our directors bringing to the (board) table?

Having considered the foundational issue of who should carry out the review, and established the underlying governance structure, we turn to the question...

What does a board review involve for individual directors?

Within the broader review of the entire board (to be discussed later), the contributions of each director must be assessed.

Many director appraisals are currently conducted in an informal way, with the chairman personally assessing each director’s performance and commenting privately to the director involved. But the pressure is on for director appraisals to be more formalised. A board policy decision, with the full support of all the directors, is needed to introduce such a process.

With the support of board members obtained, the next step is to clarify the criteria to be used for the evaluation. The chairman should outline the purpose and process of the assessment. Desirable director attributes and core competencies can provide a pro forma for the individual appraisal. The chairman’s statement laying out expectations of time commitment, skills, specific expertise and experience provided at a new director’s appointment, should be revisited, especially in light of any changes in the company’s strategic situation.

In a formalised director performance review, the data collection stage follows. This might involve interviewing each director to discuss their experiences as members of both the main board and any committees. Information is also obtained by analysing attendance records, and board and board committee minutes, looking for innovative contributions to discussions and decisions.

Sometimes peer-review techniques can add value to the process. Taking this further, a 360 approach could be beneficial, involving too the opinions of external auditors, institutional investors and company staff who have come into contact with the director.

Following the data gathering, a confidential report to the chairman will be drafted. Given the personal nature of the report, most chairmen will discuss the relevant portion with each director one-to-one. The discussion should cover a strategy for further personal development activities, such as committee leadership or membership on other boards.

Adopting an annual routine of director evaluation not only ensures compliance with many codes and listing rules, but is as vital for healthy governance as are long established executive appraisal systems for healthy management.

‘Comply or Explain’ at its best

2010-07-19T07:56:00.000-07:00

Dramatic reactions to new guidelines that require the annual re-election of board members has hit the news today. The FT reports how three of the UK’s biggest investors have written to 700 companies to encourage them to “ignore” the provision in the 2010 Corporate Governance Code.

The paper’s wording is, however, perhaps unhelpful. Colin Melvin, Chief Executive of Hermes Equity Ownership Services – one of the companies involved in the letter sending – said he was encouraging companies to practise their rights and “explain” rather than comply. This is quite different to ignoring the provision altogether and, aside from whether director election practices should or should not be changed, the situation highlights the advantage of the UK Code.

If Corporate Governance in the UK resembled the US system, where legislation rather than codes of best practice constitutes the main determiner of corporate behaviour, today’s story would read quite differently. Large companies would be forced to undergo an upheaval in the foundational area of director election, to the displeasure of their major investors, or else risk expensive and hugely damaging legal action if they resisted the measures.

As it is, under the UK Code’s trademark “comply or explain” approach (see pp. 4-5 http://www.frc.org.uk/documents/pagemanager/Corporate_Governance/UK%20Corp%20Gov%20Code%20June%202010.pdf), the outcome of the FRC’s provision is positive despite being ill-received by some. While Legal and General and Fidelity welcome the new guidelines, the FRC has been forced to closely re-examine provision B.7.1 and defend its value to big names like Hermes, Railpen and the Universities Superannuation Scheme who oppose the measure and have laid out their reasoning to hundreds of FTSE 350 companies. In turn, if these companies choose to reject the Code’s call, they will explain their stance carefully to shareholders in the Annual Report. The atmosphere is one of rigorous dialogue and well-considered progress.

In the ever-changing, multi-faceted and oftentimes ethically equivocal realm of corporate governance, this is exactly the culture of intelligent exchange that is needed and that is fostered by the “comply or explain” approach. In the best practice system, power is placed not in the hands of central government or the judiciary, but where it belongs, in the hands of boards and, ultimately, shareholders.

Blunders at Buncefield? Explosive, expensive... inexcusable?

2010-07-18T07:49:00.000-07:00

In the last few days the Crown Court ordered five companies to pay almost £10m in combined fines for their part in the Buncefield explosion five years ago. Gordon MacDonald of the Health and Safety Executive concluded his comments to the press by highlighting the corporate governance, namely risk assessment, issues that the case raises:

From the boardroom down, companies must ask themselves these questions: ‘Do we understand what could go wrong? Do we know what are our systems are to prevent this happening? Are we getting the right information to ensure us that these systems are working effectively?’” (http://www.bbc.co.uk/news/uk-england-10660356)

It is clear that the ‘boardroom down’ control activities of energy giant Total, as well as well as local firm Hertfordshire Oil Storage Limited, were deficient. The standard of risk assessment systems and, specifically, the implementation of COMAH (Control Of Major Accident Hazard) regulations within the companies must be scrutinised for fundamental corporate risk assessment features, such as:

clear objectives communicated to employees on risk assessment and control issues
significant internal and external operational, financial, compliance and other risks identified and assessed on an ongoing basis
a clear understanding by management and others on what risks are acceptable to the board
clear strategies and policies for dealing with risks identified
a prevailing company culture, reflected in the code of conduct, human resource policies and performance reward systems, that supports the business objectives, risk management and internal control system
a co-ordinated effort by different parts of the company on decisions and actions

Only by addressing these areas can Total’s Lee Young’s comments that “this was an unprecedented incident from which we and the industry have learnt many lessons” be ratified.

A closer look at the board review process:

2010-07-16T08:25:00.000-07:00

A panoramic snapshot of power

In reviewing the performance of the board as a whole, it is important to first ask...

What is the underlying governance structure?

Answering this fundamental question will establish the governance power base of the enterprise and determine where ultimate power lies to change the governance structure.

Tricker asks: ‘Who controls the voting equity? Is there majority control? Do informal power blocks exist? What changes might occur over the strategic time horizon?’ (Corporate Governance: Principles, Policies, and Practices, 317).

In a widely held listed company, any blocks of voting shares that could or do influence corporate governance will be considered in detail. In a subsidiary or associate company, the expectations of the parent company must be taken into account.

Having established the existing governance structure, it is possible to consider whether the present relationships with the investors, owners and shareholders are satisfactory. How could they be improved? More importantly still, are there any possible changes in ownership on the horizon, and what might be the implications?

It is important to capture this broad view of the business before homing in on board specifics. When, in the next stage of the review, board structure, style and strategy are examined, they can be viewed in terms of their contribution to holistic business success.

2010-07-13T04:34:00.001-07:00

A closer look at the board review process:

Playing possum and wrestling wombats

The 1998 UK Hampel report (http://www.ecgi.org/codes/documents/hampel.pdf) called for formal procedures to ‘assess both the board’s collective performance and that of individual directors’ (3.13). But research three years later by PricewaterhouseCoopers showed that only a third of UK companies did so. I’ll focus in my next few blogs on the first of the two-part review structure, with the question...

What does a board review involve for the board as a whole?

Research has shown that the typical corporate governance indicators, such as board structure, the independence of directors, and the use of board committees, are not the best predictors of board effectiveness. Less specific indicators, sometimes called ‘soft’ governance, such as the working relationships between directors, the standard of chairmanship, or directors’ knowledge of the company, are more significant.

Information for a board review is obtained from an analysis of board and board committee agenda, papers and minutes, from interviews with each director, company secretary and staff, top executives, group discussions, and director workshops and from interviews with investors, auditors, analysts and internal staff.

In terms of the collective board, a competent and regular board performance review should:

Ensure that appropriate disclosure and accountability are being provided
Review current board and board committee practices and improve efficiency
Review the effectiveness of the board’s strategic thinking and decision making
Provide an ongoing challenge to attitudes in boards with long serving directors
Create the climate if a change of chairmanship is needed
Provide information for the board’s corporate governance report and respond to questions from shareholders and other stakeholders

For the board assessment section of the overall review process to be focussed and fruitful, it’s vital that directors resist ‘playing possum’, as the Australians say, hiding themselves and their activities. An open attitude and clear objectives, such as the ones above, will prevent the board review process from becoming a paper shuffling, box ticking WOMBAT (waste of money, brains and time) and instead constitute an efficient use of resources with highly relevant outcomes.

Painful and positive or just positively painful? A closer look at the board review process...

2010-07-09T10:51:00.000-07:00

The newly refurbished Corporate Governance Code 2010 states that, “evaluation of the board of FTSE 350 companies should be externally facilitated at least every three years” (B.6.2). This is a wake-up call for private, public and listed companies alike to the need for penetrating and purposeful assessment of board performance, requiring a revisit of some of the variables the review process involves. Firstly...

Who should carry out the board review?

The chairman often assumes the role, but experience has shown that this approach lacks the independence and objectivity that a serious review really needs. As Tricker puts it, “the chairman is effectively marking his own examination paper” (Corporate Governance: Principles, Policies, and Practices, 315).

An experienced INED, perhaps the senior INED, could be asked to lead the review. Or, a special board committee, typically made up of INEDs, might take on the role. Some boards give the responsibility to the audit committee using the internal audit function. Whilst an executive director such as the CEO or CFO will have appropriate knowledge of the business and the board, his or her perspective is unlikely to be seen as objective by other board members.

An alternative approach is for the board to seek an independent perspective, inviting someone outside the board to lead the review process and report. A past chairman – who would have knowledge of the business – is a possibility, but here there could be a lack of objectivity on board politics. Another possibility is a respected chairman or INED from the board of another non-competitor company.

Then, of course, there are independent organisations and firms of consultants up for the job. Unfortunately, some of those offering such services do not yet have a lot of experience at carrying them out. (Management consultancy projects call for an altogether different mind-set to those dealing with board level interactions and political processes.) In response to the Code provision that FTSE 350 companies arrange externally-facilitated board reviews at least every three years, the IoD pointed out that:

scepticism about the effectiveness of external facilitators, and the fact that presently there are only a few organisations with sufficient quality and experience to perform such a role, could mean that companies are slow to comply with this new requirement.

When it comes to board assessment then, the ‘who’ question is not answered straightforwardly. Factors to take into account include the nature of the corporation, the culture of the board, and the relevant pros and cons of different candidates for the task. Get this bit right, and the review itself has a fighting chance of being accepted, efficient and energising.

More to come on What does a board review involve?

Board Performance Review

2010-07-03T00:54:00.000-07:00

The Combined Code Of Corporate Governance has "Performance Evaluation" as one of its main principles:

"The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors"

Why undertake a board review? The worst response is 'because we are require to do so by regulations'. A more positive response is that 'we see the review as a fundamental part of our corporate governance processes. Our corporate governance strategy is a basic part of our over-all corporate strategy.

(Tricker; Corporate Governance; Principles, Policies, and Practices 2009)

Clearly, the board should seek to derive real benefit from the review and not to see it as threatening in any way. To do this the board needs to find the right partners to undertake the assessment and ensure that the process fits in with the rhythm and cycles of the board and the organisation's operations.

So, what does such a review comprise? Coming soon.................................

Campaigning in the general election - Transparency, Honesty & Integrity?!?

2010-05-03T01:20:00.000-07:00

Much is required of corporate entities by the Government and the public alike in terms of transparency, honesty and integrity.

Can we, as corporate entities and the general public, say that we think any of the parties campaigning for election is acting with transparency, honesty and integrity? I think not!

Should we demand of Central and Local Government the same it demands of us? I think so!

IoD Annual Conference, Albert Hall 28th April 2010

2010-04-28T12:39:00.000-07:00

Speaker after speaker talking about the need to upgrade skills:

Miles Templeman: skills agenda and leadership

Vince Cable: skilled workforce, education

Sir Martin Sorrel: training, skills and education

Stephen Green: skills development, UK education leadership

George Osborne: skills

Lord Mandleson: skills,technology, innovation, knowledge

No divergence in this area at least. Everybody seems to agree that we need to up-skill the workforce - and have done for some time now. Government reports, CBI reports, every report on this issues for several years has talked about the need. Then why oh why aren't we doing it?! Almost every university in the Country can offer first class, relevant, practical, cost effective, time efficient interventions in ways that are completely sensitive to business needs.

IoD Annual Conference 28th April 2010

2010-04-27T09:35:00.000-07:00

We will be attending and exhibiting at the IoD annual conference tomorrow at the Albert Hall - see you there?

Audit Commission: Corporate Governance Inspection Doncaster Metropolitan Borough Council April 2010

2010-04-27T04:46:00.000-07:00

Scary business for any Council?!?

http://www.auditcommission.gov.uk/SiteCollectionDocuments/InspectionOutput/InspectionReports/2010/201004doncastermetropolitanboroughcouncilcorporategovernanceinspectionREP.pdf

Appendix 4 – Corporate governance inspection key lines of enquiry

Key Lines of Enquiry

1 Purpose and outcome

1.1

Is the organisation clear about its purpose and intended outcomes for citizens and users?

1.2 Is the organisation achieving its desired outcomes?

1.3

Does the organisation’s leadership ensure that taxpayers receive value for money?

2 Functions and roles

2.1

2.2

Is the organisation clear about the responsibilities of governors, officers and of partnerships?

Is the organisation’s leadership working constructively together, and with partners, to achieve their common purpose?

3 Values and behaviour

3.1

3.2

Are governors and staff putting the organisation’s values into practice and working effectively within the ethical framework?

Are individual governors and staff behaving in ways that uphold and exemplify effective governance within the organisation?

Is the organisation managing its complaints, whistleblowing and ombudsman 3.3 arrangements effectively, and is the leadership and organisation learning from

individual cases?

4 Decision making and risk management

4.1

4.2

4.3

Is the organisation rigorous and transparent about how and what decisions are taken?

Do the organisation’s leadership and management use good-quality information, advice and support to help reach decisions?

Does the organisation ensure that there is an effective risk-management system which covers partnership working?

39 Doncaster Metropolitan Borough CouncilAppendix 4 – Corporate governance inspection key lines of enquiry

Capacity and capability

5.1

Does the organisation make sure that governors and staff have the skills and

knowledge they need to perform well?

5.2

Does the organisation develop the capability of people with governance

responsibilities and evaluate their performance, as individuals and as groups,

including when working in partnerships?

5.3

Is the organisation governed and managed by an appropriate body of people?

Engagement

6.1

Does the organisation’s leadership understand formal and informal

accountability relationships?

6.2

Does the organisation take an active, effective and planned approach to

consultation, engagement and dialogue with and accountability to external

stakeholders, the public and users?

6.3

Does the organisation take an active and planned approach to responsibility

to staff?

Nice quote from the intro to the Higgs report 2002 - still true!

2010-04-26T14:45:00.000-07:00

"Walter Bagehot famously wrote of the monarchy in 1867: “We must not let in daylight upon magic”. In the corporate boardroom, the importance of the non-executive director is recognised but their role, perhaps like that of the monarchy of old, is largely invisible and poorly understood. When corporate strategies fail or governance lapses, however, attention rightly focuses on the contribution of the non-executive director."