Good Governance Creates ValueB    Board Evaluation     Demo information        May 2011
» International perspectiveswith Sharon Constancon     Sharon Constancon is Chief Executive of Genius Methods Ltd     An o...
Key Genius Methods USP’s
Board EvaluationMenu from which to tailor to requirement
The Specific situation        A Board Evaluation and Governance Review was undertaken for a        major internationally l...
“The ABI’s leading role in corporate                                                                                  gove...
Findings and actions taken         One of the three subsidiary companies needed an additional director to         provide ...
GM Selection of Flyers
GM Selection of Flyers
GM Selection of Flyers
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GM Selection of Flyers

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GM Selection of Flyers

  1. 1. Good Governance Creates ValueB Board Evaluation Demo information May 2011
  2. 2. » International perspectiveswith Sharon Constancon Sharon Constancon is Chief Executive of Genius Methods Ltd An outside view terms of Codes and best practice; responses to questionnaires or interviews should be totally unattributed and not visible to internal colleagues; the feedback process should be handled externally and confidentially, ensuring more open input. In addition, there should be a clear separation between: an evaluation of the board’s effectiveness; the appraisal of each individual director’s competence; and the individual director’s contribution to the team. The confusion of these distinct elements often leads to frustrated participants and poor insights. In order for an evaluation to be successful, interaction and interviews should be tailored and focused on the relevant issues, at the same time as exploring new territory. This requires the right person-to-person match Effective board evaluations in character, knowledge, respect and trust. External evaluation is independent from the company, therefore it ensures that the difficult produce value. questions are asked and valuable feedback received, without risking any existing business relationships. W hy do boards resist external prescriptive solutions imposed by outsiders. The final collation process is critical and the evaluation? It is true that most However, there really is little to worry about. level of detail disclosed must be appropriate FTSE boards have an internal It is well-known that effective board evaluations for different groups of internal and external self-evaluation process in place, produce value and improve board performance. stakeholders. All information must be of value however many industry sectors still fall short Company secretaries are frequently pivotal in and definitive, with no ‘boilerplate’ output. It of best practice. It would seem that external educating boards with regard to the true nature is vital that: responses are unattributed; there evaluation is required, therefore, to ensure that and value of sensitive and well-conducted is an understanding that not all the findings of standards are maintained. external board evaluation. an evaluation need be in the public domain and Consider, for example, the reasons why an So how do boards progress from suspicion that evaluation outcomes belong to each and annual board evaluation is now required of to satisfaction? The most important step is every board member. the largest companies in the UK, with one in to identify for the board why an externally External board evaluation brings invaluable three to be externally facilitated. An analysis of facilitated evaluation is a vital step towards insight into the workings of the board from costly corporate and banking failures indicates the continuous improvement of the board’s the perspective of an outsider. It is designed to that it was neither the unitary board model nor effectiveness, enabling an unbiased assessment facilitate open and honest review of the board’s the principles of the then Combined Code that of the current board’s structure and workings. workings, rather than to point the finger of were at fault; some boards simply did not carry There are several steps which, if taken, blame. As such it is a process to be embraced out their duties effectively and did not adopt a will help to remove the invalid suspicion of rather than feared as part of a wider drive to culture of good corporate governance. evaluations, such as: improve board effectiveness. Why then does hostility and resistance manifest when boards are faced with an an external review of the scope, content » About the author external evaluation? In our experience, such and wording of any internally produced Sharon Constancon is Chief Executive evaluations are often perceived as imposed, questionnaires or interview guidelines. of Genius Methods Ltd. For more intrusive and unnecessary. This reaction is human This ensures that these documents achieve information, please visit and understandable: few people take kindly to their objectives and are fit for purpose in www.geniusmethods.com.18 w w w . c h a r t e r e d s e c r e t a r y. n e t
  3. 3. Key Genius Methods USP’s
  4. 4. Board EvaluationMenu from which to tailor to requirement
  5. 5. The Specific situation A Board Evaluation and Governance Review was undertaken for a major internationally listed conglomerate (confidentiality requested). The company was established in 1978 and floated in 2005 with a market capitalisation in the region of £950 million  The founder, who has maintained a hands on role, and family have retained 62% of the shares.  Fellow directors and employees hold 10% of shares.  The balance of 28% of the shares are listed on the stock market.  The Board Evaluation and Governance Review were conducted Adding value simultaneously. “Board Evaluation is an important  The nature of the regulated industry had embedded high annual exercise that adds standards of governance in the organisation. The Board was considerable value to all reasonably balanced and directors communicated well. organisations, regardless of size.  Controls were robust and the Board was compliant with key UK It is neither process-heavy nor governance standards. hugely time-consuming. Whether or not a company is Need for Board Evaluation affected by the Walker Review or the UK Corporate Governance  Being family owned and run since inception, external input was Code, there is merit in spending needed to refresh thinking time in preparation for a Board  Ownership is skewed Evaluation and securing the benefits that flow from it”.  No governance regulatory demand in listing jurisdiction  All companies benefit from an objective view of governance Neville Bain practices Chairman of the Institute of Directors For further information please contact Sharon Constançon Email: sconstancon@geniusmethods.com Telephone : 01494 565 947© Copyright Genius Methods Ltd 2011 www.geniusmethods.com
  6. 6. “The ABI’s leading role in corporate governance stems from our members’ Process followed belief that well-governed companies will produce better returns for shareholders The Board members completed a questionnaire which covered over time. This piece of research, using various governance, structure, communication, behaviour, leadership, risk, succession planning, management data generated by our own Institutional development and committee specific issues. Voting Information Service (IVIS), does show a clear connection between good All directors answered each question and were encouraged to governance, company performance and provide comments to whichever questions they chose. The last investor return. One important section was purely for director written contribution. conclusion, not highlighted in other From this information further structured discussions occurred research, is that good governance with key individuals on the Board, senior non-Board executives, reduces volatility of returns. Moreover, internal and external audit. This ensured a rounded view given good governance is also a precursor to the imbalance of stakeholders. good performance rather than vice versa”. A report was compiled which was discussed by the directors and a schedule of improvements was defined. Stephen Haddrill Director General, Association of British Insurers Results Against the backdrop of a highly successful and profitable The new UK Corporate Governance Code company, well run and widely respected, an objective, external requires that all premium FTSE 350 listed assessment was able to make a valid contribution to adding companies to have an external Board further dimensions to management excellence. Evaluation at least every third year. Under the “comply or explain” principle, they will The following areas were identified for improvement. These have to “explain” if they do not. were all implemented over the following six month period. The This standard is Best Practice for all other implementation was monitored and reported on at each Board listed and non-listed companies meeting in the intervening period. The Walker Review for Banks and Financial Further improvements were also noted that are in the process Institutions which lead to the new UK Code, of being implemented. identifies good business principles that add real value and thus provide guidance to All recommendations were accepted by the Board. Board Boards in effectively conducting its affairs dynamics improved as a result of the evaluation. The Board and leading the business. away day significantly improved Board cohesion and team spirit. For further information please contact Sharon Constançon Email: sconstancon@geniusmethods.com Telephone : 01494 565 947© Copyright Genius Methods Ltd 2011 www.geniusmethods.com
  7. 7. Findings and actions taken One of the three subsidiary companies needed an additional director to provide a better balance of skills. This director was identified and appointed. Directors did not have clear terms of office. This has now been corrected. Valuable Insights Independent directors did not have an annual review with the Chairman. “I was initially reluctant to conduct The process has now been put in place and voted to be mutually this on two counts. beneficial First, I was afraid this was just The strategy process was relatively informal in that each Board another box-ticking time wasting agenda had items of significant strategic importance but there was no full strategy overview. process. The company has now put in place a full strategy process with a full Second, as the person that built this Board day off-site to address strategy; the independent directors contribute at stages in the process and the final strategy is more a business from infancy to the reflection of the full Board. current time, I felt that I knew how to run the Board. Management development and succession planning needed to be considered given the family ownership and high shareholding. I was wrong. This is being addressed and is now more thorough and has been elevated to the status of an important annual Board agenda item The exercise has been very helpful, The agenda structure and time allocation to strategic issues needed to conducted by an excellent be addressed to ensure adequate time was given to these important consultant with really valuable matters. insights. The agenda has been re-shaped so that the important and strategic items are first on the agenda and the routine items relegated to the I have fully endorsed the action end. Time allocation has materially improved. plan and this will be a regular annual exercise in our company”. Further recommendations for improvement Chairman and The coherence of the strategy process and an external analysis of the operating environment. This was missing and therefore a risk that was Company Founder not adequately addressed Process of appointing independent directors needed to be formalized. This would help clarify succession issues Director annual appraisals Timely information flow for Board packs and information flow to the Board For further information please contact Sharon Constançon Email: sconstancon@geniusmethods.com Telephone : 01494 565 947© Copyright Genius Methods Ltd 2011 www.geniusmethods.com

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