This session covered: - What do we mean by governance? - What does it mean for NEDs? - Main points from ‘Boardroom Behaviours’ and ‘Board - Effectiveness Guidance’ reports - Good (and bad) governance – can it deliver value/prevent loss? - Benefits of perceptive governance

1. FSI / ICSA:
BVI Corporate Governance Seminar

2. The Value of Good Corporate
Governance

3. What we will cover
What do we mean by governance?
What does it mean for NEDs?
Main points from ‘Boardroom Behaviours’ and ‘Board Effectiveness Guidance’
reports
Good (and bad) governance – can it deliver value/prevent loss?
Benefits of perceptive governance

4. How can we define governance?
Cadbury definition- ‘the process by which an organisation is directed or controlled’
This is repeated in UK Governance Code 2014
It is NOT ‘How you behave when you think no one is watching!’ (per Bob Diamond)
Concerns exercise of power by different groups – directors, shareholders, etc.
…and disclosure and transparency, accountability, internal control, avoiding
concentration of power in too few
hands and conflicts of interest

5. Governance and the NED’s role
Distinction between governance and management
Management - ‘hands on‘; implements strategy
Seeks to meet performance goals/budgets
The board has a governance role
It agrees the strategy and ensures key processes and controls are in place
The NED’s role is about governance

6. BUT:
1. Executive recklessness: still untamed
2. Executive enterprise: often smothered
3. Executive pay: unchecked
4. Scandals &failures: recurrent
5. Sickly corporate cultures: unaltered
6. Complex operations: unmonitored
7. Trust in business: fragile

7. Boardroom Behaviours
Four uncomfortable truths:
1. Well-run companies could make strategic, sometimes catastrophic,
misjudgments.
2. Risk management was not properly overseen, monitored or reviewed by the
board; nor was risk appetite assessed and discussed by the board.
3. Remuneration and incentivisation were not aligned with shareholders’
interests.
4. Disclosure failed to inform stakeholders sufficiently.
https://www.icsa.org.uk/assets/files/pdfs/consultations/09.04%20ICSA%20Policy%20Report%206.pdf

8. Boardroom Behaviours
Three areas identified as requiring attention:
1. Institutional: are corporate governance policies and ‘architecture’ fit for
purpose?
2. Organisational: has management installed adequate processes and systems?
3. Behavioural: are directors exhibiting the appropriate behaviours?

9. Boardroom Behaviours
Better articulation of business case for good practice corporate governance may
incentivise directors to exhibit appropriate boardroom behaviours more rigorously
and readily
More focus on duties, responsibilities and liabilities may generate heightened
awareness of the need to exhibit appropriate boardroom behaviours more
rigorously and readily

10. Boardroom Behaviours
Good practice boardroom behaviour characterised by:
1. Clear understanding of the board’s role
2. Appropriate deployment of knowledge, skills, experience and judgment
3. Independent thinking
4. Questioning of assumptions and established orthodoxy
5. Challenge: constructive, confident, principled, proportionate
6. Rigorous debate
7. Supportive decision-making environment
8. Common vision
9. Achieving closure on each item of board business

11. Board Effectiveness Guidance
The guidance is non-mandatory
Intended to assist boards in implementing the leadership and effectiveness aspects
of the new Code
It relates principally to behaviours and good practice
https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/Guidance-on-Board-Effectiveness.pdf

12. Board Effectiveness Guidance - the role of the board
An effective board develops and promotes its collective vision of the company’s
• business purpose,
• culture,
• values
• and the behaviours it wishes to promote in conducting its business

13. Board Effectiveness Guidance: The Chairman
The chairman‘s role is crucial in creating the conditions for board and individual
director effectiveness
He sets the tone and standards for the board
He should demonstrate ‘the highest standards of integrity and probity’

14. Board Effectiveness Guidance: NEDs
Devote time to comprehensive induction extending beyond the boardroom
Devote time to developing knowledge/skills
Need to make sufficient time available to discharge their responsibilities effectively
Have a responsibility to uphold high standards of integrity and probity
Should insist on receiving high‐quality information sufficiently in advance

15. Board Effectiveness Guidance: Decision Making
Good decision‐making facilitated by:
1. high‐quality board documentation
2. obtaining expert opinions when necessary
3. allowing time for debate and challenge, especially for complex,
contentious or business critical issues
4. achieving timely closure
5. providing clarity on the actions required, and timescales and
responsibilities

16. Board Effectiveness Guidance: Decision Making
Hampered By...
A dominant personality/ group of directors who can inhibit contribution from others
Insufficient attention to risk
Treating risk as a compliance issue
Failure to recognise value implications of running business on basis of self-interest
Other poor ethical standards
Executives’ reluctance to involve NEDs

17. Family owned or controlled companies
They need to embrace good governance:
• CLICO
• Stanford Financial Group
• Hotel companies in St. Lucia:
o Discovery
o Smugglers Cove
o Landings
• VW

18. What is good governance?
1. Clear, consistent strategy
2. Clarity of business purpose
3. Board articulated values
4. Clear and appropriate communication
5. Robust processes and controls
6. Good open relationships with stakeholders
7. Board has balance of skills and experience
8. Sufficient independent directors
9. Transparent appointments process
10. Clear distinction between roles of chairman & CEO
11. Good succession planning
12. Clear delegations of authority

19. Complying with governance provisions
How much attention should be given to this?
Proportionate approach
Governance measures embedded on a ‘business as usual’ basis
Factor into the annual cycle
Look at governance policies/views of major stakeholders
Engage early if planning to depart from published governance policies or the Code

20. Complying with governance provisions
Box ticking’ - a missed opportunity
One can tick all the boxes and miss something crucial
Not being able to tick all the boxes is not necessarily a sign of poor governance
Essential to think through what is right for your organisation

21. Governance essentials
Clear board and committee structure and terms of reference and delegations of
authority – right number of meetings
Clear and embedded process and controls
A committed, skilled, constructively ‘challenging’ board
Keeping up to date – high quality MI
Transparent and open relationships with stakeholders

22. Benefits of good governance
1. Saving time and money
2. Better risk management
3. Lower cost of capital
4. Enhanced reputation
5. Better stakeholder relations
6. More investor support when ‘non-compliant’ or when problems arise

23. The value of governance
1. Good governance should help support corporate value by enhancing
reputation, reducing losses and inefficiencies, saving board time and
improving the decision-making process
2. Why do it otherwise?

24. Thank you.