‘More robust guidance on boardroom behaviours needed’ says ICSA study

The Institute of Chartered Secretaries (ICSA) has published its report on boardroom behaviours which has been submitted to Sir David Walker as part of his review of corporate governance in UK banks.  Sir David Walker’s review will examine board management of risk (including the effectiveness of risk and audit committees), incentives to manage risk in bank remuneration policies, the competences needed on bank boards, board practices and structures, and the role played by institutional shareholders. The review will present preliminary conclusions to commissioning Ministers in the autumn, and make final recommendations by the end of 2009.

The ICSA report, Boardroom Behaviours, follows a study by ICSA of boardroom behaviours , which took the form of a survey and a number of roundtable meetings with company secretaries. The process distilled the considerable knowledge, skills and experience of the company secretarial community on what constitutes good – and bad – boardroom behaviour. Areas covered in the survey included boardroom culture and behaviour, the Combined Code, directors’ skills and resources, disclosure, risk management and the role of shareholders.

In ICSA’s view, best practice in boardroom behaviour is characterised, amongst other things, by a clear understanding of the role of the board; the appropriate deployment of knowledge, skills, experience and judgment; independent thinking; the questioning of assumptions and established views, and a supportive decision-making environment. The degree to which these behaviours can be delivered is shaped, inter alia, by the character and personality of the directors and the balance in the relationship between the key players in the boardroom.

General conclusions from ICSA’s study are that: risk management is not properly overseen, monitored and reviewed at board level; boards generally are not formulating the appropriate risk tolerances of their companies; remuneration and incentivisation are not aligned with shareholders objectives; and disclosure is inadequate.

Specific conclusions are that:

– The absence of guidance on appropriate boardroom behaviours represents a structural weakness in the current system of corporate governance. Had such guidance been available and observed, ICSA argues, the consequences of the current crisis may have been less severe

– Prevention of a recurrence of the events of the last year is at least partly dependent upon more robust guidance on boardroom behaviours being incorporated in the Combined Code

– Better articulation of the business case for best practice corporate governance, and more focus on directors’ responsibilities and potential liabilities, should incentivise directors to exhibit appropriate boardroom behaviours

The Combined Code, ICSA recommends, should be amended to incorporate wording relating to appropriate boardroom behaviours and the business case for pursuing best practice corporate governance. It is also suggested that a best practice guidance note on how boards can improve boardroom behaviour should support the Code.

Download the report ICSA report Boardroom Behaviours  here.

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