Company Boards: More Similar than Distinct in Operation

Boardrooms aren’t so different when it comes to the effectiveness of them and keeping directors awake at night. Why would you bother performing a formal external evaluation of the company board when it wasn’t needed? It might seem a little like a school requesting an Ofsted inspection or something which is the type of thing that gives head teachers’ nightmares at night. However, more and more we see boards seeing regular board evaluations and being of value and employing the UK Corporate Governance Code as the tool for them.

Indeed since the year 2010, it has been a requirement within the list of FTSE companies to every three years conduct an external evaluation around this code. Any company that has a reporting date that follows October 1, 2014, is required to use the updated version of last year’s code putting more significance on long term risk management and organization sustainability.

Although this might come across as cumbersome, external evaluations have become more accepted gradually and are considered valuable to PLC company boards along with their stakeholders. It compares how serious a board takes its performance improvement and evaluation and offers some assurance about the operation of a board.

Many of company boards that are outside of the FTSE 350 are looking at the benefit of implementing the FRC code, which also includes public sector and mutual organizations and charities. However, does the assortment of core business and culture of these companies really indicate that only a single code can be their guidance?

Well, taking a look at the whole scheme of things, although a privately financed company has a far different mission than that of a large charity, when it comes right down to the anxieties and the insomnia it gives the Chairman, you can pretty much sum it up to boards not really being so different.

There’s More Alikeness than Difference in the Board’s Operation

A survey of the improvement and evaluation of board’s across all sectors was recently conducted which include over 100 company board members. This survey was put in place to explore the amount of differences between each sector.

It was found that although boards might operate very distinctive organization types, when it comes down to setting priorities, making decisions, obtaining proper skills and their viewpoint of their performance improvement, there was more similarity than difference between boards. Some priority differences were obvious.

For instance, the survey showed that there is much less focus on investment decisions and risk management with public sector boards as opposed to private sector boards. Also, important executive appointments were put on a higher priority list with charity boards than with other sectors.

Across all sectors, there are a higher percentage of boards that are performing some type of evaluation, however, outside the PLCS; most of these are exercises being done internally. But, the word is spreading about the good practice and FRC code adherence and more and more boards are beginning to look towards evaluation structures to help them with their development and assessment plans. Plus, newer codes are being developed in the public and charity sector.

Often, these newer codes are coming about due to companies feeling as though the FRC code is not applicable to their business. However, the new codes which are put in place to meet anticipated requirements of specific situations might result in missing the all point of a broadly applicable code.

There leaves a risk in typical blind spots within sectors being focused on when codes are created to suit specific sectors. Also, newer codes might not have continued resourcing and commitment which is offered through the FRC ensuring they are kept updated with the quick changing expectations of stakeholders.

Transfer Lessons, Build on Experience

Finance professionals and CFOs are in high demand for serving as trustees on boards and NEDs in various sectors. They gain a lot of experience which is in most cases an asset for the development of their own career as well as what they can contribute to governing the board.

Through supporting and reassuring board evaluation framework that is based off of the FRC code, these executives and NEDs may come up with a common language for discussing weaknesses, strengths and certain risk factors of any board. It also promises a better understanding of how boards can be more effective around the media and stakeholders and better board performance transparency.

Page Updated: May 18, 2015