A well-designed decision-making process is one of the most important hallmarks of a strong board, according to draft guidance launched today for public consultation by the Institute of Chartered Secretaries and Administrators (ICSA). When making decisions, boards should guard against the effects of a dominant personality, the existence of “no go” areas for non-executives and a poor line of sight to significant risk.
ICSA was asked to develop the guidance by the Financial Reporting Council (FRC) to complement the new UK Corporate Governance Code which was issued in May. It will submit a final text later in the year for adoption by the FRC as a replacement to the existing Higgs Guidance.
The guidance is entitled “Improving Board Effectiveness”. It has been drafted by a Steering Group chaired by Sir John Egan, recent chair of Severn Trent Plc, and takes account of an initial consultation involving both investors and chairs, directors, company secretaries and professional advisers operating in the boardrooms of UK plc.
That exercise revealed overwhelming support for short, non-prescriptive guidance to help improve board effectiveness. Key issues covered by the draft guidance are:
· More emphasis on the role of the chair as critical to building an effective board
· The importance of the board’s role in creating a high-performance culture which maximises the opportunities for value creation and minimises risk
· The need to create an environment of challenge in the boardroom
· The value for companies of well-informed and high-quality board decision making
· Board composition and diversity as major factors in delivering an effective board
· The advantages of a good training and development programme designed to improve directors’ skills, experience and knowledge
· The benefits of regular board evaluation to explore how well the board is functioning
This second stage of the consultation ends on 14 October 2010. ‘Improving board effectiveness’ is available here. It is intended that the completed draft guidance will be submitted to the FRC in November. The FRC intends to publish the final guidance by the end of 2010.