bvalco

Walking the Floors

Fri, 10 Apr 2026 07:43:49 GMT

Ensuring that boards receive relevant and reliable management information remains one of the central challenges of effective governance. Experienced directors often have a strong sense of what they need to see. Yet as businesses evolve—through new products, changing processes, and shifting regulatory expectations—the demands on boards continue to intensify.

Innovation, while essential, can present risks. Those closest to developing new products are not always best placed to assess their downside. The period leading up to the 2008 financial crisis offers a clear warning: complex credit derivatives were widely promoted as reducing risk, yet many institutions failed to recognise the fragility of the underlying lending. Technical sophistication obscured fundamental weaknesses.

Risk, however, is not confined to complex or “exotic” products. The widespread mis-selling of payment protection insurance (PPI) imposed significant financial and reputational costs on UK institutions. It is difficult to conclude that boards fully understood the risks embedded in sales practices—or, if they did, that they acted decisively.

While every institutional failure has its own characteristics, a recurring theme is insufficient challenge. In some cases, boards did not press executives hard enough—either on the information presented to them or, critically, on what may have been missing. Recognising this gap is straightforward; addressing it is not. As Donald Rumsfeld famously observed, the greatest risks often lie in the “unknown unknowns”.

One practical way to mitigate this challenge is for directors to step beyond formal reporting lines and ‘walk the floors’. Direct engagement with staff—particularly those operating at the front line—can provide insights that are diluted or lost entirely in aggregated management information. While many boards maintain regular contact with senior executives, fewer systematically engage with employees below that level.

Such engagement should extend beyond head office. Visits to branches, operational sites, and smaller business units can surface perspectives that are otherwise inaccessible, offering a more grounded view of how strategy is executed in practice. Most people love to talk to curious and interested others about their role, what they do and why it matters. Skilful non-executives have a genuine interest in people and the work they do and, develop the ability to get to understand the business through the eyes and experiences of the people who work in it.

Some boards remain hesitant. Concerns are often raised about undermining management, creating misunderstandings, or disrupting day-to-day operations. These risks are real but manageable. Genuine transparency as to contact made with staff and a clear understanding among board members as to the boundaries of their role as non-executives, should help to ensure that concerns about non-execs wanting to ‘walk the floors’ do not arise. With clear communication, ‘walking the floors’ can be positioned not as a means of second-guessing executives, but to strengthen oversight—enabling directors to ask better-informed questions and support management more effectively.

In an environment where formal reporting can never fully capture operational reality, informed curiosity is a critical attribute of effective boards. Sometimes, the most valuable insights are not found in board papers, but on the ground.

Boundary Setting is Good for Business and is a Governance Issue

Thu, 12 Mar 2026 13:36:42 GMT

The FTSE Women Leaders Review 2026 celebrates significant and positive change in addressing gender imbalance in the board room, with public and private companies in the FTSE 350 at or near a 40% target for appointing women onto boards.

The picture is not yet universally positive, and the research team behind the review expects a levelling out of the pace of change. The focus moves also to executive director roles, which at just 15.4% of women is slower progress than that for female NEDs, which is now near parity at 49.5% of women. The report shows what progress can be made, and, crucially, why it is vital not to lose sight of the ambition, especially in light of the positive gains.

The rationale for the benefits of better gender balance is now well known. Gender diversity significantly improves innovation, creativity, sustainability and relevance, and reflects society.

From a governance perspective, mixed-gender boards are more rigorous as they tend to demonstrate better process discipline and relational vigilance. This last aspect alone has a significant impact on reducing groupthink, by encouraging dissent and stabilising disagreement through taking account of minority perspectives, not just the loudest voice in the room.

What gets in the way?

What, then, might still be getting in the way of even better gender balance, and through that even more effective governance and executive behaviours?

Some time ago I went to a Sunday BBQ with a female client. Senior leaders from across the business, many of them women, attended at the behest of the ‘boss’. Not going wasn’t really an option. Showing up was important.

The sun shone, conversation was convivial, generally work oriented, yet what was striking is how complicit everyone was in the company culture. People made jokes about the chaos, the long hours, the inefficiencies, the expectation to be ‘always available’. They were proud of it, wearing it like a badge.

This shows up in what rapidly becomes normative behaviours, from late-night last-minute emails, breaching ‘wellness days’, and panicked data demands that sidelined whatever current task someone (most likely junior) might be tackling, and so on. Senior executives on holiday routinely have out of office messages stating that they are still available through WhatsApp. This alone undermines trust in everyone else’s ability to be allowed to get on with their jobs in their absence. The feeling of being overwhelmed was commonplace, and entirely normalised. The idea of the ‘Heroic Leader’ is baked in.

While there might be times in one’s career when motivation and reward appear to warrant the other costs associated with heroic striving, on balance, this is neither healthy nor productive in the long run, at both the individual and organisational level.

By contrast, another colleague remembers a former boss who made a point of arriving early, getting on with the tasks at hand and focused on outcomes, and leaving bang on five. From time to time, they would stay later and wander the offices and told people to go home. It gave everyone else permission to do the same. It’s one of the world’s most successful banks, by the way.

In high-speed organisations, like banking or technology where expansion and innovation are key drivers, or in volatile markets or where FOMO appears to have gripped the sales function, modelling healthier behaviours such as the boss that leaves on time, or really going on holiday and being unavailable, feels counterproductive, especially if no one else is doing it. The psychological cost of adopting healthier behaviours can be enormous.

Male Coded-Traits Persist

Gender bias and structural power shape modern boardrooms, which still prize traditionally male-coded traits, such as assertiveness. Sheryl Sandberg’s important book Lean In recognised this and sees the first wave of change as adopting some of these male-normative behaviours as a staging post for shifting culture further down the line.

In a hyper competitive landscape, the boundary between professional excellence and personal erosion become blurred and can drift quickly into the normalisation of harm. People in high-pressure roles gradually accept overwork, emotional volatility and impossible expectations as ‘just part of the job’.

This is reinforced by unpredictable rewards, from bonuses, public praise such as ‘we’re so glad you’re here, we know how you feel’, and occasional breakthroughs, which keeps the dopamine hit going long enough to make it all feel ok. What’s really happening is that this hypervigilance keeps the body in a permanent state of fight, flight or freeze, just like the ping on your phone. Other clinical studies show clearly that constant cortisol flooding in this way interferes with judgement and decision-making. At a chronic level, the body’s immune system is also seriously compromised.

Ungoverned, the physical and social cost can also be significant, and organisations that unintentionally foster a Hero Culture create a system of reinforcement for overwork. We might see this in managerial language, such as ‘stretch targets’, and ‘high accountability’ or where people are publicly admired for self-erasure, working through holidays and being always on.

This can then manifest in clinical level harm, from chronic stress, anxiety disorders, and sometimes family breakdown and burn-out. There are physical markers of high functioning stress, too, jaw tightening and teeth grinding, tight chest and aching shoulders, and a general sense of the body being ‘on edge’, where physical and psychological safety dissolves. These symptoms appear in tribunals and occupational health reviews.

Internalised guilt, especially among women, can become a primary regulator of behaviour, with leaders self-policing and competing in self-sacrifice, fearing that any limit-setting will be viewed as a lack of commitment.

Relational Labour is Marginalised

These are male-normative structures, and the foundational theories of motivational behaviour were built on male sampling, traits such as competitive drive and visible dominance can still be embedded in promotion and leadership evaluation systems. With that, women in particular face a double bind, not just because they are often carrying substantial domestic demands, but because being assertive can lead to social penalties, whereas being communal, which tends towards better outcomes, can result in being overlooked.

This relational labour is often marginalised. Listening, emotional regulation, and trust building, historically coded as feminine, is treated as secondary and we often hear them described unhelpfully as ‘soft skills’.

Resilience

It’s worth commenting on resilience and making a distinction between resilience as a corporate overlay where the focus is on endurance within a broken system, and developing resilience by paying attention to systemic health and somatic (how the body and nervous system is responding to the environment) recovery.

It’s not unusual to see such things as well-being initiatives become tools for normative control. While framed as supportive, they can feel transactional and performative, adding further demand. We’ve all been on mandatory online wellbeing courses and had to cram them during the evening.

Conversely, resilience as a developmental leadership skill focuses on sustainable performance, not just endurance. Sports performance psychologists understood this distinction long ago. By example, we see this enacted where leaders demonstrate co-regulation. The ability to remain calm and assertive creates a contagious sense of safety for the team. Put another way, leaders bring the weather with them, for good and bad.

Good governance looks to system diagnostics over individual scoring, and insights from the FTSE Women Leaders Review suggests that these developmental resilience skills are more likely to be legitimised when there is a critical mass of gender diversity at board level.

Cultural Shifts

There are better governance frameworks, deliberatively designed to recognise the broader reach of complementary behaviours that counter male-normative models. In short, balancing the board as a starting point. Strength level behaviours are not about relentless drive. The ability to refuse false urgency and to slow down decision making reduces the risks of harms that are invariably unevenly distributed, and women are often the most at risk.

Embracing this broader scope is essential governance work, and at Bvalco we see that in action. Where boards have a critical mass of women on the board and in leadership roles, companies tend to function and perform better.

As often is the case, change starts at the top, although increasingly we are seeing a younger generation coming up that don’t accept the old ways. Boards that interrogate how and why authority is more easily granted to some identities than others, is one way in to begin a powerful cultural change. Asking, ‘whose confidence is recognised here and whose hesitation is penalised’ can also be transformative. Relational labour is core work, not a side bar issue, and boards and leadership hold a shared accountability to prevent hypervigilance and burnout.

The bottom line

If we start with the question of the benefits of boundary setting, not the costs, then everyone will be better off, men and women, even the shareholders.

Leaders must become much more risk aware, and even they need uninterrupted time at home on a Sunday.

Too big not to fail – at least sometimes. What boards can learn from the BBC

Fri, 28 Nov 2025 14:21:37 GMT

Writing in The Financial Times (15 November 2025), Chief Features Writer Henry Mance suggests that the BBC is “too big not to fail”, at least sometimes. Mance illustrates the scale of the organisation, with over 10 years’ worth of content on iPlayer alone. “Inevitably, there are mistakes,” he says. The article sets out the challenges of governance in particular, especially for a public institution so often in a political spotlight. A central point made is not that mistakes happen, but the “failure to correct it quickly”.

The article maps the various trials and challenges of successive Director Generals, and their Chairs, from the BBC’s inception, and through some of our most turbulent times. The Second World War, the General Strike, the miners’ strike, the Iraq war, migration and latterly responses to the American administration. A key strand is that party politics plays a strong hand, where some might argue it should not, in particular in its appointments of top executives.

What is particularly interesting for those leading organisations that have a distinct public service element, by example, education, charities, the media more generally and perhaps arts & culture organisations, is the discussion around impartiality, what that looks like, and how to get it.

Citing historian Prof David Hendy, from his book The BBC: A People’s History (2022), Mance draws out two distinct approaches to impartiality: one found through balance, the other through independent judgement. We’ve all heard the BBC quip, ‘other suppliers are available’.

Taking the first approach, ‘balance’ superficially appears to mean that oppositional ideas must also have their equal time in the sun. Where this becomes problematic is when, in the effort to be balanced, there is the implication that a minority view carries equal weight. Examples include climate science, populist politics, and to some extent the migration debate.

The second way forward, ‘independent judgement’, is favoured by investigative enquiry, where perhaps a more nuanced and balanced view can be more easily reached when emotion and popular opinion is given less sway than the evidence: facts over opinion. This is hard to do, especially in institutions where vocational drive can be so emotionally charged.

Mance also points to the work by policy specialist Dr Madeleine Sumption, MBE, who was commissioned by the BBC’s board to assess the impartiality of the BBC’s coverage of migration (March 2024). Finding, unsurprisingly, that the topic is “technically complex, emotional and contested”, the report also found that, while reporting standards were high, there is a tendency for too narrow a political lens, focused on a small number of high-profile people.

All of the above might easily be levelled at how boards can sometimes fall into narrow decision-making models. One of Sumption’s findings is that the more intense or prominent viewpoints can sometimes carry more sway. This is echoed in the Charity Governance Code that also advises boards to balance evidence from a range of stakeholder perspectives, "not just the loudest or the most persistent". At Bvalco we see time and again that the best boards continually seek to improve the quality of decision-making by trying not to fall foul of biases and irrational behaviour in this way (see table below for how the Sumption report maps against the Charity Governance Code for ways to avoid this).

Sumption offered a number of key points to improve impartiality from the position of independent judgement, and they mirror much of the changes to the recently published update to the Charity Governance Code 2025.

This is how they compare.

A strong running similarity is that both organizations are challenged by superficial engagement: the CCG cautions boards against listening only to the loudest stakeholders, while the BBC Review finds journalists often settle for the easiest political soundbites instead of the substantive debate. Both solutions involve a commitment to proactive learning and specialized resources to navigate complexity and maintain integrity.

These core similarities are perhaps useful guiding lights for all boards, and not just those with a public mission:

· A commitment to evidence and context.

· Valuing and seeking diverse expertise

· Ethical conduct and transparency

· Focus on substantive purpose

· Empathetic engagement with stakeholders.

The question is, how?

Stakeholder Perspectives on Board Reviews

Mon, 28 Oct 2024 10:52:45 GMT

Nov 12, 2024 12:00 PM

Good board effectiveness reviews are an invaluable tool for all well-run organisations but it’s not just the boards and the organisations that benefit from and have an interest in them.

This free webinar, delivered by four of the experts from the Board Effectiveness Guild looks at the different stakeholder perspectives on board reviews. It sets out the considerations that boards should be taking into account with regard to those stakeholders, both in planning board reviews and in engagement with them during and after the review.

The webinar will look in detail at:

Boards and employees - Ian White
Boards and owners (Government and investors) - Alex Cameron
Boards and regulators (PRA, Charity Comm etc) - Peter Snowdon
Boards and senior management - Chris Stamp
Audience Q & A and discussion

Drawing on their many years of experience conducting board evaluations across all sectors, the speakers will draw out the key factors boards should be considering to make sure their effectiveness reviews are as relevant and useful as possible.

If you have any questions you would like raised in advance of the webinar please email them to admin@governancepublishing.com

2024 UK Corporate Governance Code - Malus and Clawback some thoughts for boards to consider

Wed, 07 Aug 2024 08:00:00 GMT

The 2024 UK Corporate Governance Code (the Code) introduces the concepts of malus and clawback to the Code for the first time. These provisions apply in relation to the payment of bonuses or shares to directors of a company.

What are malus and clawback?

Malus is sometimes referred to as a negative bonus; it allows a company to reduce or cancel unpaid variable remuneration before it has vested. Clawback provisions require repayment of variable remuneration that has already vested or been paid.

What are the Code provisions on malus and clawback?

The Code provides as follows:

37 Remuneration schemes and policies should enable the use of discretion to override formulaic outcomes. Directors’ contracts and/or other agreements or documents which cover director remuneration should include malus and clawback provisions that would enable the company to recover and/or withhold sums or share awards and specify the circumstances in which it would be appropriate to do so.

38 The annual report on remuneration should include a description of its malus and clawback provisions, including:

the circumstances in which malus and clawback provisions could be used;
a description of the period for malus and clawback and why the selected period is best suited to the organisation; and
whether the provisions were used in the last reporting period. If so, a clear explanation of the reason should be provided in the annual report.

Guidance to the Code provides as follows:

331 Schemes should also include malus and clawback provisions in certain specified circumstances. Such circumstances might include payments based on erroneous or misleading data, misconduct, misstatement of accounts, serious reputational damage and corporate failure

Who is responsible for malus and clawback policies?

As with most policy matters ultimate responsibility for the introduction and operation of malus and clawback arrangements sits with the board. In practice, detailed policy on such matters will typically be delegated to the Nomination Committee. The Risk Committee also plays a crucial role due to the clear links between a company’s risk profile and the remuneration of key individuals.

Companies should not underestimate the policy challenges presented by malus and clawback. None of the non-exhaustive list of circumstances envisaged in the Code guidance are easy to implement, albeit some may be easier than others; events such as ‘misstatement of accounts’ or ‘corporate failure’ may be clearer concepts of failure to identify and take account of when designing service contracts. Assessing an individual’s behaviour against concepts like ‘serious reputational damage’ or ‘misconduct’ can be particularly challenging due to varying interpretations in different contexts. Thus, both qualitative and quantitative judgments are inevitably required. Outcomes may even differ across industries due to sector-specific sensitivities. As with other governance areas, difficult cases will demand careful and reasoned judgment.

For example, how should a company respond to a situation where its CEO is accused of gender-based bullying? Can it be reasonably classified as ‘misconduct’? Has it caused ‘serious reputational damage’ to the company? A scenario where a CEO is found by compliance to have used a company computer to view pornography may be easier to judge.

It is impossible for companies to develop an exhaustive list of behaviours that trigger the test, but they must carefully ensure they adequately capture behaviours likely to cross the boundary. Designing effective policies will require significant input from the company's Risk function and the experience of the People Team.

Employment and service contracts

Employment and service contracts will need to be amended to take account of malus and clawback. Such changes are likely to have substantial impact on an individual’s terms of service.

There are too many issues to list in an article of this type but likely impacts on contracts include whether relevant payments to an individual should be withheld during a period in which that individual is being investigated for a potential breach.

There will likely be a need for detailed guidelines on how a company should calculate deductions resulting from a breach, including what factors might mitigate or aggravate the situation and how these will be considered when determining the amount. Deciding on appropriate actions is never straightforward, and it becomes even more complex if the individual has left the company, as relevant misconduct may take years to surface.

In conclusion, the introduction of malus and clawback provisions in the 2024 UK Corporate Governance Code represents a significant step towards strengthening corporate accountability and aligning executive remuneration with long-term company performance. Boards must navigate the complexities of implementing these provisions, ensuring policies are robust, clear, and adaptable to various scenarios. This will require a concerted effort involving the Nomination and Risk Committees, as well as the broader governance and risk management functions of the board. By thoughtfully addressing these challenges, companies can foster a culture of integrity and responsibility, ultimately enhancing trust and stability in the corporate sector.

Risk, dissent and decision-making part 2

Wed, 31 Jul 2024 08:04:11 GMT

In the second article of the "Risk, Dissent and Decision-making" series, members of The Board Effectiveness Guild explore how boards can effectively address risk and the behaviors that inhibit meaningful discussions. They discuss ways to increase constructive challenge within board conversations, emphasizing the need for genuine challenge to support board diversity.

The Vital Role of Non-Executive Directors in Corporate Governance

Fri, 26 Jul 2024 06:04:02 GMT

The role of non-executive directors (NEDs) is to support and provide appropriate challenge to the executives. Their involvement at every stage of a company’s development is crucial, guiding and supporting the executives as needed. Sometimes, they may need to say no to management, and where failure is material to the longer-term health of the company, there may be a need to replace senior executives, including the CEO. For obvious reasons, the board of a failing company will wish to change leadership before the company’s decline becomes terminal.

Ensuring Effective Board Actions

When a company is failing to meet expectations, it is the board that will effect change based on their own conclusions, although failure is also likely to drive shareholder dissatisfaction.

The Need for NED Knowledge

Before making a material decision that will affect the future of a company, NEDs need to ensure that they have sufficient relevant information to reach a reasoned conclusion. This need for information arises not only when things aren’t going well. The seeds of failure may have been sown in the company’s strategy agreed by the board in previous years.

At Bvalco, we have seen situations where an ‘oven-ready’ strategy has been presented to the board by the executive, offering very little real opportunity for NEDs to question, comment on, or challenge executives’ proposals. Conversely, we have seen models where the CEO returns to the board on multiple occasions with ideas on strategy, first with a presentation on big-picture ideas and subsequently as the strategic plan is developed further. Each stage of this process keeps the board abreast of the executives’ developing thinking and offers NEDs the opportunity to ask questions, make suggestions, and challenge constructively.

Involving NEDs at an early stage helps to strengthen the board’s team dynamics, build mutual trust, and offer the executive the chance to mine the knowledge of NEDs’ experience and knowledge. Collective respect between executives and NEDs helps to build confidence and enhance the effectiveness of the board.

Oversight and Monitoring Performance

Once a strategy is in place, the board will need to monitor its implementation and effectiveness. NEDs need to think carefully about the type of management information they wish to receive from the executive. Such information should enable the measurement of implementation and success.

NEDs need to ensure that reports and information are presented in such a way that they can clearly assess company performance. Lack of clarity may not be a deliberate ploy by management but just a failure of process. Whatever the reason, poorly crafted information hampers the effectiveness of the board and can damage trust. For example, at Bvalco, we have seen management information that fails to employ consistent metrics from one report to the next, making it very difficult for NEDs to assess performance or identify potential weaknesses.

Conversely, it is important for information to be dynamic; content and form are likely to need to change as a business develops or circumstances change. Data presented to a board must be fresh and retain relevance.

NEDs also need to think about what information they may not be receiving. This can be difficult for NEDs, as identifying known unknowns is one thing, but working out unknown unknowns can be particularly challenging. This is where NEDs’ experience and knowledge really come into play; reflecting on a business, the market, and its competitors can help NEDs formulate questions and requests from executives. If something is an issue in the market and NEDs have heard nothing about it in management information or at board meetings, they need to ask why.

Handling Unreported Initiatives

At Bvalco, we have attended board meetings where executives have reported to the board on significant initiatives that apparently had been underway for some time but had not previously been brought before the board. This is a particular risk for subsidiaries in large groups where key resources and policies are often developed at the group level. A parent in another jurisdiction can make the issue more complex. Executives must remember to keep their board updated, even if they believe that a group-wide initiative or policy limits the ability of NEDs on a subsidiary board to influence matters.

When Things Go Wrong

Information and knowledge are particularly relevant and important when things go wrong. Subject matter expertise among both executives and NEDs is essential. Some of the most significant failures in the financial services industry were not picked up early enough because management did not understand the business which carried the risk. Sometimes, failure occurs in those business lines which had been reporting the best results. Unexpected or super-success may be an indicator of risk.

NEDs who are taken onto a board because they have a particular expertise, such as in cutting-edge IT, but who lack a detailed knowledge of the business in question, can face particular challenges and risks. At Bvalco, we have sometimes interviewed NEDs who have told us that they consider themselves to be on the board because of their particular skill and feel reluctant to comment on questions falling outside their area of expertise. However, in practice, a NED is responsible for any decision or omission by the board. All NEDs need to build sufficient knowledge as part of their own due diligence; walking the floors of the business, speaking to the business, and seeking support and training from the governance secretariat as needed. Their knowledge needs to be reasonable in the circumstances; they are not expected to be experts in everything, but they cannot absent themselves from the decision-making processes of the board.

Conclusion

NED’s play an indispensable role in ensuring robust corporate governance through informed decision-making, continuous oversight, and proactive engagement with the company's strategy and operations. Their expertise and diligence are crucial in steering the company towards long-term success and stability.

Confirmation Bias - Watch Now

Tue, 02 Jul 2024 12:21:08 GMT

Alex Edmans, author of May Contain Lies in conversation with Alison Gill considers – ‘what is confirmation bias and why does it matter to boards and, how can you ensure you and your board don’t fall into this thinking trap’.

Risk, dissent and decision-making part 1

Sun, 30 Jun 2024 07:56:46 GMT

Following a recent webinar presented by members of The Board Effectiveness Guild on "Risk, Dissent and Decision-making," the need for genuine challenge and dissent to support board diversity was emphasised. This article explores different perspectives on how boards can use all their resources and emotions to reach more robust decisions.

Navigating the 2024 Changes to the UK Corporate Governance Code

Thu, 14 Mar 2024 08:48:51 GMT

The Corporate Governance Code introduces several key changes aimed at enhancing transparency, accountability, and effective governance. This note summarises some of the principal changes and how Boards should incorporate them into their practices.

Principal changes in the 2024 Code

Board Leadership and Company Purpose

New Principle C provides that ‘[g]overnance reporting should focus on board decisions and outcomes in the context of the company’s strategy and objectives. When deviating from the Code, clear explanations are required.
Provision 2 of this section has been amended so that in future boards should not only assess and monitor culture but ensure it is effectively embedded. The guidance states that ‘[e]mpowered middle managers are key to the successful embedding’ and ‘boards should seek periodic assurance from management that it has effectively embedded’ culture and values, this includes asking specific questions to evaluate the company’s culture.

Diversity and inclusion

Amended Principle J (Composition, Succession and Evaluation) promotes diversity, inclusion and equal opportunity, without referencing specific groups.
Provision 23 has been amended to take account of those companies that may have initiatives than a diversity and inclusion policy when seeking to support the development of diversity and inclusion within the organisation. Annual reports should describe the company’s diversity and inclusion policies, initiatives, objectives, implementation, and progress. This allows for a broader range of initiatives beyond formal policies.

Risk and control framework

Amended Principle O (Audit, Risk and Internal Control): In addition to establishing risk management and control framework arrangements, the board is responsible for maintaining their effectiveness. Provisions 25 and 26 have been updated to reflect the Minimum Standard.
New Provision 29 underlines that boards should monitor and review the effectiveness of these frameworks annually, reporting on any material control issues and actions taken to address them.

The company’s annual report must describe the board’s monitoring and review of the framework detail, any material controls and actions taken or planned to improve them, address previously reported issues, and include a declaration of the effectiveness of material controls.

Paragraph 259 of the guidance emphasises that ‘the existence of a risk management and internal control framework does not, on its own, signal the effective management of risk. Effective monitoring and review are essential components of an effective risk management and internal control framework’.

The guidance includes extensive commentary as to what is expected of a board when it seeks to comply with the requirements set out in Section 4 of the 2024 Code.

Directors’ rewards - clawback and malus

Amended Provision 37 : Directors’ contracts must include malus and clawback provisions to recover or withhold remuneration or share awards under specific circumstances and include details of the circumstances in which they would be triggered.
New Provision 38 : Annual reports should detail these provisions, including their application and rationale, and explain any instances where they were used in the last reporting period.

The Guidance

The guidance includes examples of good practice to support directors and their advisors when applying the 2024 Code. The guidance is not mandatory but can help inform decision-making and ensure compliance with the new Code provisions.

Implementation Timeline

Most changes take effect from January 1, 2025, except for Provision 29, which is effective from January 1, 2026. This phased approach allows for boards to adapt and implement the new requirements effectively.

In summary:

The changes were signalled widely before their formal adoption into the Code, so there are few surprises for firms. However, observers have noted that the changes will result in significant additional responsibilities for boards with new monitoring and reporting obligations. For example, it will be for the board to decide what are “material” controls when it monitors the performance of the risk framework. Others have commented on the malus and clawback requirements, noting that experience in the financial services sector (where similar provisions have been a feature for some time) proved challenging, particularly where companies propose to employ key personnel from outside the UK.

AI Governance: Navigating Commercial and Public Interests

Mon, 29 Jan 2024 13:00:02 GMT

In November the Board of Open AI an operating company backed by Microsoft sacked its chief executive, Sam Altman. He was then very quickly reinstated by Microsoft. The circumstances of this dismissal and reinstatement give rise to some intriguing governance issues.

Open AI’s function was to develop and commercialise AI products. Scientists and governments the world over now recognise the risks involved with the development of AI, specifically when an AI product crosses a threshold and becomes an independent all-powerful lifeform itself known as artificial general intelligence.

Those who defined the charter of Open AI recognised this. The statutes of the company stipulated that at the moment that the product being developed is deemed to have crossed that threshold and become artificial general intelligence, the commercial backers would cease to have any further rights over the product and, control of its development and commercialisation reverts exclusively to the board who presumably would then be expected to act in the wider public interest and possibly ‘save the world’.

In November the board of Open AI alleged that Sam Altman was not keeping them sufficiently informed about the development of AI such that they did not feel they were able to exercise their responsibilities and they dismissed him. Microsoft then rehired him.

Ultimately, and if it goes that far, a Court would decide who in these circumstances was in the right given the constitution of the company. But what is clear is the altruistic function of the Board was in stark conflict with the commercial interests of Microsoft and its shareholders.

The point from a more general governance view is how a board balances the interests of the shareholder with the wider public good. If one looks for guidance in the Companies Act, a director (and therefore, collectively, a board) has to balance, in essence, the commercial success of the company. This involves, among other things, considering the interests of its employees, fostering good business relationships with suppliers and customers, and taking into account the impact of its operations on 'the community and the environment.'

Question: Would the latter consideration have caused your board to act in equivalent circumstances in the same way as the board of Open AI?

Post Office Scandal - What lessons for Boards?

Mon, 22 Jan 2024 13:00:02 GMT

Finding the ‘known unknowns’ or, is it the other way round? Whichever but that is the critical challenge for all non-executives. How does one ensure that one is alerted to the ‘black swan’?

It does seem remarkable that the Board of the Post Office was not given or did not avail itself of an opportunity to intervene at an earlier stage. The Public enquiry will doubtless opine and perhaps it is unhelpful to be too specific about this case at this stage. But whatever else, so far as the Post Office itself is concerned their conduct has been outrageous as Sir Wyn Williams found.

But without forming any final judgment on the Board’s behaviour, what and how should the warning signs have appeared on their radar?

Presumably the Board had a risk register. The installation and operation of an IT system the size, breadth and cost of Horizon ought surely to have been included.

The Post Office had powers to prosecute without reference to the CPS. These powers are pretty unique and fraught with reputational mine traps. You only need one court to make a critical statement for it to have real reputational damage. The exercise of those exceptional powers should itself have been something which the Board should have overseen. They would surely have noticed and questioned the contemporaneous exponential rise in the number of prosecutions and closure of post offices.

Both these are matters which the Board should have monitored as part of a risk agenda without any further red flags appearing. Any more evidence of awareness of the problem and a failure to follow up will be uncomfortable for the non-executives of the Post Office to account for.

Given the complexity and commercial considerations of the arrangements with Fujitsu and also with the multitude of sub-postmasters the Board may have been unduly influenced, at least initially, by legal advice.’ Do not admit liability’ we are told when we get out of a car after an incident, even if it was you who reversed into a stationary vehicle! I exaggerate. But there must come a point in such circumstances for the Board to say ‘Enough! There is more at stake here than the bottom line’. Boards need always to be prepared to challenge legal advice on case strategies.

How would your board measure up in these circumstances?

Is the Covid Inquiry thinking strategically?

Thu, 30 Nov 2023 15:13:47 GMT

We have written about the critical behavioural skills underlying high quality strategic thinking in a boardroom. Based on what I read and see, I fear the outcome of the Covid Inquiry will not deliver the strategic resolution we need.

The Inquiry is attracting increasing criticism in the press for its focus on personalities and the culture prevalent at the time rather than examining the real lessons to be learned for management of future pandemics.

Jonathan Sumption KC [1] writes that learning lessons means assessing policy options with the benefit of hindsight and the mass of information now available rather than apportioning blame, as the Inquiry appears to be doing. He raises the absence of any critical analysis of the modelling of the spread and impact of the pathogen and the assumption that people would take no steps for their own protection. He speaks of the complete absence of any attention to international comparisons.

In an article in the Spectator, Professor Carl Heneghan [2] argues that this is an opportunity for the inquiry to gather evidence and ask whether lockdown and other interventions worked. He concludes that the whole inquiry is working on the premise that we should have locked down harder sooner and longer and is avoiding examination of other options.

If they are right, and if one can rely on the media coverage as a fair representation of the Inquiry’s approach, we are observing a very poor example of strategic thinking. I accept that the Inquiry is not performing a like function to a board of directors. But both use the experience of past events and the outcome of past decisions to design policies or inform future actions. Surely the same critical behavioural traits apply.

Good boards think strategically. They equip themselves with the right information with which they diagnose the opportunities and costs of future actions.

Is this Inquiry seeking and harvesting all relevant information? Is it looking at strategies adopted in other jurisdictions and measuring their success? Rich and broadly based information is the foundation of any high quality strategic analysis. Is this Inquiry sufficiently sensitised to the risks of being too selective or dismissive of information for reasons of bias?

Without all the relevant data the Inquiry will struggle to form a proper diagnosis to help understand what might have been the right response and develop effective solutions for the future.

Based on the reported approach, I am also concerned that this Inquiry is not demonstrating the intellectual agility required to evaluate the strategic options and possibilities weighing up the pros and cons of different options linking different concepts and synthesising alternatives.

Will it deliver a viable and effective action plan for the future, or will it merely be a castigation of past conduct serving only to tell people how not to behave rather than what they should do?

If the latter, how has this happened? When you look at the Inquiry’s published terms of reference [3] you will see the detail and focus attached to its Aim 1 being to ‘Examine the COVID-19 response and the impact of the pandemic in England, Wales, Scotland and Northern Ireland, and produce a factual narrative account, including ( 36 itemised bullet points) ……’ dwarfs the reference to Aim 2 being simply to ‘Identify the lessons to be learned from the above, to inform preparations for future pandemics across the UK’ seemingly included as a mere afterthought. Little wonder the Inquiry’s attention is misdirected and how critical then it is that terms of reference of any Inquiry of this sort are crafted in such a way as to encourage better strategic thinking.

What would be your board’s approach to commissioning an inquiry?

[1] Jonathan Sumption: Why the Covid inquiry is a farce (thetimes.co.uk)

[2] You searched for Carl heneghan | The Spectator

[3] https://www.gov.uk/government/publications/uk-covid-19-inquiry-terms-of-reference/uk-covid-19-inquiry-terms-of-reference

Artificial Intelligence (AI) and the independent non-executive director

Wed, 01 Nov 2023 09:00:01 GMT

When carrying out board reviews we have seen that artificial intelligence (AI) is playing an increasingly important role in the life of companies. However, while we see boards requesting information and challenging executives on how AI is being, or will be, deployed in the business, we have observed that few boards seem to be considering how AI can be used to improve their own effectiveness.

NEDs cannot ignore AI.

NEDs can be forgiven for feeling uncertain about how they can use AI to support their governance roles. The term AI captures a wide range of concepts from Assisted AI, which supports humans in making decisions, through Augmented AI, which can help in the creation of new ideas, to systems which have the potential to make their own decisions without human intervention.

Many directors, even those with a technology background, are unlikely to be experts in AI but it is incumbent on them have a reasonable understanding of how AI works, the benefits it could bring, the risks and how these can be mitigated.

Directors cannot ignore AI, legislators and others are already questioning whether a failure by a board to use AI may in future be seen as evidence of negligence.

What can AI do for NEDS?

Even basic forms of AI can help NEDs. A complaint we often hear from NEDs, particularly in regulated businesses, is the time spent at board meetings reviewing reported materials. Carefully calibrated AI could be used to manage this burden, streamlining the process of identifying issues helping a board to be more focussed.

AI can aid non-executive directors in searching and analysing commercial and operational data, enabling them to gain a deeper understanding of the day-to-day activities of the business and enhance the support, challenge, and constructive feedback they provide to the executive team.

The potential uses of AI are many and various. In a short article it is not possible to discuss the many potential ways in which AI could be used but examples include:

AI’s ability to review large amounts of data can support risk analysis, enabling a more effective assessment of both future risk and existing risks supporting both the company’s risk function and its risk committee.
a board could use AI to undertake due diligence searching public data sources on a proposed strategic partner ahead of a decision to agree a joint venture.
Autonomous Intelligence, where a machine makes decisions independently but operates only within a predefined range, could be used to complete certain tasks such as researching, negotiating and agreeing utility contracts more effectively, efficiently and at a fraction of the cost of a human team.
AI could also be used to support board committees including, for example, searching audit data for the audit committee and enabling the nomination committee to undertake searches for and, subject to legal requirements, due diligence on potential new board members; and
Enabling boards to get closer to the needs and aspirations of a company’s most important asset – its people – through assessing staff data and surveys.

AI risk for NEDs

Although AI offers NEDs many potential benefits there are also significant potential risks for boards. Poor or biased data will lead to flawed outcomes, the old adage ‘rubbish in rubbish out’ applies equally to AI as it does to established technology. The quality of any data that is used by a company’s AI capability needs to be ensured.

Faulty or sub-standard AI technology could be disastrous for a company. A board will need to complete due diligence on any AI potential capability before it gets anywhere near adoption. This may mean an external assessment by a suitably qualified independent third party. Boards need to consider how to manage AI acquisition risk, there is no set answer to this but creation of an AI sub-committee, appointment of an AI lead or establishment of an AI working party may be options. Given the importance and potential risks associated with AI, the board might expect to take a particular interest in the hiring of individuals with AI expertise.

Directors need to be able to explain their decisions. Some ‘closed’ AI technology teaches itself and can make decisions without human input. Directors may feel uncomfortable relying on such technology other than in very specific lower risk situations. One question a NED may want to ask is ‘if I rely as a director on black box capability how would I explain my decision to a regulator if I am challenged?’

Boards should also consider establishing a protocol to require directors to disclose when they have independently chosen to use AI to assist them in performing their role and to require them only to use AI systems which have been approved by the company.

The ability of NEDs to use AI to process and reassess data carries the risk that a NED may be tempted to second guess decisions made by executives. NEDs will, more than ever, need to be mindful that their role is to support and provide constructive challenge to executives not to step into the executive arena.

AI development is in a state of permanent revolution, keeping abreast of developments in AI is likely to be a challenge for NEDs for the foreseeable future.

There has been some speculation more complex AI will eventually remove the need for human directors, but we are not there yet. AI has no legal personality and company law still expects to see human judgement when decisions are made and human liability if things go wrong. For the time being at least directors will continue to be held accountable for board decisions.

At what price loyalty and what value resides in a reputation under scrutiny?

Thu, 26 Oct 2023 12:00:00 GMT

In recent months we have witnessed examples of governing bodies, whether boards of directors or trustees, either defending an individual executive from external criticism or failing to dig deeper into an issue for fear of damaging the institution’s reputation. Should the Board of NatWest have declared full confidence in its chief executive whom they otherwise held in high regard where she had potentially breached the banking confidentiality of a high-profile person? Should the board of the Post Office have delved deeper into the reasons why so many sub postmasters across the country were being accused of fraud and raising the malfunction of the new Horizon system as a defence.

Only with hindsight do answers to these questions become more apparent. But recognising that, by definition, hindsight is not available, what lessons can any board of directors learn now about managing the risks of becoming inappropriately defensive of an individual or a reputation in advance of it becoming an embarrassment?

First avoid group think. Encourage diversity of opinion. There must always be at least one person who can act as the devil’s advocate, and they must be given the space and the respect necessary to express the contrary view. This seems like an obvious answer, but the evidence suggests that is not always the case.

Perhaps in crisis situations it is the urgency required in which to form a view and make a public announcement which is the problem. Was this the case with Nat West? Given the urgency of a situation the inevitable preliminary one-to-one discussions between individual members of the board, can result in dominant views being formed in advance of any group discussion which then becomes too challenging for others to shift. Perhaps therefore, it is essential to ensure there is some process in place to guard against this. Board meetings online are unavoidable in urgent situations, but it is a forum in which it is harder to express a contrary view effectively; those chairing the discussion need to acknowledge this. One of our client chairmen always insists that those attending a board meeting online, forward their questions or comments in advance to be raised by the chair at the meeting.

In the case of the Post Office scandal many have suffered intolerable injustice as a consequence of defending an investment and thereby a reputation in a malfunctioning software system. It is not clear what information had been elevated to the Board at what time. However, it appears that at an executive level and so far as the supplier of the software was concerned, there was a determination to take active steps to silence any suggestion that the huge investment made in the software system was deficient in order protect a reputation.

Executives will instinctively be tempted to defend a decision or reputation whether at a personal, team or institutional level. Sometimes the desire to protect a reputation is misplaced and the longer it persists the greater the potential damage. This can be an incremental process, and the insidious effect leaks upwards even to the board itself.

Ensuring that all members of the board have the necessary information at the right time is critical. To ease this process, developing and nurturing a culture then in which executives are comfortable to share concerns about this at the earliest stage is essential. But it remains the job of independent directors to be alert, to keep ‘their ear to the ground and not over rely on the executive version of events and thereby mitigate the risks attached to the temptation of executives to keep things to themselves where reputations are at stake.

How sensitised is your board to these risks? What measures can be taken to mitigate this very human frailty?

The Impact of Board Relationships" by Board Effectiveness Guild/Governance, scheduled for November 30, 2023

Wed, 25 Oct 2023 08:00:00 GMT

The Impact of Board Relationships" by Board Effectiveness Guild/Governance, scheduled for November 30, 2023.

Boards aren't merely a group of individuals, their effectiveness hinges on the relationships among members and key team players. This event will delve into the art of effective challenge, the nuances of the Chair and CEO relationship, the transition from executive to non-executive director, and strategies for collaboration. Alison Gill joins the panel of experts to share practical insights drawn from real-life board reviews. Join the discussion and bring your questions and comments on November 30 between 12:00 and 13:00.

Behavioural capabilities of high performing boards

Fri, 20 Oct 2023 15:02:19 GMT

Read the complete series on the behavioural capabilities and traits of high-performing boards.

Delving into the nuances of board leadership, this series sheds light on the pivotal role of behaviour in achieving excellence. From strategic thinking to inspiring others, fostering involvement, and measuring performance, discover the key elements that empower boards to excel. Rate your Board!

Behavioural capabilities and traits of high performing Boards. Part 4: Building a performance culture

Fri, 30 Jun 2023 13:00:00 GMT

Good leaders and therefore boards think strategically, involve, and inspire others and measure their performance.

This is the last in the current series of articles on the essential elements of good leadership. Good leaders play close attention to calibrating the performance of the team and take positive steps to empower them to fulfil their potential both collectively and individually.

Demonstrable progression toward a goal motivates. Having walked from Kings Lynn to Santiago to Compostela I can say from personal experience that that what keeps one going for the first 100 miles is the shame that would arise from being seen to give up. After that, it is the satisfaction and energy derived by looking back and seeing how far one has gone.

It is just so with achieving goals toward fulfilling an overall ambition. Success breeds success. A great leader builds a performance culture in which all are encouraged to focus on the organisational objectives and processes that directly contribute to that and then record and celebrate the progress. Within that performance culture the leader must ensure also that all are enabled and encouraged to use their initiative, and, within permissible bounds, internal and external constraints are reduced to enhance freedom of action and scope for initiative. When goals are achieved it is critical that these are acknowledged and recognised.

It is remarkable to observe, as we do in reviews, the contrasting impacts that poor performance and high performance can have on the motivation of the board itself, the former breeding a sense of disengagement and lack of resolve and the latter generating energy, commitment and focus. Setting goals, agreeing performance outcomes and striving to fulfil them can re-establish motivation and energy.

So much of a board’s attention in an ever more regulated environment tends to be focused on oversight and compliance. We observe this to be a constant cause for frustration. We also recognise it is challenging balance for boards to strike between proactive encouragement and liberalisation of initiative and implementing the necessary checks and balances. So, it is probably not a bad idea for a board periodically to measure its own performance and recalibrate the balance where necessary.

How do you rate your board?

We hope you have enjoyed reading this short series of articles that explore the essential elements of good leadership. It is important that boards continue to evolve, in terms of composition, governance, rationale, and output, to ensure that they reflect the evolving social and corporate context. Performance reviews should be an opportunity for boards to review and challenge their alignment, fostering a culture within which effective behaviours prevail. Our work aims to contribute to this ongoing enhancement and promote a culture of continuous improvement. We welcome your thoughts and ideas on what other topics or areas of leadership you would like to hear about.

FRC’s Corporate Governance Code Consultation. Peter Snowdon comments on the proposals.

Thu, 29 Jun 2023 13:00:00 GMT

On the 24 May the Financial Reporting Council (FRC) published its consultation on a number of proposed amendments to the UK Corporate Governance Code (the Code). This note covers some of the FRC’s main proposals.

The FRC believes that key proposals will help strengthen the framework of prudent and effective risk management and internal controls. The consultation states that the proposals ‘ are aimed at providing a stronger basis for reporting on, and evidencing the effectiveness ’ of the framework of controls and risk management.

The FRC proposes that all companies reporting against the Code should consider producing an Audit and Assurance Policy on a ‘comply or explain’ basis.

Having considered recommending that Code companies should have sustainability committees, the FRC decided not to pursue this approach having reached the view that companies ‘ are building experience in different ways ’ and stating its conclusion that the issues related to sustainability and ESG might be better dealt with ‘b y risk committees, people committees, management teams or external experts ’.

The FRC believes that as audit committees have the experience of setting policies and frameworks their role could be adapted to cover ESG metrics and that they should oversee ESG disclosures, controls, processes, and assurance rather than asking companies to establish new arrangements.

The FRC is proposing amendments to Code Provision 29 (which will become Provision 30), these will ask the board to declare whether it ‘ can reasonably conclude that the company’s risk management and internal control systems, including material operational, reporting and compliance controls, have been effective throughout the reporting period and up to the date of the approval of the annual report by the directors ’. The board should be able to support the basis for its declaration, including how it has monitored and reviewed the effectiveness of these systems. The board will also be asked to report any material weaknesses identified in these systems and what action has been taken to address them. The FRC states that the aim of its approach is ‘ to avoid a situation where the review of effectiveness is seen as a one-off exercise, and which only assesses the effectiveness of the company’s systems at one point in time’ .

The consultation also includes plans to strengthen reporting by companies on their malus and clawback arrangements in relation to directors’ remuneration in the event of serious failings or misconduct.

Behavioural capabilities and traits of high performing Boards. Part 3: How do Boards inspire others?

Mon, 22 May 2023 12:30:00 GMT

This is the third in the series on leadership and boards. How do boards inspire others? What inspiring behaviours are evident in great leaders?

Good leaders and therefore boards think strategically, involve and inspire others and measure their performance.

This is the third in the series on leadership and boards. How do boards inspire others? What inspiring behaviours are evident in great leaders?

My team is always discouraging me from ‘preaching the behavioural gospel’ and encouraging me to use examples to illustrate the point. So, I will desist from writing about how good leaders create an inspiring environment by influencing and persuading, building confidence and inspiring through communication and I shall simply make use of a very current example.

King Charles follows in the footsteps of a great Queen admired and respected the world over. She is a very hard act to follow. Not only does that itself present a challenge, but also, he has had his own personal challenges to overcome; some the result of prejudice and misapprehension of his own passionate views and some of his own making. So, he starts with a handicap.

As our Monarch, will he be an inspirational leader? Judge for yourselves. I declare a bias.

Is he (and has he been) an influencer? Does he identify and build alliances? His record across many initiatives suggests that he does.

Does he build confidence in him by justifying and maintaining his own position when challenged? Does he build the confidence of others in their own capacity to succeed, and make statements to build hope, optimism, and excitement in others? The success of the Prince’s Trust is sound evidence of that.

Finally is he an inspirational communicator? Well, his first address to the nation was self-assured, sincere and reflected his own personality; but more recently (and with apologies to our German readers) to make a German audience laugh is surely testament to that.

As a Board, how do you rate? Do you influence and build constructive alliances? Do you win the confidence of others and build confidence in others? How well and effectively do you communicate internally with the executives and externally to your stakeholders?

Webinar: The Effective Board Chair: Lessons learned from board effectiveness reviews

Thu, 18 May 2023 13:36:00 GMT

Webinar: The Effective Board Chair:

Lessons learned from board effectiveness reviews

Tune in to this hugely popular webinar during which the founding members of the Board Effectiveness Guild discuss what makes an effective Chair.

Was it bullying or just abrasive behaviour? Whichever it was, it was just poor leadership.

Thu, 04 May 2023 08:53:51 GMT

My last stream of consciousness (April newsletter) was about the importance of ‘involving’ behaviours as an essential component ingredient of good leadership. Well, have we not just witnessed two classic examples of faulty behaviours and consequential poor leadership and the individuals concerned falling uncomfortably on their proverbial swords but for two entirely opposite reasons?

Tony Danker of the CBI seems to have overdone the ‘empathy’ bit to an extent where his juniors were made to feel uncomfortable. In that case familiarity really did breed contempt. In stark contrast, Dominic Raab seems to have thought good leadership is all about demanding top level performance and assuming that can be achieved without first winning the support and buy in of those whom he seeks to lead. One has visions of an overly ‘abrasive’ Blackadder attempting to lead Baldrick ‘over the top’.

As in most things in life, there is always a balance to be struck. Good leaders strike that balance.

Behavioural capabilities and traits of high performing Boards. Part 2: Involvement.

Sun, 23 Apr 2023 13:00:01 GMT

Good leaders think strategically, involve, and inspire their team and measure performance. My last article was about ‘thinking strategically’. This one is about involvement.

On March 7th, 2023, the FT reported that the top executives of N26 accused the co-founders of one of Europe’s most highly valued fintech’s of promoting a “culture of fear” that threatened to drive the group into a “downward spiral”.

The co-founders were accused of a “lack of trust in executives and broad organisation” that was resulting in “confusion”. They spoke of a habit of “rewriting history on agreed topics” and a tendency to “shoot the messenger” if decisions taken turned out to be wrong. “Of particular concern is the establishment of a culture of ‘fear’ and blaming, fostered by many of the behavioural problems we want to address”.

This and other recent disastrous examples of coercive leadership whether in politics, business or sport ….. ’Take your pick’….. surely prove the value of winning and facilitating the genuine involvement and buy-in of all members of the team.

The co-founders of N26 appear to be scoring rather poorly when it comes to ‘Involvement’. How does an effective board operate?

To involve means winning the ‘buy-in’ of the team members. To win buy-in, trust, openness, and respect are vital. A board is truly inclusive when an atmosphere is created in which people can say what they truly think and feel without fear of recrimination. On a board, roles, titles, expertise, age, and longevity can easily create a sense of hierarchy and power divisions – in a truly inclusive board all directors should feel they have equality in share of voice, that they will be listened to and heard.

To involve also requires good interaction within the team both in and outside the boardroom. This is principally the role of the chair, but others need to encourage that. Effective chairs oil the wheels of relationships by facilitating introductions, investing in social time so that directors can get to know one another beyond the boardroom and ensure there are no barriers that divide the execs from the NEDs, or worse, prevent NEDs getting to know the organisation at a deeper level.

This last point is reflective of the importance of what is perceived to be the third essential leadership ingredient of ‘involvement’. Good leaders’ ‘coach’. This may sound unusual in the context of a board, but the best boards know that to be effective they need to support and encourage others to develop themselves and to demonstrate a commitment to their own development.

So how do you rate your board?

Check in next month for Part 3 of the Series.

Is the role of a NED right for me?

Fri, 14 Apr 2023 13:00:04 GMT

NEDs play a crucial role in providing objective oversight and strategic guidance to the executive team. However, becoming an outstanding NED requires certain qualities and skills. Aspiring NEDs need to possess a deep understanding of the business, show a willingness to learn, ask challenging questions, and demonstrate exceptional communication and interpersonal skills. With these qualities, NEDs can provide invaluable contributions to an organisation's success. Peter Snowdon sets out some key pointers.

Serving as a non-executive director (NED) offers a unique and fulfilling opportunity for professionals seeking to become involved in an organisation without committing to a full-time executive role. However, finding a suitable NED post can be challenging, particularly for first-time applicants and for those seeking a NED role it is important to be well-informed and prepared for the challenges involved.

Developing a strong understanding of the industry and seeking relevant experience and exposure is crucial. However, it's equally important to consider the risks involved in joining a board. It's essential to be familiar with company law requirements, such as section 172 of the Companies Act 2006. Additionally, those who become NEDs in regulated firms will be subject to regulatory obligations. It is therefore essential to be fully aware of these obligations before accepting a board position. In summary, it's crucial to do one's homework and take all necessary precautions before diving into a NED role.

In this short article we outline some of the key considerations an aspiring NED should take into account.

Is the role of a NED right for me?

A NED takes on real legal risk; failure of an organisation may mean potential liability for damages, enforcement by regulators and possible fines. Even where the failure of an organisation does not result in direct legal consequences, a NED can suffer significant reputational damage.

The role of a NED can be demanding, and remuneration is typically considerably lower than executive pay. For most larger commercial organisations board meetings can be frequent and papers can run into hundreds of pages, all of which need to be read and understood and, on occasion, this may require significant additional research.

A NED has a duty of care to shareholders, the company and, in some situations, other stakeholders. NEDs in a regulated organisation may also be subject to additional legal and regulatory obligations, such as, in some cases, needing approval from a regulator before taking up a role. Once in post a regulator will expect relevant NEDs to display certain behaviours. Failure to do so could result in reputational damage and in more serios cases enforcement action from a regulator including the imposition of fines.

Some NEDs with an executive background can find it difficult to adapt to acting as a non-executive rather than an executive. A NED should support and challenge executives but must resist the temptation to second guess management decisions.

Due diligence

Before taking on a NED role it is important to carry out sufficient due diligence ( DD ) of the organisation concerned to mitigate the risk of taking on an inappropriate role.

There are a number of helpful guides on DD for NEDs. A full and detailed analysis of the points to consider falls outside the scope of this note, but there are two headline areas which all prospective NEDs should consider.

First is the need to research the organisation. Starting materials will include annual reports and relevant sector materials. Even where a prospective NED has good relevant industry experience, there may be material differences in business models. NEDs need to understand what the organisation stands for and its purpose. Purpose is normally interwoven with an organisation’s culture and NEDs need to buy-in to the culture and be able to influence it.

Press reports, social media and analyst reports can help to build a picture of an organisation. Who are the competitors, how does their approach differ? For regulated businesses a NED should check an organisations regulatory profile. Most regulators have extensive material on their websites. Has there been enforcement action, if so, what did the regulator say about senior management? Will new regulatory initiatives impact the business?

Research should also help form a view of the risk run by the organisation, these are the risks which a NED will be expected to monitor and manage and review.

Secondly, a prospective NED will want to understand who his or her new colleagues will be, this means researching the board and senior management. Who are the CEO and Chair? What are their reputations in the sector? How long have they been in post? As a prospective NED, you will meet them prior to appointment and good preparation should ensure that appropriate questions are asked about the board and the organisation. It should also offer the opportunity to understand their expectations as to the role they would like you to play and the expertise which they believe you will bring to the board. Similarly, you will need to consider the value you personally bring – why and how can you add value but also mitigate the risk of getting pigeon-holed in to being an expert - and how you can contribute across the whole agenda.

Researching other directors is important to build up a picture of board dynamics. How long have they been in post, are they new or will they soon be leaving? What are the key challenges they face as directors? What are the current issues and challenges on the horizon? What value will you bring to your NED colleagues as well as to the organisation and, thinking ahead, which committee Chair roles might you be able to take on – given how dynamic Board appointments are and, how long they can go on for e.g., 9 years - joining a Board should be seen as adding long term value.

Behaviours

The NED role brings with it certain behavioural expectations. Adapting to a non-executive role can be difficult for an individual who has been used to performing a senior executive role. Independent NEDs need to have a positive relationship with executives but at the same time maintain distance to ensure they remain independent.

The transition from an executive role to a non-executive director role can be a significant shift. As an executive, individuals are typically part of a tight-knit team dealing with intense and challenging situations on a regular basis. The relationship among team members is often close and supportive, creating a unique bond. However, NEDs must maintain a level of independence and accountability. A NED cannot and must not cross the line into executive territory. While the NEDs themselves will also hopefully be a team, it is unlikely to have the characteristics of closeness of a successful executive team. Ultimately NEDs are part-timers usually with other roles in life. They should have a good working relationship with their peers, but it will not have the same dynamic as a successful executive team. Learning to operate in this way can be a particular challenge for an executive new to a NED role.

NEDs with a professional expertise such as accountants or lawyers need to resist the temptation to “step into the weeds” of decisions made by executives. Advising and challenging is appropriate and expected but second-guessing detailed analysis or advice can be time consuming and unproductive for executives and even impact on the performance of the company. This principle applies equally to NEDs with operational expertise, they should provide strategic advice and challenge where it is needed but they must not be “hands-on”.

NEDs can often obtain useful intelligence and understanding about an organisation by talking to executives outside formal board or committee meetings. However, it is important to remember that most executives are busy and will have limited time to give to NEDs seeking information or tutoring. Overusing executives will likely cause frustration and can damage working relationships.

The Board plays an important role in developing and challenging proposals on strategy. Similarly, the NEDs play a crucial role in thinking about the strategic challenges facing their respective sectors. From anticipating changes in the market to identifying new opportunities, NEDs should bring a fresh perspective and critical thinking to the table.

The ability to challenge the executive is one of the key functions of a good NED. Challenge is rarely easy. Observers and regulators often refer to ‘constructive challenge’ but in practice executives can react badly to challenge irrespective of the motive and approach. In his book Ensuring General Wisdom J A Sutherland observes:

“[a] good NED knows how to challenge well and in my view this challenge is founded on three personal qualities: the will to challenge, the skill to challenge and the knowledge needed to challenge.”

Executives typically respond positively to challenge that is well-intended and articulated but occasionally, the NED may need to be the "pebble in the shoe" on an issue, pushing for necessary changes that may not be welcomed by those being challenged. In these situations, an experienced Chair can help navigate any disagreements and work towards an effective resolution. As a NED, facing opposition is part of the job. Those who excel in this role understand the importance of a strategic approach when dealing with dissenting voices. It is essential to build trust, to encourage an open exchange of views and opinions. An effective NED will take the time to build rapport, to gain a deep understanding of the organisation and its stakeholders. By doing so, they can provide invaluable insights and perspectives. Dealing with opposition should be viewed as an opportunity to showcase a strategic mindset and bring about positive change.

Sutherland also touches on the key issue of knowledge. An effective NED must have a good understanding of the organisation, its activities and the environment in which it operates. There are no doubt examples of non-experienced NEDs bringing a fresh voice to a board and asking vital questions which those with sector knowledge may have overlooked, but these are likely to be the exception rather than the rule. In practice, NEDs need to know what an organisation does, and the sector in which it is active, to be able to ask questions and, where necessary, provide reasoned challenge to management.

To conclude, when considering whether to become a NED, it is important to understand the responsibilities that come with the role. Undertaking research and due diligence is crucial not only to determine a good fit with the organisation and its board, but also to ensure one is aware of the legal, regulatory obligations, and general duties that come with the role. Being a NED can be both fulfilling and challenging, as it requires knowledgeable and effective decision-making. By taking the time to educate oneself and by approaching the role with the appropriate level of attention and commitment, a NED can make a valuable contribution to the success of an organisation.

Navigating choppy waters. The challenges of being a Bank Non-Exec Director

Tue, 14 Mar 2023 15:03:46 GMT

In addition to their obligations under the Companies Act 2006 Non-executive directors ( NEDs ) on the boards of UK banks are also subject to the rules and guidance provided by the Prudential Regulation Authority ( PRA ) and the Financial Conduct Authority ( FCA ). An article in Financial Times (8 March 2023) underlines the challenges this can raise for NEDs.

Under section 172 directors are required to act to promote ‘the success of the company for the benefit of its members as a whole’. Section 172 goes on to require directors ‘ to have regard to’ a number of other factors, but the classic position is that these ‘factors’ have always been subordinated to the duty on directors to promote members’ interests. Directors, including NEDs, could be forgiven for thinking that the balance between these two provisions is no longer as clear as it was, and that the FCA’s active agenda as a conduct regulator is one of the key drivers in this change.

For some time, the FCA has tended to regard NEDs at regulated firms, including banks, as needing to have an eye on the interests of retail consumers. At one level this might be seen as a not unreasonable position and consistent with the ‘have regard to’ requirement in section 172, but there is a concern voiced by some observers that the FCA wants NEDs to adopt a more assertive role which could result in NEDs finding themselves in situations where they feel that they have conflicting obligations.

Notwithstanding these concerns there appears to be no let-up in the FCA’s policy agenda. According to the Financial Times’ Nikhil Rathi, the FCA’s Chief Executive, told the Treasury select committee that the FCA has ‘engaged directly’ with the boards of some high street banks ‘for failing to pass on interest rate rises to savers as swiftly as hikes [to borrowers]’. This observation suggests the FCA thinks that the boards of banks are failing in their duty to consumers. Whilst the criticism appears to be aimed at bank boards as a whole, it presents an obvious issue for NEDs because the FCA will expect to see them challenging the actions, or omissions of the executive. Furthermore, a NEDs life is not going to get any easier with the introduction of the FCA’s Consumer Duty in the summer of 2023 which is likely to further ramp up the pressure on bank boards.

How should NEDs react to such criticism from a senior regulator? What approach should they take when challenging bank executives? In conversations we have had, NEDs occasionally voice concerns that the regulators seem to almost want NEDs to act as if they were executive directors. It is as if strategic challenge alone is not sufficient and that there is an expectation that NEDs should get into the ‘weeds’ of decision making with the risk that they end up second guessing the executives. Where NEDs do overstep the mark it usually has a detrimental effect on the relationship between the executive and the NEDs. The most effective boards operate as a unit with each member of the board performing key role. Like any team their effectiveness as a collective is weakened when the scope of roles becomes compromised.

Read the full Financial Times article >

Behavioural capabilities and traits of high performing Boards. Part 1: Strategic Thinking

Mon, 13 Mar 2023 20:27:11 GMT

Good leaders and therefore boards think strategically, involve, and inspire their followers and measure their performance. Easily said but harder to define in behavioural terms.

What do we mean by ‘thinking strategically'?

Fundamentally it is about making decisions. If we do it well, we will reach a good decision. The evidence suggests we are not good at it. A Mckinsey survey in 2010 of 2,207 executives, (dated I concede but I doubt much has changed since), revealed only 28 percent said that the quality of strategic decisions in their companies was generally good, 60 percent thought that bad decisions were about as frequent as good ones, and the remaining 12 percent thought good decisions were altogether infrequent. Not very comforting.

What underlies this? Is it about the pressures to move on, make a decision about the item under discussion and the consequent tendency to focus attention on the substance matter of any decision rather than spend any time examining the process by which we reach that decision? Do Boards focus too much on the ‘What’ to the detriment of thinking about the ‘How’?

If that is the case, what may be the consequences of an absence of process?

Might it impact on the quality and breadth of information available to a Board and therefore on the quality of the decision upon which is based? Rich and broadly based information is surely the foundation of any high quality debate and its outcome.

To what extent does absence of process breed bias in all its various forms, bias surely undermining the prospects reaching a good decision? How then to remove the tarnish of bias?

A good process will allow the Board to exhibit the necessary behaviours to address the risks of bias.

So, when it comes to seeking information , is the Board sufficiently sensitised to the risks of being too selective or dismissive of information for reasons of bias.

Once equipped with the right information, does its decision-making process allow the Board the opportunity to digest that information and engage in forming the diagnostic concepts to help understand the situation and develop effective solutions.

Finally, and perhaps most importantly for a Board, does it allow itself the space to demonstrate the conceptual agility to evaluate the strategic options and possibilities weighing up the pros and cons of different options, linking different concepts and synthesising alternatives.

As observers, we will ask ourselves whether we are seeing an inquisitive and open-minded board exploring and analysing the possibilities? Are the members of the board both executive and non-executives allowing, facilitating, and encouraging these behaviours (highlighted)?

But these behaviours must operate in tandem. A Board which analyses the issues and evaluates the options but does so through a narrow lens denies itself the opportunity of identifying the best solution and even worse choosing the wrong one. Similarly, a Board furnished with all relevant information does not allow itself the opportunity, perhaps and typically because of time constraints, to explore and evaluate options will lack creativity and miss opportunities.

How does your Board score here?

Check in next month for Part 2 of the Series.

Introducing our Behavioural capabilities and traits of high performing boards series.

Introducing our Behavioural capabilities and traits of high performing boards series

Sun, 22 Jan 2023 20:23:26 GMT

Introducing our next series of articles exploring the four leadership behaviour types which impact a board’s effectiveness.

I have been told that you are born with your intellect; your character is formed in the first seven years of life and the only thing which is adjustable thereafter is our behaviour. So, the same must apply with any group of individuals including a board of directors. Individually and therefore collectively their intellect and their persona are broadly fixed and what is capable of adjustment within that group to optimise performance is behaviour. This is the conclusion Sir David Walker came to in his Review of Corporate Governance of 2009. Banks and Financial Institutions were ticking all the required governance boxes, but it was the effectiveness of leadership at the most senior level which needed to be improved.

I quote from an annex to his report on the Psychological and Behavioural Elements in Board Performance then authored by Alison Gill Bvalco’s CEO with Mannie Sher of the Tavistock Institute

‘The behavioural capabilities (learnable components) and traits (intrinsic and innate components) of a high performing chairman are extensive. Behaviours will include facilitation, empathy, and coaching; strategic thinking behaviours such as concept formation and information search; inspirational behaviours such as influence, building confidence and communication; and performance focussed behaviours such as pro-activity and continuous improvements. Traits might include physical vitality, stamina, courage, eagerness to accept responsibility, need for achievement, self-confidence, assertiveness, and openness to new ideas.The demand for these behaviours and traits will vary depending upon the mix and maturity of the business and the mix and maturity of other board members. But leadership studies from as far back as 1950’s has shown that traits do not influence leadership ability as much as a person’s ability to learn rapidly from and facilitate behavioural development in others’.

In our next series of articles, we are going to look at the four distinctive leadership behaviour types which impact on a board’s effectiveness. They are Strategic Thinking behaviours, Inspirational behaviours, Involving behaviours and those concerning Measuring Performance. It becomes critical to understand how each of them manifests themselves in the interaction between participants in the boardroom and how they can impact on effectiveness without one necessarily being aware. Most importantly one needs to realise that they are all behaviours capable of being learned and are all adjustable.

Watch this space!

Part 1: Strategic Thinking

Why do boards commission effectiveness reviews?

Fri, 02 Dec 2022 13:49:35 GMT

Reader, please note I ask the question in an objective way namely ‘why do …?’ rather than ‘why should …?’ as I do not want to be accused of preaching or selling! Rather I seek to identify as objectively as possible the true motivation.

The simple answer, at least as regards publicly listed companies, is that they are required to do so to comply with the Corporate Governance Code. For the most part and in the early days of Board Evaluation that was the principal reason and the less constructive approach of some was to do it just to ‘tick the box’.

Our more recent experience, based on reports from clients, is that they are commissioned because boards do now see a real value to be derived from the process.

What then is that value?

The process creates a space within which the board pauses for a moment to focus on how they manage their responsibilities rather than attending only to the substantive business issues. Many times, in one-on-one interviews, the interviewee has remarked positively on the opportunity given to think and talk about the ‘how’.

The process, properly conducted, will also raise issues which have been lurking for a while in and around a boardroom and in the minds of the members of the board but never actually ‘landed on the table’. Oft it is the Board’s response to these issues in a report, ‘But we knew that already’, to which the answer is ‘Yes, and you told us you haven’t yet found a way to resolve it!’

So, we see the real attraction of a review is that it provides the structure within which these issues can be safely identified, discussed, and a solution found.

Often, at times of transition, an exiting Chair or a Chair designate appreciates a review which answers the question: “given the context of the business what could or should the Board do better or differently?”. The review provides a road map from which the Board can develop.

The introduction of behavioural science as a lens through which to observe Board practices is new. The impact of that is now being experienced and, we observe, appreciated. It offers Boards a framework to think about how its interactions drive outcomes. A Board exists to offer assurance and to shape the long-term future of the organisation. How the Board interacts either does or does not deliver this.

The changes we see in Boardrooms lead us to believe boards will commission reviews now because they want to, rather than because they must.

Maximising the Value of a Board Evaluation

Mon, 28 Nov 2022 11:36:28 GMT

This webinar features founding members of The Board Effectiveness Guild discussing how to maximise the value of a board evaluation.

Filmed 19th October 2022, this is the eleventh in a series of webinars from Governance, further details of which can be found here.

Boardroom size: finding the happy medium

Thu, 27 Oct 2022 17:26:00 GMT

Every time I see a photograph of the Cabinet populating a board table which stretches the length of Downing Street and I contrast it with photographs of Mr Putin taking sole occupancy of a table of a similar size, I think to myself that there must be a ‘happy medium’ to the size of an effective board.

It is generally agreed so far as board size is concerned that quality rather than quantity is the right approach. A board of eight or, even fewer, if the size of the business allows, focuses more on individual responsibility, encourages the optimum contribution by all and is easier to manage. Large boards tend to suffer from the phenomenon of passive free riding, dislocation and groupthink reducing the ability effectively to monitor senior management and govern the business. Too large a group and there is a tendency for subgroups to emerge undermining the cohesiveness of the group. Passive free riding manifests itself in an apprehension expressing itself through individual silence and an unwillingness to talk about an issue in a group context. We advise that you need to be able to look round the table and comfortably look everyone in the eye.

Boards tend to grow in number either in order to populate committees and spread the workload, and/or, where the business is diverse or global, to accommodate breadth of expertise and regional representation. It is also not necessarily the actual numbers of directors on the board itself which can stultify a discussion but rather the numbers attending a meeting.

So how to keep the numbers to a minimum?

Remember it is always easier to keep the numbers down than to reduce the numbers.
Remember it is always easier to keep the numbers down than to reduce the numbers.
Be more robust on re-assessments. If a director is expendable, remove and don’t replace.
Think carefully how many executives are needed on the board itself.
Be more disciplined about numbers attending the meeting. Keep the numbers in the room down to the bare minimum to encourage better quality and honest debate.
Where more expertise is required, particularly on committees, appoint ‘advisers’ rather than add to board numbers.

WEBINAR: Maximising the value of a board evaluation

Mon, 26 Sep 2022 15:36:00 GMT

Webinar – Wednesday 19th October – 12.00 – 13.00 BST

This webinar is for anyone involved in the commissioning of a board evaluation project – Chairs, Senior Independent Directors, Board Secretaries and other interested parties.

At the webinar you will hear from a range of experienced board evaluation practitioners and founder members of the Board Effectiveness Guild – and have a chance to ask them questions about how to get the most value from a board evaluation in an organisation like yours.

The webinar will be in four sections covering:

Getting the planning and scope right – how to ensure that you set clear objectives and specify the scope of the work at the contracting stage to get most added value from an evaluation (beyond a simple check of Code compliance) and what are the pitfalls to avoid
Choosing the best approach for your situation – considering the pros and cons of questionnaires, interviews, direct observations, and balancing quantitative and qualitative methods
Asking the right questions in the right way – opening up conversation with board members to generate the most useful new insights into how to improve the efficiency of the machinery that supports your board, and the effectiveness of board interactions and decision making.
Developing a good action plan – how to best engage a board in a discussion of the recommendations from an evaluation and so take ownership of an action plan which facilitates the necessary change. And how to follow-up and external evaluation with internal monitoring of developments.

The presenters will draw on anonymised examples and good practice from boards of PLCs, public sector organisations, privately held companies and charities and you will have a chance to raise particular questions relating to your own experience in the panel sessions of the webinar.

How do Purpose led boards strike a balance between being risk adverse and being positively proactive?

Fri, 12 Aug 2022 12:33:00 GMT

This short piece is really one which will resonate with cricket lovers, but others would be wise to give it some thought.

Everything may change with the start of the new test series, but the remarkable turnaround in the fortunes of the English Test team, winning the last four test matches having won only one in the previous eighteen, is due to a total change in approach initiated by the new captain Ben Stokes and the new coach Brendan McCullum.

Now accepting in this extreme form this would not represent a responsible corporate culture, one asks the question whether there is something to be learned from this accentuated purposive approach. How do Purpose led boards strike a balance between being risk adverse and being positively proactive? How do Boards encourage a ‘can do and will do’ attitude among senior management and their staff?

The key is to make sure you have the right mix of skills, experience and knowledge that combine to drive an organisation forward, while still managing risk. This can be a sensitive balance to strike, but it’s one that is essential if organisations are to thrive in today’s environment.

The following article further explores why purpose-driven goals matters for businesses in today’s economic climate and gives a few examples of companies that are sprinting ahead as a result of their purposeful approach.

FCA Decision Notices Issued in Relation to Carillion Plc and its Former Executive Directors

Tue, 02 Aug 2022 15:09:00 GMT

On 28th July 2022 the Financial Conduct Authority (FCA) issued Decision Notices in relation to Carillion Plc and three of its former executive directors. The three directors concerned have decided to refer their cases to the Upper Tribunal. The findings in the FCA Decision Notices should therefore be considered as provisional and reflecting only the FCA’s view as to what occurred at Carillion.

The FCA’s findings all relate to alleged breaches of the Financial Services and Markets Act 2001, the Listing Rules and certain market abuse provisions.

Ahead of the decision of the Upper Tribunal the findings of the FCA are yet to be supported but the observations and conclusions made by the FCA have relevance to directors and members of audit committees as to the importance of accurate management information.

FCA allegations

The FCA alleges that:

2.8 There was significant pressure on Carillion Construction Services (CCS)] during the Relevant Period to meet very challenging financial targets maintained by [the Group CEO] (along with other senior management) in the face of clear warning signs that CCS’s business was deteriorating significantly. This led to an increasingly large gap between the assessments within CCS of its financial performance and its performance as budgeted and ultimately reported to the market.

2.9. This gap was bridged during the Relevant Period by the use of overly aggressive contract accounting judgements in order to maintain CCS’s reported revenues and profitability, especially in connection with certain major construction projects. These judgements did not reflect the true financial position of the projects or the financial risks associated with them. They did not comply with IAS 11, one of the applicable accounting standards governing the recognition of revenue associated with construction contracts.

One of the key assertions of the FCA is that the Audit Committee and the Board were not provided with an accurate picture of financial risks and exposures. The FCA alleges that the Group CEO was aware that certain of the:

reports to the Board and the Audit Committee painted a much more optimistic picture of CCS’s financial performance than that being internally reported by CCS.

On a similar vein the FCS maintains that the Group CEO:

had a central role in reviewing [announcements to the market] and approving them as a Board member. He did so in the knowledge of information reported to him on a number of occasions . . . was materially inconsistent with the positive statements made in the [announcements to the market]. [He] must have been aware, particularly having regard to the nature and cumulative effect of the information and the occasions on which it was reported to him, and his extensive knowledge of the construction industry, that this information would be highly relevant to the deliberations of the Board and the Audit Committee when they reviewed and approved the [announcements to the market] . However, [he] failed to ensure that this information was brought to the attention of the Board and the Audit Committee.

The FCA Decision Notice also reiterated one of its long-standing themes, the importance of robust systems and controls, the regulator observes:

2.26. The deterioration in CCS’s business during the Relevant Period, coupled with the pressure to meet very challenging financial targets, significantly increased the risk that overly aggressive contract accounting judgements would be applied in order to maintain its financial performance. To counter this risk, Carillion’s procedures, systems and controls in relation to CCS needed to be sufficiently robust to ensure that these judgements were made and reported appropriately. They were not, significantly increasing the risk that market announcements in relation to Carillion’s financial performance would not be accurate.

2.27. The overly aggressive contract accounting judgements being applied to CCS’s major projects were not properly documented at Performance Review Meetings held by CCS (which [the Group CEO] chaired). This meant there was no clear record of the assessments being made, approved or reviewed. This contributed to a lack of rigour around these judgements and their approval and review.

2.28. The management information relating to hard risks, MCSs and certain major projects produced and reported by CCS to (amongst others) [the Group CEO] highlighted large and increasing risks associated with the financial performance of CCS’s construction projects during the Relevant Period. This information was inconsistent with other reports . . . that contained much more optimistic assessments of the financial performance of those projects, as reported to the Board and the Audit Committee.

2.29. The Board and the Audit Committee were not made aware during the Relevant Period of the significant and increasing financial risks described above. This meant they were hampered in providing proper oversight of CCS’s financial performance and the overly aggressive contract accounting judgements being applied to its major projects.

Although the FCA’s conclusions are subject to appeal to th e Upper Tribunal it already seems likely that there are some important lessons for NEDs arising from the collapse of Carillion Plc. Key lessons include the need for NEDs to be vigilant in relation to the quality and content of management information (MI). The FCA is clear in its view that the executives were not providing adequate, accurate and complete information to either the Board or the Audit Committee. NEDs need to make judgements not only in relation to the information they are seeing, but also as to the information they should be receiving from the executive. This will include challenging the executive where there are gaps or inconsistencies. Secondly the need to monitor, and where appropriate challenge, the effectiveness of internal systems and controls. NEDs need to understand what these are and how they are supposed to operate. If they are flawed or if they don’t seem to be working in practice, NEDs will be expected to call them out. In the case of Carillion, it would appear from the FCA’s findings that the regulator found clear failings in both areas which helped to contribute to the company’s demise. NEDs need to be aware of these risks and in some cases where there are material concerns, NEDs may need to consider whether they should have access to independent advice in order to make fully informed decisions. By heeding these lessons, NEDs can help to prevent similar situations from happening in the future.

Leadership and management are prone to biases, here’s how you can mitigate it

Thu, 30 Jun 2022 06:00:00 GMT

Our institutions are routinely being accused of being ‘ist’. The Metropolitan Police and the Yorkshire Cricket Club are institutionally racist. The Business community is sexist. The Labour Party has been anti-semitic and Parliament chauvinistic. But individuals within those institutions would challenge that assertion as far as it applies to them as individuals and indeed in many cases seek to establish quite the contrary behaviour. Assuming the institutional label is accurate and the individual’s self-assessment is genuine and fair, how is it that collectively a group can be ‘…….ist’ when its component parts are not?

What are lessons then for a board of directors? How can it avoid be guilty of an ‘…ism or presiding over a culture which is ‘..isitic’? In smaller groups we know of the unhelpful impacts of ‘group think’ and ‘confirmation bias’ ; ways in which otherwise fair minded and objective minds can be tempted into a way of thinking which delivers a different outcome than that which they would have reached independently. There are a few areas which if given attention can help to mitigate the risk of leadership and management drifting into bias.

Firstly, leadership needs to reflect the communities it seeks to lead. Increasing the diversity of leadership makes it harder for an ‘…..ist’ culture to take hold as there are more different voices represented at the table.

Secondly, leadership needs to encourage and model inclusive behaviour. This means everyone’s voices are heard and respected, decision making is based on collective agreement rather than individual power and that different points of view are actively sought out.

Thirdly, leadership should establish robust governance processes which make it clear what the rules and expectations are around behaviour and decision making. These need to be well communicated and consistently applied.

If leadership can create an organisation which is truly representative of the communities it seeks to serve then it is much less likely to be accused of bias.

AI in Business: Accountability, responsibility, and informed decision-making in the boardroom

Fri, 24 Jun 2022 10:54:00 GMT

AI is widely recognised as a game changer, offering opportunities and benefits for businesses of all sizes. But with this comes risk, and boards need to be aware of these in order to make informed decisions about where and how to use AI in their organisations. In this article we explore some of the steps companies need to take to design and implement governance arrangements to mitigate risk.

In February 2022 the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) published the Final Report of the Article Intelligence Public-Private Forum (the PPF Report). Although the primary audience for the PPR Report is the financial services industry, many of the issues discussed have relevance to a wider commercial audience. This factsheet summarises the benefits and risks associated with AI and provides some guidance on how these risks might be managed within a governance framework.

Benefits of AI

There are many potential benefits that can be derived from the use of AI within businesses. These benefits include:

Increased efficiency and productivity through the automation of tasks which are currently carried out manually
Improved decision making through the use of data-driven analytics
Enhanced customer experience through the personalisation of services
Creation of new products and services through the development of new insights from data

Risks associated with AI

There are also a number of risks associated with the use of AI which businesses need to be aware of. These risks include:

The potential for job losses as a result of automation
The possibility of biased decision making if data used to train AI systems is not representative
The need for significant investment in order to develop and implement AI systems
The potential for increased cyber security risks as a result of the use of AI technology

Governance of AI

Given the potential benefits and risks of AI, it is important that businesses have a clear governance framework in place in order to ensure that AI systems are developed and used responsibly. This governance framework should cover areas such as data protection, ethical considerations and risk management.

Data protection

It is important to ensure that data is used responsibly and in a way that respects the privacy of individuals. Personal data should only be collected if it is necessary for the purposes of the AI system, and individuals should be informed about how their data will be used. It should also be made clear to individuals how they can access and correct their personal data if necessary.

Ethical considerations

It is important to consider the ethical implications of the technology. For example, AI systems may be used to make decisions that could have a significant impact on people’s lives, such as whether or not they are eligible for a particular job or insurance policy. It is important to ensure that these decisions are fair and unbiased.

There are also concerns about the potential for AI systems to be used for malicious purposes, such as creating fake news or spreading disinformation. It is important to consider how to prevent misuse of AI systems.

The PPF Report suggests as a starting point that businesses need to see the risk of AI within the context of their ‘existing governance frameworks and structures’ because AI models are likely to interact with other risk and governance processes such as data governance and operational risk management. It may therefore be possible to ‘use and adapt existing governance frameworks to manage the novel challenges of AI’ and/or combine ‘existing governance frameworks into one overarching AI governance framework’. It may also ‘be beneficial to develop a set of AI risk principles and map them to existing risk frameworks. This could, for example, help a company to focus on new risks and assist with staff training. Other options might include the establishment of ‘a cross-functional body’ made up of disciplines such as audit, research, data and other areas such as compliance for an FS business.

On the other hand, the PPF Report acknowledges that adopting AI into a business may mean a company will need ‘new risk management and governance frameworks’. For some businesses a two-level framework of governance may be appropriate. The first level should be strategic, developing principles and standards for the whole business, with a second ‘execution-level’ framework ‘[applying] the standards on a use-case basis’ across the business.

Governance frameworks should be ‘aligned with the risk and materiality of the use-case’. High risk and high impact systems, such as those which result in significant consumer outcomes, will need more time and resource to work through than lower risk systems such as simple chat-bots.

The PPF Report concludes that ‘accountability, responsibility, and informed decision-making are central themes to any discussion on AI governance.

. . .
Whether firms adapt existing governance structures or establish new frameworks, they need to clearly define the relevant roles and lines of accountability at all stages of the AI governance hierarchy

Responsibilities should be allocated across a business for each element of a company’s approach to AI including the design and development of systems, their use in the “front-line” as well as to Board members who have the ultimate responsibility for agreeing a company’s strategy.

Accountability, responsibility, and informed decision-making are central themes to any discussion on AI governance. The PPF report aims to inform and shape future debates on and contribute to the development of policies and practices that ensure responsible and ethical use of AI technologies.

Webinar ‘Many boards fail to understand the role and value of boards’

Wed, 08 Jun 2022 15:28:00 GMT

A recent webinar hosted by Board Agenda discussed the mix of competence and courage required from non-executive directors. Watch the replay of Alison Gill discussing Effective Boards: How to Build a Future-focused Strategic Tea m .

Integrity

Tue, 31 May 2022 13:25:00 GMT

What value attaches to integrity when it comes to leadership and setting the tone at the top?

Without wishing to rehearse all the tedious details of recent events, there are two very diametrically opposed views on this currently.

On the one hand there are those who attach significant importance to the principle that essence of integrity is critical never mind the practical challenges and impracticalities which attach to maintaining it.

On the other hand, there are those who for the sake of expedience and ‘getting on’ with the challenges-in-hand are inclined to overlook that principle.

One is reminded of the story told about Tommy Cooper who on entertaining his agent at lunch observed he was short-changed on payment of the bill and sought to make a fuss about it. His agent protested saying ‘Tommy, you are a rich man. Do not make a fuss in pubic’ To this Tommy replied, ‘It is not the principle, but the money!’

Of course, each situation of this type has to be judged on its own facts and there is a balance always to be struck. But there is no doubt that while the expedient approach may be advantageous in the short term, the risk of insidious consequences on an organisation’s culture and the wider society cannot be discounted in the longer term. How often has one witnessed that an incremental adjustment in standards of behaviour, which at the time seem to be innocuous and acceptable, after a period and when judged by the man in the street, is deemed to be thoroughly unacceptable and even dishonest.

Boards will be acutely aware of these dangers. Even the most principled of executive teams will often be tempted to opt for expediency and delivering results. That, after all, is their function. It is of course a critical role of the non-executive to act as the guardian of the principle of integrity and the culture.

In the sphere of politics, where are the non-executives?

FREE Webinar Invitation: EFFECTIVE BOARDS

Tue, 17 May 2022 15:46:00 GMT

FREE Webinar Invitation.

EFFECTIVE BOARDS: How to build a Future-Focused Strategic team

Our CEO, Alison Gill joins a panel of experts to explore the elements that go into creating an effective board.

Owning the problem

Tue, 10 May 2022 14:25:00 GMT

Listening to Rory Stewart in his podcast in conversation with Alastair Campbell, ‘the Rest is Politics’, which I thoroughly recommend, Stewart was commenting on Archbishop Welby’s intervention on the Government’s Rwanda proposal to manage asylum seekers. Stewart identified the critical point being made by the Archbishop as an ethical one not a political one. It is that one cannot outsource one’s own problems for which one has a moral responsibility.

This caused me to reflect on the challenges of conducting a board evaluation or indeed any process which involves an element of therapy. Let me make it clear that I am not suggesting for one moment that those conducting board evaluations are operating in the realms of ethics or morals, but the same principle does apply in other social contexts. It is that there is a danger that a board and its constituent members, having engaged an external person to conduct an evaluation and shared with them in confidential sessions their concerns and issues, will feel that they have off-loaded the problems for another then to resolve.

Applying the Archbishop’s tenet that one cannot outsource one’s moral responsibilities to a more commercial situation, the equivalent also applies in the context of group relationships. The reality is that the solution to any issue remains with the Board and its members and the challenge for the evaluator having identified the issue is to persuade the Board to take back the responsibility for resolving it. Reporting back is the most challenging part of any evaluation process.

It is self-evident that Boards will find it uncomplicated and unproblematic to take back ownership of those issues which are easy to resolve but there will often be more uncomfortable ones where a Board will be more inclined to off-load and look to others to provide a solution. Those are they which ultimately only the Board itself can tackle. The good evaluator will therefore resist creating any illusion of ‘accepting’ the problem rather keeping it firmly with the Board but importantly providing a safe space for either particular individuals or the Board as a whole to find a new way of looking at the problem and resolving it.

Difficult decisions – the need for information

Wed, 13 Apr 2022 14:03:00 GMT

P & O Ferries’ recent decision to make large scale redundancies has been controversial, attracting wide media cover and criticism from the government. The focus of the criticism has been on the senior executives at the company, in particular the CEO. Whatever we may think of the approach taken it seems likely that the decision was not an easy one. Those speaking for the company have indicated the issue was existential, it was not a nice to have but essential if the company was to survive.

This note does not consider the rights and wrongs of the company’s action, but rather touches on some aspects of how directors should act when faced with policy decisions of this type?

Non-executive directors

It is well established that one of the main roles of a non-executive director is to provide constructive challenge to the executive, but how should non-executive directors approach difficult policy decisions? Should they be acting as watchdogs or bloodhounds? In other words, how far do they need to dig? Should their default stance be supportive or sceptical? Unfortunately, there is no easy answer to these questions, it will nearly always be a question of fact and judgement.

All directors, including non-executive directors, are required to exercise independent judgement. In performing their role, non-executives, in Sir David Walker’s words: ‘ need to find the right point on the spectrum which ranges from unquestioning support of the executive at one end to persistent and ultimately unconstructive challenge at the other ’.

The Companies Act 2006 requires all directors to exercise reasonable care, skill and diligence. Before reaching a decision, directors will need to satisfy themselves that they have sufficient knowledge to enable them to reach a reasoned conclusion. The courts have concluded that directors have a continuing duty to acquire and maintain sufficient knowledge and understanding of their company’s business to enable them to discharge their duties as directors. This may mean educating themselves on a topic and it will nearly always mean obtaining and processing information from multiple sources but particularly from the company itself.

The UK Corporate Governance Code recognises the importance of information for boards. Principle F provides:

The chair leads the board and is responsible for its overall effectiveness in directing the company. They should demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures that directors receive accurate, timely and clear information.

Businesses operating in the regulated sectors need to pay particular attention to management information. For example, firms in the financial sector are expected to meet exacting standards in relation to the production of information for the Board. Both the FCA and the PRA have taken action against firms which fail, in the regulator’s view, to provide adequate information to boards.

Directors may sometimes be worried that the information provided to them by the executive is incomplete, not sufficiently objective or otherwise lacking. Making this judgement can be difficult for non-executive directors particularly in specialist areas. Serious failings by the executive can put a non-executive at risk. This issue has been considered by the courts in the past and the general rule is that a non-executive can assume that executives in responsible positions can be trusted until there is a reason to distrust them. However, non-executives need to be alive to this issue and where they have reasonable doubt it is important to act on those doubts.

In some circumstances non-executives can consider asking for access to independent legal advice paid for by the company where they reasonably judge it to be necessary for them to discharge their responsibilities properly. Requests of this type would normally be made in writing to the chair copying the company secretary.

Directors need to remember that Board information is a “dynamic” concept. Boards, and those supporting them, should constantly assess whether the information being provided is sufficient to enable the board to carry out its function properly. Non-executive directors should be pro-active where they consider that they are not receiving the information they need, or where the information received is insufficient or not up to the standard that enables them to perform their roles properly.

Information for the board needs to be well presented and clear as to what it covers and what is its purpose. If the executive is looking for a decision from the board, this needs to be clear from the face of the document. Boards and those responsible for the framework of board papers need to consider how best to ensure the quality of board papers and ensure management information is of a high standard. Too much control can stifle innovation and fetter the ability of the board to engage in high quality debate. Too little control can result in variable quality materials and waste precious board time.

Managing Succession

Mon, 21 Feb 2022 07:00:00 GMT

The Queen has done seventy years at the top and is on her fourteenth ‘chief executive’! She is seemingly as sharp and wise as ever and continues to fulfil her unique role without fault. She views it as a vocation and a lifetime commitment and has never hinted at the possibility of stepping aside. At the risk of being accused of treason, one can argue however that this approach has made the future more challenging for the institution itself and her appointed successor. The succession to a monarchy is of course a special situation and without any comparator in the commercial world, but it shows that in any context managing succession has its challenges and failing to do so has consequences.

It is unsurprising therefore that the issue of the chairman’s succession often arises as an item on the agenda of a board review. It tends to be an issue of which everyone is conscious but is reluctant to pursue. The reasons are obvious. For a chairman it signals the end of an era and, in the case of a senior chair, retirement. Some welcome this but many are more hesitant. For his co-directors it is therefore a sensitive subject to raise and pursue.

The fact that there is guidance in place and a committee whose job it is to oversee the process does not seem to alter the reticence. There are ample excuses for prevarication. The Code itself allows for a chair’s period of office to be extended beyond nine years for a limited period ‘to facilitate effective succession planning and the development of a diverse board, particularly in those cases where the chair was an existing non-executive director on appointment’.

There also always seems time for it ‘to be sorted’ so it tends to be a subject which is difficult to address and more easily avoided when the incumbent still has a year or more to go . The well-ordered succession programme needs be planned well in advance. Ordering the succession to synchronise appropriately with the change of the senior independent director and/or of the chief executive might need planning some years in advance and each of those appointees also have their own sensitivities. Also, advance discussions about the retirement of a chair can ‘leak’ notwithstanding the best intentions and can be disruptive.

The Nomination Committee has the front-line responsibility for managing succession. But itself is chaired and populated with the very people concerned and, while the person whose succession is in question should absent themselves, who steps out of the room first? Perhaps as an agenda item it should be a fixture in the calendar of every Nomco. Perhaps making another the chair of the Nomco rather than the Chair of the Board. Perhaps there should be a greater influence exerted by the Chief People Officer.

Now, I accept there is a danger in over dramatising the sensitivity element and boards and nomination committees do eventually address the challenge. The reality is, however, that managing succession remains a challenging process, and it often takes the intervention of an independent third party with whom directors feel able to share their concerns for it to be raised and advanced.

Death is never an easy subject to talk about and our dear Queen must surely be aware of and involved with the detailed planning which goes with managing her succession, but with as with everything else she seems to take it all in her stride. In the meantime, let’s celebrate and salute her seventy glorious years on the throne.

Harnessing the power and dedication of young minds.

Mon, 14 Feb 2022 09:01:00 GMT

Two recent experiences have caused me to reflect on the benefits of recruiting young minds to address current strategic challenges facing businesses.

Reviewing the board of one charity I had the opportunity to observe the contributions of the two youngest members of that board. Each of them was in their twenties and their vision, their insight and their maturity were remarkable. They were a real asset. I have often cited this deployment of young minds on a board as an example inspired practice particularly with charities. Given the onerous responsibility imposed on directors of public companies of course, I understand the need for experience and stature and how difficult it would be for a ‘twenty something year old’ to undertake that. But there must be other ways to engage them

This week I was asked to judge a regional award for environmental endeavour. The finalists were three very different businesses, one of which is a large commercial enterprise processing vegetables. A graduate recruited eighteen months ago straight from university has succeeded in persuading her senior management to examine more closely and thereby appreciate the inherent economic advantages of investment in sustainable options. At the same time with her encouragement, they are now broadening their sphere of influence to help and encourage their suppliers as well in this endeavour.

There are two obvious arenas in which young people can make a real contribution albeit for different reasons. The environment is one. Young people have so much more invested in the future of our environment and they want to look at alternative approaches. They understand the sacrifices their generation is prepared to make, and the credit awarded to those companies who are prepared to take those steps. The other area is information technology. The driver here is purely economic. Young people are more conversant with developments in IT. They understand better the power of its potential applications and the commercial opportunities.

How many boards of directors of public companies then involve young people when formulating strategy, particularly around these two challenges? Surely some do, but it is by no means a common practice. Many talk of shadow boards but rarely follow though.

In a recent blog we said, ‘the age -old board skills of insight, intellectual curiosity and strategic advice remain important, but climate change will require boards to think outside the box’. Young people unconstrained by the inhibitions of age and experience are more likely to think outside the box. Is it not time therefore for more boards to harness this youthful and committed energy and run their strategic sessions alongside shadow boards of much younger members of their staff?

Independent investigation

Mon, 07 Feb 2022 03:59:00 GMT

One of the questions which has arisen in the context of the UK’s current political machinations centres on how an investigation into alleged failings should be carried out and who should do it?

Business is different from politics of course, but from time to time a PLC or large corporate may need to launch an investigation into alleged failings such as a breach of law or failure to meet regulators’ expectations.

When such a challenge arises senior management and board directors will want to ensure they limit damage to the company and stakeholder interests. There is much to think about in such situations, including but not limited to – does the company wish to get the protection of legal privilege for its investigation? how does the board manage internal and external communications? how can the company ensure records are protected so that an investigator(s) can access all the materials required to complete the investigation?

The purpose of this article is not to explore the many issues a board must consider, but rather to focus on one issue which has arisen in the context of the current government’s travails i.e. should the investigator be independent and if so, what does that mean in practice?

For most companies, particularly those which are listed or subject to regulation, the board will almost always want to ensure the investigator is independent and can reasonably be seen to be independent. It is probable that many firms may seek legal advice on this issue as there are many pitfalls and misunderstandings as to what independence means. It is not another employee of the company, even if s/he is completely unconnected to the events being investigated, is of the highest integrity and known for having an independent mind. Companies may wish to appoint an internal investigator, if they do, they will need to consider whether there are any conflicts of interest to such an appointment that might compromise the proposed investigator being considered to be independent. It should not be a “friend” of the company. In practice an external investigator will almost always be a professional such as a private practice lawyer with the relevant training and experience.

However, even where outside assistance is sought, most organisations will rightly conclude that to achieve an effective investigation, overall direction will need to be held by an independent person who has a closer understanding of the company and the business. This is likely to be one of the independent non-executive directors with sufficient standing and experience. A typical choice would be the chair, assuming that s/he meets the independence criteria, not just in board terms, but also when assessed against the facts of the investigation to hand. The chair will usually have the required standing in the organisation to enable him/her to put together an investigative team, arrange for the protection and gathering or relevant records, seek external support as needed and handle communications. Non-tainted executives should then be freed up to continue running the business.

One thing all companies should be doing is planning ahead of an “event” actually happening. It is important to do it when there is time to think and not when the heat is already on. Plans can be outline and flexible, in fact they need to be as it is impossible to anticipate every potential eventuality. Even an outline plan is likely to be better than no plan. The board should ensure that any such plan includes the name of suitable independent candidates to lead the investigation.

Trust in governance

Mon, 24 Jan 2022 11:39:00 GMT

One of the consequences of the events in Downing Street has been a loss of trust between those who govern and those who are governed. This note does not seek to opine on the rights and wrongs of the allegations circulating in Whitehall, but the theme of trust is an important part of successful corporate governance.

At Bvalco we carry out board evaluations for a range of different companies and organisations and have the chance to speak to directors and other key staff and stakeholders about the performance of the Board. It is very clear from our experience that the tone really does come from the top. Managers and other staff members know when they are being treated with respect and when their contribution to the business is valued. They know if they can trust their board. They appreciate features such as open honest feedback and a willingness to listen to concerns, it can help them to carry out their roles better and it demonstrates to them that they matter.

Boards can engender trust by being open and honest about their own performance and showing that they care about and are committed to the business and being better governors. Most board members we encounter really do care about the organisations they work for and their people. They want to be seen to be doing the right thing. They want to be better.

How can boards encourage trust?

It is important for the role of the board to be properly understood, certainly by all board members, but also by those elsewhere in the organisation. The terms of reference for the board need to be clear and key board members such as the chair need to be vocal in explaining the role of the board and the value it can bring to an organisation. The chair’s statement need not just be a reassurance for investors, it can also be a restatement of purpose for staff.

Companies often have a statement of corporate values. Boards need to underscore these values and the culture. Stakeholders, particularly, the workforce, need to believe that these are genuine and not just an exercise in going through the motions.

Boards need to be appropriately engaged with the business. This is always a delicate balance; non- executives need to guard against slipping into activity which falls within the ‘getting drawn into areas which are the responsibility of the executives’. However, being visible, “walking the floors”, can be a way for non-executives to show support and build trust. They may also gather useful intelligence along the way to help them carry out their roles as directors.

The restrictions around Covid have fettered the ability of boards to get in front of the staff, but as part of our work we have seen some boards adapting to the “new world”, finding new ways to get in front of staff. Chairs using zoom to run townhalls and individual directors proactively contacting senior executives managing the consequences of the pandemic are just two examples of the effective building of trust between the board and the executive.

Importantly, for businesses this is not just a “good” thing to do. Clients and competitors will soon pick up if a business is not to be trusted, ultimately a board which is not trusted by its colleagues will see the effect in its bottom line. The journalist Simon Nixon writing recently in The Times noted

‘a striking correlation between trust and economic growth across a large number of countries. According to one academic study a ten-percentage point rise in trust within society was associated with a 0.5 percentage point increase in real GDP’

What’s true for countries seems almost certainly to be true for companies.

The Role of the Board in Effective Succession Planning

Tue, 02 Nov 2021 15:09:00 GMT

External stakeholders, particularly shareholders, recognise the importance of effective succession planning as a bedrock of a company’s sustained success.

Successful boards understand that succession planning forms a vital part of good corporate governance. The 2018 UK Corporate Governance Code (the Code ) underlies this importance.

Principle 1A of the Code provides:

‘[a] successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.’

Principles 3 J, K and L of the Code address the importance of succession planning and Provision 17 provides:

‘[t]he board should establish a nomination committee to lead the process for appointments, ensure plans are in place for orderly succession to both the board and senior management positions, and oversee the development of a diverse pipeline for succession.’

Good boards have strong succession plans

Failure by a board to ensure that a company establishes effective succession planning puts performance of the company at risk and leaves the directors open to criticism.

In the financial services sector failure to properly plan for succession can leave a firm open to regulatory sanction, the Prudential Regulation Authority ( PRA ) states that it:

‘Expects boards to pay close attention to the skills, experience and effectiveness of its members. Boards should ensure they have robust succession plans that recognise current and future business needs and requirements. ’ [1]

Board directors should always expect the unexpected, such as Illness or the sudden departure of a key executive. The PRA expectations on this point are clear:

Boards should maintain succession plans that address the unexpected loss of key individuals, particularly those roles covered by the Senior Managers Regime including arrangements covering immediate and short-term situations as well as longer term replacements.

Companies with well-developed and regularly updated succession plans will typically be better placed to mitigate the impact of the sudden loss of either a senior executive or a key non-executive.

Managing relationships

Refreshing executive leadership can be particularly challenging for boards. A strong succession plan coupled with clearly understood expectations as to performance may help to mitigate the difficult challenges for a board when it seeks to move on a senior executive who it considers is underperforming. However, managing succession against a backdrop of under-performance, or where there are differences of strategic vision for a company, is unlikely to be straightforward.

Typically, a board is a relatively small unit and relationships can be close, concepts of loyalty and friendship can make challenge and change difficult. Understandably, Individuals can, and often do, see succession in purely personal terms. It can be hard for an individual to be objective when he or she is the subject of direct or implied criticism, particularly where acceptance of such criticism is likely to result in significant consequences.

Plan early

Companies can mitigate the risk of destructive and time-consuming succession crises by developing and updating detailed succession plans as part of the day-to-day functioning of the Board, supported by the nomination committee and internal company resources, rather than when a crisis has already hit. Constructive challenge by non-executives can help to ensure that succession plans are fit for purpose and are updated regularly.

The Chair

As the guardian of the company’s corporate governance the Chair plays an important role in helping to ensure that there are effective succession arrangements in place. The Chair should be a sounding board for non-executives, informal views on more sensitive issues between non-executives and key executives will often pivot through the chair. The Senior Independent Director should also ensure that he or she is available to discuss the concerns of the non-executives.

Where the Chair has his/her ear to the ground there is a greater chance that concerns about succession will be picked up early which should allow the issue to be exposed for wider discussion both informally and more formally at the Nomination Committee as well as at main board level.

[1] Supervisory Statement SS5/16 Corporate governance: Board responsibilities July 2018 – Prudential Regulation Authority

Navigating the challenge of greater regulation of the non-executive role.

Tue, 12 Oct 2021 15:26:00 GMT

Peter Snowdon offers up some important guidance for NEDs navigating the increasingly difficult challenge of greater regulation of their non-executive role.

Key Learnings on the Benefits & Pitfalls of a Non-Executive Career

Tue, 05 Oct 2021 14:37:00 GMT

Maggie Carver CBE, Chair of the Racecourse Association and Deputy Chair of Ofcom, talked to Bvalco’s Peter Snowdon about the benefits and pitfalls of a non-executive career. We are pleased to share Key Learnings from this facinating conversation.

Read the key learnings [pdf]

Charity Governance Summit

Wed, 04 Aug 2021 13:57:00 GMT

I am speaking at the Forthcoming Charity Governance Summit 15-16th September (Day 2) on Wellbeing and employees’ mental health across sectors with co speakers Paul Farmer, CEO Mind and Susie Crowder, Director Human Capital, Grant Thornton.

The Role of the Board in scaling technology enabled businesses.

Mon, 05 Jul 2021 16:25:00 GMT

Colin Tenwick, Senior Advisor, Investor, Chairman and NED joined Alison Gill to discuss his substantial experience helping organisations to grow and scale. Colin discussed how Boards can approach the opportunities and challenges posed by upscaling.

Read the key learnings [pdf]

Listen or tune in

Power of emotion – Part 4: How good boards stay effective

Tue, 22 Jun 2021 17:29:00 GMT

Corporate boards are by definition dealing with big issues and are responsible for taking important decisions. This is rarely achieved efficiently without a really sound process and effective chair facilitating.

The first thing to get right is a good agenda; each agenda item needs to have a clear purpose – what is the desired outcome from the board’s discussion? The agenda should make clear which items are for ‘noting’ and which require a decision. There then needs to be a clear process from purpose to outcome, a clear cycle designed to reach a conclusion, facilitated by the chair.

A good process to follow is GROW 1 : G oals, R eality testing, O ptions, W orkable Plan.

Goals – A clear goal or objective of a proposal. This should be clear from the board papers, providing clarification to aid understanding.
Reality testing – Why is this happening now, why is it important, what would happen if we didn’t take this route?
Options – What options are being considered, what are the pros and cons? What is the analysis?
Workable plan – a clear outcome to get to a decision.

The Chairman’s role is to ensure that the board moves through this process effectively and everyone knows where they are in this process at any point. Where things often go wrong is when board members get stuck at some point in the cycle, while others have moved on; perhaps questioning the analysis in a board paper, while others are discussing options to reach a decision; these questions can be quite destabilising and lead to tensions. The Chair needs to recognise when the time is right to move on to a new part of the process – or perhaps to return to a completed part if it makes sense to.

When evaluating a board as an objective observer, I record all the questions and answers and look at the balance of the type of questions – the emotional response and the dynamic in the boardroom and assess how well this is being managed by the Chair. I’m then able to provide feedback, highlighting where the gaps are, identifying where the process has broken down and helping boards to acknowledge this.

Increasingly board directors are sophisticated enough to understand the group dynamics and the importance of behaviour in keeping a board effective. However, it sometimes takes an objective observer to identify where the process has broken down and a strategy for course? Correcting to stay effective. So, while the Chair’s role is to steer the board through the GROW cycle, the awareness of both process and behaviour from all board members is equally important.

1 WHITMORE 2012. The Grow Model, Sir John Whitmore’s coaching framework for leaders

Do boards need people people?

Tue, 08 Jun 2021 14:53:00 GMT

Boardroom agendas are increasingly concerned with people issues – a trend explored by Bvalco’s Ali Gill in HR Magazine.

Restoring trust in audit and corporate governance. We consider the latest government white paper and raise some key questions.

Tue, 25 May 2021 06:00:00 GMT

The government white paper Restoring trust in audit and corporate governance (the White Paper ) published in March 2021 contains a number of wide-ranging proposals for reform. This note considers the proposal to require directors to attest to the effectiveness of their company’s internal controls.

Which companies?

The obligation will apply to directors of Public Interest Companies ( PIE). Currently the definition of a PIE captures predominantly public listed companies together with banks and insurance companies. The White Paper proposes that the definition should be expanded to capture large private companies and large AIM companies.

The White Paper proposes two options for expansion of the definition:

Option one would capture companies with 2000 employees or companies with a turnover of more than £200 million and a balance sheet of more than £2 billion.
Option two would see the definition expanded to capture companies with more than 500 employees and a turnover of more than £500 million.

According to the government Option one would mean an additional 1,960 companies falling within the definition of a PIE with Option two capturing 1060.

Internal controls – director attestation

The government is seeking views on a proposal that company directors be required to conduct an annual review of the effectiveness of their company’s internal controls and make a statement in the company’s annual report, as to whether they consider them to have operated effectively. The statement should disclose the benchmark system used [1] and explain how the directors have assured themselves that it is appropriate to make the statement.

The White Paper notes that currently the UK Corporate Governance Code (the Code ):-

‘. . . requires the board to establish a framework of prudent and effective controls which enable risk to be assessed and managed. A Code provision then calls on the board to monitor the company’s risk management and internal control systems and, at least annually, to carry out a review of their effectiveness and report on that review in the annual report. This is not as strong a provision as it appears because there is no specific requirement for boards to report whether they consider the control system to be adequate or effective, although many companies do provide such an assessment.’

The White Paper argues that the absence of any requirement ‘for boards to express an opinion on the effectiveness or otherwise of the control systems’ means that investors may be unable to form a view as to the directors’ assessment of a company’s controls. To deal with this issue, the White Paper proposes that the UK’s framework be strengthened by introducing an obligation the board as a whole (or alternatively just the CEO and the CFO) has to:

explain the outcome of the annual review of the risk management and internal control systems and make a statement as to whether they consider the systems to have operated effectively;
disclose the benchmark system, if any, that has been used to make the assessment;
explain how the directors have assured themselves that it is appropriate to make a statement; and
if deficiencies have been identified, set out the remedial action that is being taken and over what timeframe.’

It is likely that there will continue to be a significant debate on the question as to whether the board collectively should provide attestations or whether it should be limited to certain key executive directors such as the CEO and CFO. It has been suggested that requiring NEDs to provide such an attestation would be of limited value as they would inevitably be relying on the material provided to them by the executives. On the other hand, imposing the obligation on certain executive directors alone would seem to run counter to the established principle of board collective responsibility. It seems that the government favours attestations being made by the whole board.

The government is proposing to enhance the impact of this obligation (and in relation to certain existing requirements on directors) by legislating to give a new regulator, the Audit Reporting and Governance Authority ( ARGA ), ‘effective powers’ to both investigate the ‘accuracy and completeness of the directors’ internal control disclosures’ and to sanction directors where they have failed to ‘establish and maintain an adequate internal control structure and procedures for financial reporting’.

The government proposes to give ARGA new powers to take civil enforcement action against:-

‘PIE directors in relation to breaches of existing PIE directors’ duties relating to corporate reporting and audit (and any new duties which are introduced further to this consultation, for example in relation to internal controls). This new enforcement regime for PIE directors would not replace existing arrangements for taking action against company directors, for example in respect of offences under the Companies Act or breaches of the FCA Listing Rules, FCA Transparency Rules or Market Abuse Regulation.’

These new enforcement powers would be in addition to those exercised by the FCA and by other agencies such as the Serious Fraud Office. To mitigate the risk that individuals may be discouraged from acting as directors the White Paper suggests that ARGA could:

‘look to mitigate the risk of deterring directors when exercising their enforcement powers by applying their proportionality principle, taking into account the directors’ backgrounds and considering the size and complexity of the entity concerned.’

The proposals in the White Paper serve to underline that acting as a director of an English company should not be seen as a sinecure. The role demands extensive commitment from individuals and requires a detailed understanding of how the company operates including its internal controls. These proposals together with the advent of a new regulatory regime are likely to mean that directors will have to develop procedures and processes to help mitigate personal risk.

Some key questions raised:

Should these requirements be the collective responsibility of the board or should it be for the executive directors alone?
Are the proposed measures proportionate in achieving the intended outcomes versus increased bureaucracy and cost?
Where best to draw the line when categorising public Interest Companies?
Is this strong enough to win back public trust in business and the audit.

[1] The White Paper notes that one option might be to base the benchmark on the approach taken by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework, adapted to suit UK requirements.

Board Effectiveness Guild paper

Fri, 21 May 2021 06:00:00 GMT

We know that a review of a board’s effectiveness is important but the true value of that review is not always guaranteed.

I recently chaired a discussion with NEDs on not only what makes a review good, but also bad and even ugly.

Much like a board review itself, an open and honest analysis of what works and what doesn’t provided invaluable insights into how we can be better. Here are the key takeaways’.

Power of emotion – Part 3: How will boards learn from the pandemic?

Mon, 10 May 2021 16:23:00 GMT

The first action for boards as we begin to exit the pandemic is to effectively review how the board operated throughout, what are the learnings and what if anything should change. The challenge with reviewing a crisis situation is that with a day-to-day focus on the crisis, it is often held too late and learnings are lost. Memory is not definitive – we tend to refocus with positive or negative filters, shifting emphasis and neglecting context; in short, we lose accuracy.

The review structure is also critical. The temptation is often to focus on the past, rather than how the board should operate in the future and without a clear structure, learnings are lost with the diversity of opinion. A good structure would look at 6 key areas: Culture, Roles, Process, Strategy, Beliefs and Values:

Culture – How has the behaviour of the board impacted the way things get done
Roles – How has the board’s role changed during the pandemic, and how might we want to keep some of those changes and in other cases revert to what we had before
Process – Many boards have had to change, meeting at different times, meeting remotely and with different dynamics around board information – do we want to keep these changes and what will make us more efficient?
Strategy – Changing corporate strategy quickly and sometimes dramatically has been a hallmark of this crisis, changes such as switching call centres to home-working and shifting business online. The question is whether this new focus makes sense looking forward and if so, what are the implications.
Beliefs – The unspoken assumptions boards make about the business. Are we surfacing these beliefs and how are they shaping our decisions and should they evolve?
Values – Are we using our corporate values effectively as a backbone to help us make decisions and difficult choices, and have they evolved as part of our crisis response.

Another area where boards have seen a change is the roles and relationship of executives and non-executives; during the crisis many companies have seen non-exec roles becoming more hands-on and a number of boards have said how the relationship between execs and non-execs has strengthened. A review is a good opportunity to explore whether these roles need to evolve or return to ‘as was’ – have we got sufficient challenge and support?

Finally, how best to conduct the review – just add to the board agenda or use an external facilitator? As a board evaluator I may be biased – but I believe this should undoubtedly be done with external facilitation: Firstly, an external facilitator allows the chair to contribute to the conversation properly; secondly, independent reviewers come in with a fresh perspective – and ask those tangential questions; and thirdly, there are inevitably some unspoken matters of confrontation/conflict because there wasn’t the time or inclination to sort them out.

In conclusion, there will be many learnings for boards following the pandemic, but in order to capture them, reviews must be timely.

Following a clearly defined process will bring structure and using an external facilitator will ensure the most effective review. Much has changed for companies in 2021, the opportunity is to build back better, learn from both our mistakes and our opportunities – corporate boards are no different. Read more about exiting coronavirus with a stronger board .

The Role of the Board in Scaling Technology Enabled Businesses

Tue, 04 May 2021 14:03:00 GMT

A Conversation with Colin Tenwick

Few executives would argue against the need for digital transformation to remain competitive. The reality is many struggle to adopt the technology, processes, and organisational changes necessary to modernise and enable them to compete in their industries. Colin Tenwick has substantial experience helping organisations grow and scale through technology enablement. Join us in conversation to discuss how Boards can approach the opportunities and challenges posed and, what sort of skills can be assembled to complement the executives.

Speakers:

Colin Tenwick , Non-Exec Chair at leading online commerce platform Wowcher and data management and visibility company Intelligent Reach will join

Alison Gill , Founding Director and CEO, Bvalco Ltd in Conversation.

Booking:

We’ll be hosting this webinar via Zoom

Date : 17th June 2021

Timing : 12:30 – 13:45 BST

CPD : 1 hour

Biography Colin Tenwick

I have been fortunate to have had an entire 30 plus year career in Technology, Technology enabled businesses and Online Media in a time when we have experienced some of the most exciting and disruptive changes.

Having worked in Enterprise software, Open Source Operating systems, Internet classifieds, Freemium security software, Saas businesses in B2B, B2C and now more recently as Chairman and NED in market places and technology enabled businesses it is clear there are unique attributes to each, but many similarities in that it is great people, unbridled ambition, results and ultimately access to resources and partners to support scale up and growth that makes the difference!

I have been VP, General manager, CEO and now NED and Chairman of Public, Private, VC backed and PE backed businesses ranging in size from start up to multibillion £ turnover, and usually international operations with up to several thousands of employees.

Past roles VP and GM Europe Sybase, Red Hat, CEO of StepStone ASA, Livebookings Ltd, Non Exec Chairman Control Circle, NED AVG, Non Exec Chairman at PE backed Addison Lee and more recently Chairman at ATG that has successfully launched on the LSE .

Currently Non Exec Chair at leading online commerce platform Wowcher and Data management and visibility company Intelligent Reach.

‘They think it’s all over – it is (for) now

Wed, 28 Apr 2021 11:13:00 GMT

Reflections on the European Super League debacle

As well as providing the UK media with the opportunity to brush off their favourite footballing puns, the spectacular own goal of the European Super League ( ESL ) may also be a symptom of governance failures at the companies that control the clubs.

Although it is highly unlikely that there has been any breach of company law, the Companies Act 2006 [1] does provide a guide as to the approach the boards of the clubs might have taken when considering the proposals.

Perhaps the best-known directors’ duty is the requirement for directors to promote the success of the company. Directors are required to act in a way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole. When making decisions, directors must consider the likely consequences for stakeholders including employees, suppliers, customers and communities. Directors are also required to consider a number of other factors including the reputation of the company.

Had the six English clubs successfully joined the ESL they would have enjoyed significant financial benefits. It has been said that JPMorgan Chase had underwritten the new competition to the tune of 3.25 billion Euro and that each of the founder members would have benefitted from an initial payment of 200-300 million Euro. Millions more would have followed and there is little doubt that the impetus for the arrangements would have come from the owners of the clubs.

The ESL would have operated on the basis of the US sports model such that the 15 founder clubs would never have been relegated, guaranteeing the owners a more stable investment return. Other arrangements would have included greater control over broadcasting revenues.

At first sight, one can understand why a director might have concluded that the financial benefits of the ESL were such that deciding to join was a ‘no-brainer’ against the benchmark of promoting the success of the company and the interests of their members.

Football’s stakeholders

Yet a simple financial analysis ignores the special nature of football clubs, as Simon Kuper observed in the Financial Times it seems the decision makers ‘[failed] to grasp that [football] clubs are more than for-profit businesses’ [2] . The apparent focus on potential financial rewards ignored the nature and standing of the English clubs, a point not missed by politicians. The directors seemingly overlooked or underplayed the need to consider the consequences for stakeholders, especially the fans and the clubs’ wider local communities.

This seems surprising as the importance of fans as stakeholders is acknowledged by all the clubs concerned. A good example is the Tottenham Hotspur 2020 Annual Report which includes the following passage regarding ‘other stakeholders’:

Fans are the lifeblood of our club and are always foremost in our decision-making

the board meets regularly with the Tottenham Hotspur Supporters Trust, a representative of the fan base, to discuss the key issues affecting fans.

It seems unlikely that the fans views were ‘foremost’ when the club made the decision to join the ESL.

Furthermore, football’s relationship with the public reaches far beyond those who are willing, or able to pay to see games, as anyone who has been in Manchester on Derby day will testify, the city ‘lives’ football.

Did the boards of the clubs consider the potential consequences for their wider community? Had the ESL gone ahead it seems that there would have been a focus on the growing Asian interest in European football. As with American football it seems likely that some games would have been played away from the home venues, clubs renamed to lessen their geographical reference and the possibility of a gradual, but inexorable, detachment from their local communities.

Strategy planning

It is surprising that the club boards appear not to have given much thought to managing the reaction to the ESL proposals. According to the press, Florentino Perez, who would have been chair of the ESL, has said that the ESL has been four years in the planning. If that is accurate, it is fair to ask why the boards of the English clubs were not better prepared – what strategic planning did they do? How could the response to the proposals have been such a surprise?

The ESL affair has been a reputational disaster for the clubs involved. If the directors did consider this factor when decision making, it seems fair to say their judgement was spectacularly flawed. Did the directors seek to suggest ‘road testing’ the idea with fan groups? Did the non-executive directors ask for non-financial management information on the possible consequences? Did they consider how the decision should be communicated both internally and externally?

The absence of any obvious supporting PR was a prominent feature of the affair. The public face of the clubs, the managers and the players, had seemingly been left in the dark. Watching the normally ebullient Jurgen Klopp, a key asset of Liverpool and an important stakeholder at the club, attempting to field journalists’ questions about proposals from which he had been excluded, was surely evidence of poor planning. How could the clubs have got it so wrong?

Others with commercial interests in the game may have arrived at a better view on the potential reputational damage, observers have noted the complete absence of broadcasters’ support suggesting that that BT Sport, Sky and Canal + all saw the risks.

In their defence the directors may argue that there was little they could realistically have done when their owners were so committed to the ESL and the riches it would have delivered. Yet, while this may be true, surely it was incumbent upon them properly to assess the proposals and, where appropriate, challenge them.

[1] A helpful summary of these duties is available on the Companies House website – 7 duties of a company director

[2] Simon Kuper Super League would break football’s essential promise Financial Times 19 April 2021

What should a board consider when shopping for a new leader?

Mon, 19 Apr 2021 16:10:00 GMT

What should a board consider when shopping for a new leader. Joy McKnight, Editor of The Banker talks to Alison Gill about the many questions around what boards should be thinking about when considering who should next take the helm.

Board Effectiveness Guild paper

Sun, 18 Apr 2021 16:26:00 GMT

Over the coming months Alison Gill will chair a series of webinars for the Board Effectiveness Guild in conjunction with Governance magazine. The webinars will discuss ‘The good, the bad and the ugly of board effectiveness reviews’ . In the second of a series of four webinars an article of the findings can be found here .

Power of emotion – Part 2: The Chair’s role in managing unconscious bias

Tue, 13 Apr 2021 14:00:00 GMT

Like it or not we all harbour our own biases which influence us to act in a certain way. Today, we’re encouraged to confront these biases, but it remains a challenge, especially in a group setting such as a boardroom, with a number of potential biases operating together.

We firstly need to acknowledge that people are hard-wired to naturally relate to others who are similar. It’s really important for chairs to acknowledge this. Once acknowledged, we can then start to think differently about how we make decisions and how we can use biases positively, or at least challenge them. The chair’s role is to remain vigilant for bias and as an effective facilitator, to remain independent of bias. A natural challenge to bias is increased diversity which is what we really need in the boardroom; diversity of thought brings creativity, breadth of thinking and creates the opportunity for conflicting views to flourish.

Cliques within a board are not uncommon however, perhaps a group who share a long board tenure, or potentially around gender. This bias can be further flawed by a confirmation bias as those in the group hear similar views to their own. They start with an idea and then the group builds on the same idea. This is telling you that the thinking in this group is not suitably creative or diverse, it is reaffirming a single viewpoint. The chair’s job is to firstly acknowledge that this is happening and to then explore further viewpoints – potentially by inviting someone from outside the subgroup to offer a different perspective, or it could be done by asking them to ‘park’ their idea and then to stretch their thinking by challenging it.

Being prepared to listen to alternative views and to then consider them is critical. We’re comfortable within our own sphere of knowledge – conversely a sense of uncertainty potentially creates anxiety; our default may well be to steer clear. Our hard-wired tendency to be attracted to sameness, is often acknowledged – but is less frequently acted upon. Most boardrooms today would be quite clear about the need for gender and ethnic diversity in the upper reaches of a business; acting upon that need is another thing entirely. This is essentially wilful blindness.

In conclusion, the role of the chair is as ever central. Acknowledging bias and ensuring a diversity of views are expressed and considered is completely essential for an effective board.

Digital transformation – the challenges of Artificial Intelligence (AI) for boards

Thu, 08 Apr 2021 14:47:00 GMT

Digital transformation continues to be one of the greatest challenges facing companies. The risk of falling behind could be fatal for a business. But there are also real risks for firms as they develop associated new technology capability.

Businesses are increasingly looking to artificial intelligence ( AI ) to gain competitive advantage. However, whilst AI may offer enormous prospective benefits to companies, there are considerable possible downsides for boards if the planning and implementation of AI capability is flawed.

Artificial intelligence and boards

AI systems are able to perform tasks and functions which have traditionally required human intelligence. Much of the technology is complex but the challenges of AI are not just an issue for the IT department, they reach to the very top of firms and ultimately must be addressed by the board.

AI is potentially transformative for many businesses and it is inevitable that many boards are having to develop and agree effective AI strategies as well as overseeing and challenging the management teams responsible for technology planning and the implementation of AI solutions.

In practice, most board members are likely to need technical support performing their roles in relation to AI. As with any other area of decision making, developing and overseeing the implementation of an AI strategy is a collective exercise by the board as a whole, not just those directors who may have relevant technical skills. Directors are not required to be experts on every subject but they are expected to be fully engaged in board decision making, seeking appropriate support and expertise where needed.

AI Risk

In some areas of industry, boards and individual directors may already have developed effective approaches towards decision making where the challenge faced is technically complex. For example, many banks and financial firms already rely on complex algorithms and modelling when carrying out functions such as calculating pricing or assessing risk. Directors are not expected to be familiar with every detail of these tools, but they are expected to satisfy themselves that there is proven capability in the business that understands such tools and knows how to use them appropriately and assess how they are performing in practice.

Machine learning ( ML ), where a machine teaches itself to perform tasks without programming, can present particular challenges to businesses and boards. There is anecdotal evidence which suggests that when machines are left to their own devices, they can make decisions which are unlawful or otherwise discriminatory. One often mentioned example 1 concerned a technology company which used ML to assess job applications. Unfortunately for the firm, the ML system assessed applications based on historic data which mostly contained applications that had come from men, a reflection of male dominance in the technology sector. As a result, the machine taught itself that applications from men were preferable and it actively discriminated against female applicants. The high-profile failings of driverless car technologies are another example of how things can go awry. Facial recognition technology failures of the bald-man-identified-as-a-ball variety are well known.

Whilst on one view, it may be argued that errors of this type are part of the learning process for use of ML capability, it is possible to envisage serious consequences for businesses from ML failures where machines learn from past inappropriate human decisions. Such risk could present ethical challenges for companies and boards. It may not always be appropriate for machines to make decisions just because they can do so more cheaply and more efficiently. Even where there is not obvious failure of technology, most companies and boards need to satisfy themselves that the business can demonstrate how and why a system has made a decision. Simply saying the ‘computer says no’ is not adequate, companies need to be able to explain why a decision was made. The balance between commercial benefit and potential for detriment arising from ‘black box’ systems, means that boards will need to develop a clear position on their risk appetite.

As reliance on algorithms grows, boards are going to be increasingly at risk of these complex tools failing. Risk can never be excluded, but failure by boards to challenge and demand evidence as to an algorithm’s efficacy may be difficult to defend if it turns out to have material weaknesses. Boards should look to satisfy themselves that AI capability is effective based on credible internal audit trail and may also wish to seek an external assessment undertaken by one of the specialist firms offering algorithm audits.

Data and information

Big data and information generally are essential to the operation of sophisticated AI capability. However, the data provided to AI systems must be of sufficient quality and untainted by human bias. ‘Rubbish in rubbish out’ failings could lead to significant negative outcomes for firms.

Paradoxically, much of the data used in building AI capability is sourced via low tech manual human input. There are said to be thousands of workers involved in labelling and classifying data for input into AI systems. There have been criticisms that workers performing these tasks, so-called ‘ghost workers’ are sometimes low paid and have to suffer poor working conditions, such criticisms may be an added risk for boards to consider.

However, poor working conditions are not the only issue that may present risk to businesses using AI capability. A recent BBC article 2 cites a study relating to YouTube that found that an algorithm had banned some LGBTQ content. It turned out that this did not reflect a weakness in the algorithm but came from the workers behind the scenes who were in a country where LGBTQ content was subject to censorship.

Boards also need to consider the extent to which customer data can be used in AI capability. Have customers consented to their information being used in this way? Is there sufficient transparency as to how their data will be used? How do companies deal with customers who refuse to allow their data to be used in this way?

The use of AI capability for marketing is already well established. However, as businesses now hold so much information on their customers there can be a fine line between developing targeted, acceptable marketing and approaches that are intrusive, manipulative or just plain creepy.

Using customer data may also lead to unintended greater commercial risk, for example enhancing a customer service so that it is better tailored to an individual customer profile could risk the firm appearing to provide a personal recommendation to a customer thereby taking on unintended liability.

Both the Prudential Regulatory Authority and the Financial Conduct Authority have produced helpful material on AI risk and board issues. As with much regulatory comment the material produced by both regulators includes material which is useful for non-financial institutions as well.

Power of Emotion – Part 1: Harnessing anxiety to make better boardroom decisions

Mon, 15 Mar 2021 16:26:00 GMT

The world-renowned physicist Richard Feynman said that the value of science is that it teaches us to embrace doubt and uncertainty. In looking at the power of emotion in the boardroom, I wanted to address an important question: how can you turn anxiety and uncertainty into a positive?

First we need to recognise what anxiety is telling us. Every emotion is a piece of information that is trying to tell us something valuable and in the case of anxiety, something that we care about is at risk – it is our body’s natural response to a perceived threat. At times we don’t know precisely what that threat looks like or even whether the threat is real. For example, the board are discussing a potential acquisition and one of the directors in concerned that this is in a sector that is not only new to the company, but outside of her own experience too. Feeling personally anxious is understandable. The next step however is to ‘name’ that anxiety and to ‘reframe’ it. In this instance the lack of personal knowledge is firstly understandable, but it also reflects a lack of knowledge for both the company and the board. The non-executive director can and must raise the issue as potentially a red flag for the business per se.

There is then the role of the Chair. Clearly there is a need for the Chair to have the emotional intelligence not only to recognise anxiety, but to explore where it is coming from and ultimately to deal with whatever threat is at play, whether real or perceived. Emotional intelligence is the ability to blend thinking and feeling to help decision-making and the Chair’s role is to facilitate these decisions and ensure the board is as effective as it can be. Different signs in the boardroom will inform the Chair and indicate that certain people are anxious or feeling uncertain. I will always encourage Chairs to call this out, to say what they’re noticing.

Board dynamics are not an exact science, but we know from modern behavioural psychology that cognition and decision-making are about more than just the logical and the rational, with emotion playing a key part. Neuroscientist, Antonio Damasio, wrote about a case study where a patient had a damaged frontal lobe as a result of a tumour. As a result, he became unable to make decisions. Despite the ability to be wholly rational and logical, the emotional impairment he suffered, literally left him unable to make decisions.

In a time of such dramatic change, as we come to terms with a global pandemic, it has never been more important to ensure we allow directors and boards to be as effective as they can be, which means recognising anxiety and turning it to our advantage, to help in making difficult decisions. We need boards that think, not worry.

A Boardroom Conversation with Sir Winfried Bischoff

Sat, 20 Feb 2021 10:32:00 GMT

“ A BOARDROOM CONVERSATION WITH SIR WINFRIED BISCHOFF ” FACILITATED BY JAMES BAGGE DIRECTOR OF BVALCO LTD

Note on collective and individual accountability

Fri, 05 Feb 2021 17:50:00 GMT

In December 2020 the Prudential Regulation Authority ( PRA ) published an evaluation [1] (the Evaluation ) of the operation of the Senior Management Regime ( SMR ) which was developed after the 2008 crisis and launched for PRA regulated firms in 2016 [2] and introduced new regulatory obligations for senior individuals

The Evaluation explores a number of themes including the tensions between the principles of collective responsibility for boards and the obligations which apply to individual directors. While this issue has particular resonance for the boards of PRA firms subject to the SMR, some of the points discussed in the Evaluation have wider relevance for all boards.

The tension between individual and collective responsibility can manifest itself in a number of ways. Sometimes individual directors may be reluctant to address issues which they consider to fall outside their ‘comfort zone’. This can be a particular risk where directors are expressly invited to join a board because they have a particular skill which is relevant to the business of the company. In this situation the risk is that such directors may only feel comfortable intervening in relation to issue which touch on their specific area of interest.

The other side of this problem is that those directors without specialist knowledge can be tempted to delegate responsibility, for challenging the executive on specialist issues brought before the board, onto colleagues who are considered to have the relevant knowledge.

An added issue is that formal and informal contact between directors with specialist knowledge and relevant executives can lead to directors becoming too close to the executives, risking ‘group think’ the loss of the ability to consider matters objectively.

An effective a board should operate as a collective and not as a group of specialists. All directors, but particularly non-executive directors, should be prepared to ask questions and challenge any matter that comes before the board. Anecdotally, company secretaries and general counsel sometimes observe that the best questions to the executive can come from directors without specific subject knowledge.

More generally, directors should be able to manage collective obligations with their own individual duties. These obligations can complement one another. Another PRA publication [3] suggests board culture as an example of where collective and individual responsibilities can be mutually reinforcing:

… while the PRA recognises that culture is the collective responsibility of the board, it also requires the chair to lead the development of the firm’s culture and standards by the board as a whole.

In the context of the SMR the Evaluation confirms the PRA’s position seems to be that if ‘[a]pproached correctly, individual and collective accountability [should be seen as] complementary’.

However, it seems that debate on this issue is not closed and one of the Evaluation’s recommendations is that the PRA will ‘seek further views on whether board responsibilities and individual accountability are mutually reinforcing’.

Click to download the PRA Evaluation Report on the SM&CR Dec 2020

[1] Evaluation of the Senior Managers Regime, December 2020. Prudential Regulation Authority – Bank of England

[2] The Financial Conduct Authority ( FCA ) has since introduced a similar regime for FCA solo authorised firms.

[3] Supervisory Statement SS5/16. Corporate Governance Board: Responsibilities July 2018. Prudential Regulation Authority Bank of England.

Key Study for PhD Research in Corporate Governance

Fri, 05 Feb 2021 17:03:00 GMT

Nomination Committee and Strategic Value

The 2018 UK Corporate Governance Code broadened the remit and empowered the strategic mandate of Nomination Committees. Two years on, it is debatable whether Nomination Committees deliver their full potential to the board and the business within listed companies.

Nomination Committee is the least researched of all board committees and its role is often one-dimensional – to manage the director recruitment process. There is also sparse research on committee chairs and little knowledge about the dynamics within committee meetings.

I am seeking directors from UK fully listed or AIM listed companies for:

Online interview (participants don’t need to all be from same company) the Chair of Nomination Committee (who is not Chair of the Board)
the CEO
the Board Chair
Nomination Committee members
Optional observation or recording of a Nomination Committee meeting
Optional document analysis of Nomination Committee meeting minutes and possibly Board minutes

All data collection is approved by University of Reading Ethics Committee and entirely confidential.

Jenny Simnett
Doctoral Researcher
Henley Business School

Reading RG6 6UD/Henley on Thames RG9 3AU
T: +44 (0)7787 143131 | E: j.y.simnett@pgr.reading.ac.uk
htt p s://www.henley.ac.uk/people/person/jenny-simnett
https://www.linkedin.com/in/jennysimnettworkplacetransform/

Why more HR directors should be on boards

Mon, 14 Dec 2020 17:35:00 GMT

Boards are having to consider people agendas as never before, creating many reasons to allow HRDs to play a governance role.

The pandemic has shone the spotlight on the HR function, which has often played second fiddle to finance, sales and product development, reminding boards of the importance of their people to overall business success.

In addition to helping to furlough people and deliver bad news on pay cuts and redundancies, HR Directors (HRDs) have played an essential role when it comes to safeguarding the physical and mental health of employees and delivering the business transformation needed to deliver services in new ways and enable entire workforces to work from home.

With people policies now driving business success, and metrics on employee wellbeing and engagement featuring on most boardroom KPIs, this month’s blog focuses on three reasons to allow your HRD to play a more active role on the board – and the argument why there should be more HRDs appointed as NEDs.

Three reasons to allow HRDs to play a governance role

1. It’s a governance requirement

The first time the boards role in oversight of people was mentioned was by Higgs in his 2003 review into the role of effectiveness of NEDs. Since then oversight of people has gone onto become part of the corporate governance code. Yet just 5% of NEDs have people or HR experience.

Given the increasing demands of boards to deliver effective people oversight, the representation of people with HR experience simply doesn’t tally. The number of nomination and renumeration committees being chaired by the chair of the board is too high.

Although some people might argue that you don’t have to have explicit experience of the subject matter to be an effective committee chair, my experience is that HR directors appointed into these roles bring a wealth of understanding of people, reward and recognition. Their ability to deal with informal, versus formal, information, on things like culture and engagement, is incredibly powerful and would help to transform nomination and remuneration committee effectiveness. Prompting the question, why wouldn’t you want to utilise this experience?

2. People policies drive business success

With study after study highlighting the impact of employee engagement on everything from the ability of companies to attract and retain the right people, to productivity and customer engagement and ultimately sales, boards can’t afford to be unskilled when it comes to knowking how to create a culture where employees can thrive.

The digitisation of work is now happening at such a pace that working environments are being thrown into the cloud, to enable people to work remotely, without any consideration of the human elements needed to unlock the full value of this transformation. For example, how best to ensure people continue to share knowledge, collaborate and innovate remotely.

As artificial intelligence and smart machines start to enter the workplace and make decisions on our behalf, it’s essential that HR professionals are involved in thinking about how best to ensure the future of work continues to enhance the employee experience. As well as how best to use the powerful ROI data that can now be generated on the extent to which investment in reskilling, recruitment and employee wellbeing are impacting on business performance. All of which will help the board to refine its people governance policies further.

3. HRDs can help to progress ESG agendas

When directors get given responsibility for Diversity & Inclusion agendas, they often quit after a couple of years because they feel like they weren’t getting enough airtime or traction with the board. Similarly, a number of ‘clean energy’ executives recently quit working for Shell, because they felt the company’s transition towards greener fuels wasn’t happening fast enough.

As people experts with an understanding of the impact of values, such as ‘fairness’ and ‘meaning’, on the desire of employees and customers to stay loyal to a company, HR Directors are ideally placed to help boards understand the impact of their ‘corporate purpose’ – or lack of corporate purpose.

HRDs can also help cascade the boards ‘corporate purpose’ down throughout the company, to create a situation where everyone feels connected to the company’s mission. In much the same way that a NASA cleaner once stated he was ‘helping to send a rocket to the moon’ when asked what his job was.

By allowing HR directors to bring this expertise to the board, you can more easily make everyone feel passionate and engaged with the company’s direction, to create the sort of competitive advantage that only a deeper insight of what really matters to the people working for you can bring.

If you enjoyed this blog, you can sign-up to get our next blog automatically delivered to your in-box here .

The CEO and the board

Fri, 27 Nov 2020 14:41:00 GMT

Lesley Stephenson, editor of Governance magazine, summarises the recent conversation between Alison Gill and Patrick Dunne which looked at how the pandemic is changing the relationship between the board and the CEO.

Why the cabinet isn’t practising good governance

Mon, 02 Nov 2020 17:24:00 GMT

With the cabinet’s handling of the crisis being called ‘inept’, we look at why the current approach wouldn’t be allowed in a boardroom.

As we enter a second lockdown to avoid a death toll of more than 4,000 people a day, you don’t need to be an epidemiologist to understand why the cabinet’s strategy has been labelled inept.

However, strategy , be it the decision to reopen universities or ignore calls for a circuit break to stem the virus, is just one of the six elements of good governance leadership teams need to succeed. The other elements are the values and beliefs guiding effective decision-making, the culture in place to win stakeholder engagement, the process governing things like communication, and last but not least, having the right people in the right roles .

Which got us thinking: what recommendations would we put forward if we were to review the cabinet against the six elements of good governance that we use to help FTSE 250 boards enhance their performance? So we carried out a ‘cabinet evaluation’ to produce these thought-provoking recommendations.

A cabinet ’board’ evaluation

By looking at how the cabinet is performing against the six elements of good governance, we offer the following recommendations to help it improve its performance and win back the trust of the people.

1. Values

Values don’t just define whether or not a board, or cabinet, wants to be seen as being open, caring or having integrity, they also give rise to value-led strategic objectives and the ‘guiding star’ driving decision-making. For example, countries such as New Zealand have been guided by a value-led objective to ‘protect as many lives as possible’, resulting is locking down hard and early and not hesitating to use ‘circuit breakers’ in order to protect as many people as possible. While Sweden has been guided by the value-led objective to ‘minimise disruption’, leading it to eschew many social distancing measures.

Here in the UK there was an initial value-led focus on ‘following the science’ but by ignoring recommendations made by its own scientific advisors in a meeting last month (on everything from banning household mixing to introducing a short circuit-breaker lockdown), it’s clear this is no longer a guiding star. Leaving the question what is? It might at times appear to be on stopping the spread, but with two million operations cancelled to prepare for the spread, and seemingly little effort put into getting track and trace working, what is the guiding value?

Recommendation: the cabinet needs to urgently establish and communicate the values being used to underpin and guide its decision-making

2. Beliefs

We all have our own differing viewpoints, so without clear guiding values to anchor decision-making, there will be a tendency for ministers to resort to arguing what they personally think is best. Scanning the data for information that backs up their view and falling into conflict with those who don’t. Critical to avoiding this is helping people to become aware of their own personal beliefs and biases so that these can be put aside long enough to really look at what the data and other people are saying.

Not only does this help to sustain unity but it also allows for more effective and creative decision-making. For example, when presented with data showing that bringing lots of young people together from all over the country in cramped university campuses would help facilitate a second peak there would have been those who wanted universities to still open and those who didn’t. Instead of listening to each others concerns, one side won out, without first considering what more could be done to alleviate the other side’s concerns, for example by quarantining students for two weeks when they first arrived or asking them to get tested clear first. It’s only by really taking into account different beliefs that collective groups can arrive at their most innovative and effective solutions.

Recommendation: ensure ministers are helped to surface deeply held beliefs and educated how bias towards these could be hindering innovation.

3. Culture

The culture of the cabinet drives its behaviour, which in turn determines how things get done. This means the government needs to consider what the culture should be to address the pandemic. Does the culture need the cabinet to be more agile, innovative or open and transparent? If so, what are the behaviours needed to create that culture? If the culture needs to be one team, with everyone pulling together to address the crisis, what are the implications for setting up a pandemic sub-committee that transcends party politics?

How has the crisis already impacted on the culture of the cabinet and how people feel about the government? How have incidents such as political advisor Dominic Cummings being allowed to break the rules, without repercussion, affected the culture by creating a sense of ‘do as I say, not as I do’? How has overpromising and under-delivering on things like the number of tests available and ‘world-beating’ track and trace solutions damaged the culture? How can that culture be transformed and proactively managed to create more trust, loyalty and, ultimately, compliance and confidence from the population?

Recommendation: use culture measurement tools to understand how people are feeling and create a culture that encourages more trust and confidence

4. Roles

Are the right people doing the right roles and does everyone have a clear and shared understanding of roles? What is the role of cabinet in addressing the pandemic? who comprises the inner cabinet? How do the decsion makers interact with the advisory bodies such as SAGE and is this being done effectively? How have we got to a situation whereby on the day the Prime Minister presented his new tier system for tacking the virus, Chris Whitey, chief medical officer, said while stood beside him that he had no confidence that any of the measures went far enough.

When an issue is of particular concern, how effectively are new roles being created to appoint people to get it under control? Although this was done effectively with a newly created role – minister for PPE – to get protecting healthcare workers under control, testing and track and trace is still far from under control. Similarly, the lack of a clear successor for the Prime Minister, when he became hospitalised with Covid, shows more effort needs to be put into succession planning.

Recommendatio n: Make sure everyone’s role is linked to overall objectives and that people have the skills and behaviours needed to succeed

5. Strategy

Much of what we are experiencing in the second wave was entirely predictable and capable of forward planning. The constant revision of approach to responding to the pandemic suggests there is no clearly defined objective and plan. The lack of a strategy is symptomatic of an absence of agreed values, a necessarily redefined culture, proper processes and role definitions. The assumptions that strategy is being based upon also need to be challenged. For example, with pubs now suing the government using the argument of irrationality, by questioning the assertion that the curfew helps stop the spread of the virus, was enough done to test this assumption?

Also, is too much time being lost waiting to see the direction of travel, instead of creating the conditions needed for the high-quality strategic thinking required to navigate the challenges ahead? Once ministers (and advisors) have digested all the data, are they being encouraged to think really divergently and help each other see different possibilities and connections without shutting each other’s ideas down? And to then properly test these ideas out on stakeholders, such as the mayor of Northern Cities such as Manchester, before turning them into strategy? This is undoubtedly something that would reduce the likelihood of councils and the hospitality industry rebelling against the cabinet.

Recommendation: Do more to test assumptions, really look at the data and explore and test ideas out before finalising strategy

6. Process

The need for more agile working and responsive decision-making must be balanced against the need to ensure appropriate decision-making, oversight and organisational processes are still in place. Clear processes need to be put in place to calculate risk effectively, the processes around information fathering, decision-making, the tempo of decision-making and communications. The latter is particularly important, with current communications from Number 10 confusing at best. More thought needs to be put into how processes can be better designed to support the purpose-led goals, defined as being essential to coming out of the crisis, such as motivating behaviour change.

The government also needs to think about the processes it has in place to ensure that ministers aren’t operating from a constant state of anxiety and stress, as the impact of this on our brain is equivalent to a lobotomy, forcing us into a fight-or-flight state of short-term survival which shuts down our ability to access the parts of our brain that govern creative thinking and problem solving.

Recommendation: Review processes on everything from effective communications to strategic decision making

Whether you need an external facilitator to carry out your board evaluation, help resolve a conflict, set the strategy or change the culture, our board services can help.

A better alternative to the strategy day this year

Thu, 01 Oct 2020 14:37:00 GMT

As most boards turn their attention to creating their strategy for the year ahead, a number of challenges remain in place. Not least the fact that many annual strategy days will be unable to take place in person due to social distancing.

This is a good thing. Not only does the annual strategy day rarely provide enough time for the high-quality strategic thinking now needed to navigate the challenges ahead, it typically results in the executive presenting its ideas to the board, when the best strategies also allow non-executives to contribute fully.

By replacing the annual strategy day with this highly effective six-step process, which can be easily broken down into four zoom meetings, over the coming weeks or months, the board as a whole can create a much more innovative and effective strategy that everyone can agree upon.

Six steps for creating a strategy for success in 2021

Good strategic thinking is cognitively exhausting. Instead of just researching where your business is at and the opportunities and threats (steps 1-2), before weighing up the pros and cons of the most obvious solutions to create a plan (steps 5-6), it also requires you to stretch your brain in new ways to find the answers that aren’t obvious (step 3-4).

Most people miss out this step because they try to come up with their strategy in one sitting. Yet great strategic thinkers know you literally have to sleep on things for your brain to make the connections needed to come up with new ideas. That’s why we often have our best ideas as we’re falling asleep, relaxing in the bath or mentally switched-off while on holiday.

So, make sure you and your board use all of the following six steps…

Step 1: What’s happening?

The first step to creating any strategy is to analyse the situation, strengths, weaknesses, opportunities and threats (SWOT), as well as the political, economic, social and technological influences (PEST). As with this, and the meetings to follow, be crystal-clear about the primary objective for the meeting to agree what’s impacting the business. Make sure everyone has a voice – what jumps out to one person will be different to another.

Step 2: Create insights

The next step is to look at what the research carried out in step one is telling us. Again, insist that people stay focused to ensure a high-quality discussion about where the business specifically wants to play or not play, what needs to be considered and what the major themes are. It’s critical to discourage people from jumping to solutions at this stage. Instead, ask: what other options do we have? What is the data telling us?

Step 3: Expand insights

This is perhaps the most important step, but one people often miss out. So, it’s good to run this step as a second meeting in its own right to allow people to digest the information given beforehand and sleep on their ideas and responses afterwards. This is the point when you want people to think really divergently and help each other to see different possibilities and connections (without shouting each other’s ideas down) to generate the conditions for creative, innovative and disruptive thinking over the crucial next steps.

Step 4: Form solutions

Having sought and considered good data, formed insights and started the creative process of expanding on initial ideas, this stage is about continuing to keep everyone thinking imaginatively when coming up with ideas. Encourage them to ask incisive questions without censoring themselves on the grounds that a suggestion might initially sound too unconventional or leftfield. The aim is for everyone to leave and mull over their ideas, perhaps testing them out on people in the business, to refine them further.

Step 5: Evaluate

After allowing the thinking to be divergent in the creative stage, it now needs to become convergent again, as the group moves towards weighting up the pros and cons of the various solutions put forward and finding consensus. At this stage, it’s important to avoid falling into thinking traps, ranging from confirmation bias (where people look to justify what they each wanted to do all along) to groupthink (where people try to create consensus too readily instead of challenging each other’s views).

Step 6: Decide

This step is as much about deciding how you’ll decide as what you decide. Because, if you think about strategy, there is no right or wrong. It’s what you decide to do and it’s an anxiety-provoking process, as it requires a group of people to commit to what they need to achieve and how they’re going to do that. If you’ve followed the steps, there should by now be a clear strategic intent which can be easily communicated to the rest of the business.

Tips for success

By having a clear process to ensure everyone can discuss ideas while they’re in the same stage (instead of someone brainstorming while someone else is preoccupied with weighing up pros and cons or dismissing ideas floated earlier on), you can help people to have high-quality strategic conversations. Not just when creating the strategy, but when revising it as circumstances change or looking at how best to operationalise it to make it a reality.

It can also be helpful to have an independent external facilitator to keep the process moving in the right direction, and so that both the CEO and chair can contribute fully to the process, instead of having to facilitate themselves.

If you would like to discuss the opportunities for one of our team to help you create and facilitate your strategy process, please call us on 07770 668776

Corporate governance

Sat, 05 Sep 2020 09:45:00 GMT

Although the uncertainty and disruption generated by the global pandemic has been unsettling, it has also generated optimism. We are at a point where leaders have the time and freedom to evaluate, consider the future, reinvent and think creatively about the road ahead.

There are challenges aplenty but, leveraging the principles of good corporate governance to ensure the right culture, values and beliefs, is a firm foundation on which to build.

Please click to read the full article .

Stakeholder engagement is key to business recovery

Fri, 28 Aug 2020 06:00:00 GMT

Businesses that manage to strengthen their relationships with stakeholders during the crisis are poised for stronger recovery

As businesses continue to navigate one of the largest and most severe economic shocks on record, the true value of engaging with stakeholders during the crisis will become apparent over the coming months.

Whether you need to engage with government to ensure financial support, encourage customers to stay loyal during business disruption or motivate employees to remain productive throughout restructuring, there are clear benefits to be gained by not just communicating with stakeholders but keeping them engaged.

But with so many different stakeholders critical to the success of most organisations, how can you go about identifying which stakeholder groups or individuals are most important, and ensuring someone on the board takes responsibility for sustaining good relationships with them?

Prioritising stakeholders

Changes to Section 1.7.2 of the Companies Act, now coming fully into effect, have put new emphasis on how company directors think about the long-term implications of decisions made on employees, investors and other stakeholders, including the community and environment.

Also, as the pandemic has already illustrated, how well a company treats and is regarded by stakeholders, such as employees, suppliers, customers and society, impacts not only on its reputation but ability to thrive. This puts the onus on boards to think more strategically about who their stakeholders are and how best to engage with them.

When it comes to deciding which stakeholder groups to prioritise, the most important and vocal stakeholders right now might not be the most important in future, so it’s important to consider all the groups, organisations and individuals impacted by the activity of the business.

Think about what you can expect from meaningful stakeholder engagement in terms of what the stakeholder wants and needs and what the business wants and needs, so these two factors can be aligned.

Communication versus engagement

While many boards say that the pandemic has strengthened the relationship between the executive and non-executive directors, have relationships between stakeholders become stronger or weaker and what is the financial cost or value of that?

Stakeholder management during a crisis tends to be highly reactive and focused on mitigating risks and preventing hostilities. While stakeholder management during more normal times is about more proactive communication. However, it’s stakeholder engagement, the creation of two-way dialogue designed to optimise the relationship that can yield the greatest results, making stakeholders more loyal, communicative, flexible and willing to forgive any mistakes.

Critical to really engaging with stakeholders is making someone accountable for each stakeholder group, typically a non-executive director, so they can consider what decisions being made mean from the perspective of that stakeholder and keep an eye on data relating to that stakeholder.

In the event that a stakeholder, such as the workforce, is particularly important, the board might also like to consider having direct representatives sit on the board, in much the same way that FTSE 250 outsourcing giant Capita has appointed two employees as non-executive directors, in keeping with its focus on ‘representing the employee’s perspective at board level.’

Social contracts

As Indra Nooyi, former Chair and CEO of PepsiCo, observed when transforming the business to not only deliver for customers but also protect the environment and invest in employees, “Business does not operate in a vacuum – it operates under a licence from society.”

This is something shareholders and the regulator are increasingly keen to see, which is essentially about creating ‘social contracts’ – an implicit agreement between the business and each of its stakeholders that it will protect and enhance the society in which we live.

With all the current emphasis on ‘building back better’, the recovery and redesign phase into which the pandemic has now driven most businesses, provides the ideal opportunity to rethink stakeholder engagement, the needs of various stakeholders and how the business can better meet these, in a way that also supports its own recovery.

On a practical level, this requires the director leading ownership of this stakeholder group, cascading responsibility for ensuring two-way conversation down through the organisation and receiving feedback right back up to board level. The director should demonstrate how decisions have been made in a way that takes account of this stakeholder’s interests, to not only boost engagement but also increase transparency around decision-making to make the board and its role more visible and valued as well.

Bvalco now includes an objective stakeholder engagement assessment in our annual reviews, or can offer this as a stand-alone board service. To set up a free consultation to discuss your needs, please email tellmemore@bvalco.com

If you enjoyed reading this month’s blog, get next month’s automatically delivered to your inbox when you sign-up for our free insights here

How to conduct an effective pandemic review

Mon, 03 Aug 2020 15:44:00 GMT

A pandemic review allows pause for thought, provides valuable learning and creates a good foundation for future decision-making.

As life starts to return to a socially distanced ‘new normal’, the coming weeks and months present the ideal time for boards to draw breath and reflect on their handling of the crisis.

Although some chairs might want to wait until we’re fully out the other side, or until their next board review is due, there are many benefits to reflecting on how the crisis was handled. Not least the opportunity to capture important information that might not be stored anywhere else, before this gets lost or stored in long-term memory with a negative or positive filter, depending on our personal views and experiences.

The ultimate aim of a crisis review is of course to capture and take forward useful learning and bring hidden anxieties and worries to the surface to better prepare for the future (or a much-dreaded second wave). So, here are three ways to conduct an effective pandemic review.

1. Conduct your review sooner rather than later
We all have a tendency to reformulate our experiences with a negative or positive filter, not to mention fall into attribution error, where we over-emphasise the importance of personal attributes, such as leadership style, ahead of situational factors, such as the need for specific health and safety measures.

All of which means that it’s important to reflect on events before our memories have time to forget the bits we don’t want to remember and over-emphasise the bits we do. A crisis review doesn’t need to be as involved as a full board review but it does need to capture how the response was handled, what can be learned from the approach and what the priorities are going forward.

The mere process of reflecting on events is an important mechanism to make sense of what happened so that those involved can be encouraged to store helpful information about what helped the business to run and what should be done differently, to store useful facts and shortcuts to these facts, instead of just our opinions.

2. Adhere to the principles of good corporate governance
During the crisis, many of the principles of good corporate governance have been impacted. Strategy might have had to have been recreated on the go, as organisations sought to transform business models. Non-executive directors probably had to roll up their sleeves and get stuck-in in a way that was necessary, but might now be compromising their ability to take a step back to challenge the executive.

The make-up of most boards has changed, as demand for people with technology and HR capability increased. Relationships with all stakeholders, especially employees, have evolved. The culture, beliefs and values of the company and its people will have all been transformed by recent events, as well as by the response of leaders, whether the board was proactively seeking to do this or not.

A Bvalco crisis response will look at each of the following areas in turn and how well directors were able to proactively control them as opposed to having them evolve unguided. The aim is to create succinct yet insightful recommendations for how to proactively manage these areas now and in the event of a future crisis.

3. Use an independent facilitator
A facilitated pandemic review allows all board members to contribute equally and the chair, who would otherwise have to facilitate, to share their valuable point of view.

Independent reviewers can also ask challenging questions to draw out what matters and prompt, summarise and reflect in an objective way to highlight the significance of what’s being shared.

It also allows individual directors to bring hidden worries to the surface and will look at the health and resilience of the board to create a positive time of reflection, draw a line under what’s already gone before and pull out useful learning points and recommendations for the future.

Ultimately, a good crisis review, whether an interim light-touch review or more in-depth deep dive, will give everyone pause for breath and an invaluable opportunity to learn from what’s gone before.

Transparency and humility have been essential leadership traits during this crisis, and research by Cranfield University has also shown them to have a positive impact on share price and the ability of companies to weather past crises.

How has your board performed during the pandemic?

If you would like to find out how well your board managed oversight of the crisis, an externally facilitated board review can provide the reflection time needed to maximise learning and prepare for further uncertainty. Find out how we can help you pose the right questions to draw out deep, yet actionable, insights.

Directors Duties

Fri, 24 Jul 2020 10:44:00 GMT

In this conversational session our speakers will explore the dynamic between executive and NED roles on the board, consider issues such as conflicts of loyalty for elected directors, and reflect more generally on their experiences of boards in the sports sector and beyond.

In order to make the most of the session Alison and Tom would like to hear from you.

Please submit any questions you have in advance by emailing SCare@icsa.org.uk and our speakers will incorporate your queries into their talking points. There will still be an opportunity to ask questions on the day but please submit your questions in advance where possible.

Why boardroom thinking is vital to creating inclusive workplaces

Wed, 24 Jun 2020 09:31:00 GMT

With society demanding action on unfair and inequitable working practices, the way the board thinks and acts is vital to making this happen.

Humans are psychologically hardwired to seek ‘sameness’. Embracing differences is not a natural instinct, which is not an excuse. It’s an observation that just as we as individuals need to constantly check and observe our thoughts and actions, to ensure we’re not acting in discriminatory ways, organisations also need to constantly check themselves.

If a company believes itself to be diverse, equitable or fair, but the data for its promotion decisions or pay gaps says otherwise, then the board needs to reflect on this and challenge the executive to do things differently.

It also needs to consider the extent to which it may have become ‘wilfully blind’ by ignoring data that highlights problems, in favour of seeking reassurance that all is well.

Why now is the time to take action
The coronavirus pandemic has made everyone feel highly anxious about the future and given people lots of time to reflect on the injustices in society, creating a huge surge of emotional energy that has to go somewhere.

It’s no surprise that the very public display of institutional racism that resulted from the death of George Floyd, led to global demonstrations and the toppling of statues of people associated with slavery, which people had been calling to be replaced for years.

Plus it’s only a matter of time before the re-emergence of the all male boards in the last month, which had previously gone out of existence, and extent to which women are being discriminated during the current crisis, creates another flashpoint. With a report from the Institute for Fiscal Studies showing working mothers are 47% more likely to have permanently lost their job or quit during the current crisis, with the response to the crisis at risk of entrenching deep class, ethnic, educational and gender divides.

Only when justifying discrimination no longer becomes an option, and real progress is sought, does the door become open to thinking up creative ways to address the problem. In much the same way that orchestras introduced ‘blind auditions’ to eliminate bias , during the last century, so they could start recruiting the best musicians regardless of gender or race.

Create an inclusive environment
A point of inflection around diversity has now been created and the challenge for businesses and boards is not just whether or not to respond, but how best to respond.

If you’re going to respond to the rallying cry to do more to ensure Black Lives Matter (BLM), not to mention diversity targets on all the other areas where people feel discriminated against, be this their gender, religion, age or mental health. Do something meaningful.

If you respond in a superficial way, this will only antagonise people more, so the first step to achieving diversity is to create an inclusive culture, in which all humans are treated with respect and parity. Especially when it comes to the current sweeping rounds of redundancies which are potentially at risk of undermining years of progress on diversity.

Critical to creating an inclusive culture is generating the feedback and data needed to capture a proper picture of the organisation as it is. Just as leaders were very good at consulting with people as we entered into lockdown, now they must be equally good at asking people how they want the business to ‘build back better’ to uncover the concerns and fears that people have and their thoughts on what could be done differently or better.

Address ‘wilful blindness’
According to social psychologists, we have two basic social needs: the need to feel good and the need to be accurate in our perception of the world. Oftentimes, the need to feel good trumps the need to be accurate, because it’s more immediately gratifying to us. We mostly admit the information that makes us feel great about ourselves, while conveniently filtering whatever unsettles our fragile egos and most vital beliefs.

The resulting ‘wilful blindness’ means that when it comes to issues like racial discrimination, rather than look at the data on the prevalence of the number of white males being promoted, as opposed to other minorities, or listen to feedback from people who feel they’ve been unfairly discriminated against, there will be a temptation for directors to find other people who share their views and collect feedback that reinforces inaccurate beliefs. Such as the belief that there really aren’t any female or BAME employees in an organisation, employing over 9,000 people, capable of being promoted into a director role.

This is a psychological protection mechanism that humans have evolved to do, but it still needs to be challenged and it is the job of the board to challenge it. Not by allowing directors to reinforce their own, potentially biased, views, but by asking simple questions like ‘What could I know, or should I know, that I don’t know? Just what am I missing here?’

Although this might lead for some uncomfortable conversations in the first instance. If you have data saying diversity is a problem, there are almost certainly things you could be doing to remove bias from the way managers judge performance to the way talent is managed through the organisation.

If you need support to do this, an external board review can help you to assess the extent to which the board is successfully using data and asking the right questions to challenge thinking. As well as going about creating the right conditions to facilitate creative thinking on how to do things differently and better when it comes to diversity and ‘building back better’.

Exiting Lockdown with a stronger board

Fri, 05 Jun 2020 15:14:00 GMT

With important ethical dilemmas needing to be resolved in the coming days and weeks, determining the best way to ease the lockdown will require boards to strengthen their ability to make good decisions and think about whether they just want to go back to doing things how they did before or proactively use the disruption to transform the business.

No one wants to return to the workplace they left

Mon, 01 Jun 2020 12:52:00 GMT

The workplace as we knew it no longer exists, putting the onus on boards to think about how people want to work going forward

If the past few months have proven anything, it’s that employees working from home has been a success. So much so that major tech companies say they are open to their staff working from home permanently.

New Zealand’s Prime Minister has suggested a four-day week to help boost the economy, after seeing the productivity that can be driven out of people working flexibly from home. While, a UK financial services firm has found that 87% of their people now want to stay working from home, 75% of the time.

Under normal circumstances, it would take decades, if not generations, to make such a radical shift in the way that we work. But with previous concerns that people can’t be productive at home proving invalid, the workforce is challenging the old order and wants to shift the balance towards fitting work around their lives, instead of their lives around work.

All of which puts the onus on boards to challenge the executive to support this shift in working, in a way that continues to optimise how people work and how productive and motivated they are.

Building back better
Just because people have been able to work effectively and productively from home, doesn’t mean they are working as well as they could be. For example, systems designed by IT professionals might work on a practical level, by allowing people to share documents they’re working on, but are these systems and new working practices facilitating team working, innovation, creativity and healthy working practices?

Similarly, while virtual meetings via platforms such as Teams and Zoom have proved surprisingly effective, what happens when some people return to work, while others continue to work from home. Will remote participants still have an equal chance to contribute to the meeting? Or will the powerbase shift back towards those sitting together in a room, as it often did before the lockdown?

For the new world of work to be effective, boards will need to challenge the executive to think about Building Back Better – the UN’s term for coming out of a crisis in a way that improves on what’s gone before.

The issues that undermined people’s effectiveness at work before, be they overwork or blame cultures, poor management practices or a lack of sight between people’s individual objectives and the businesses overall goals, are unlikely to have disappeared. So how can the new ways of working emerging be improved upon even further to address these also.

Compassionate leadership
Unlike some political leaders and advisors we could mention, trust in business leaders has been noticeably enhanced by the crisis. The financial crisis affected people very disproportionately, whereas the coronavirus epidemic, at least in the first wave, has genuinely impacted everyone in some way.

There has been a sense of everyone being ‘in this together’ which has led to a much more empathetic response from leaders, with them telling people to ‘take care of yourself’ and ‘think of your family first’ which was sadly lacking with the rise of zero hours contracts and precarious working conditions gathering momentum before the crisis.

How well the new ways of working evolve will be very much dependent on business leaders sustaining that newfound trust from employees, which will in turn be dependent on whether or not the old problems of corporate greed or putting organisational interests ahead of people return to the fore. Boards are going to have to make hard decisions about how best to weather the impending recession but the importance of having an engaged, productive and committed workforce isn’t to be underestimated when it comes to thinking about how best to achieve this recovery.

Leading by example
Boards work best when they meet the reality of life. For example, a director faced with his or her home flooding due to global warming will naturally be much more committed to tackling environmental risks than someone who has no first-hand experience of this.

Similarly, for boards to effectively lead a new shift towards as many as three quarters of employees working flexibly, and mostly from home. They must also continue to work in this way to see how it can be made most effective. Not least by resisting the temptation to immediately start holding all board meetings in person again, instead of first defining and reflecting on what could be working better and looking into other ways of making this happen first.

This can be supported by doing a deep dive into how they handled the crisis, focused not only on what worked well and what didn’t, but also how the board worked together. Because, the other thing proved by the months spent in lockdown, is that we are all still very dependent on one another. So, how well we can continue to work together and bring out the best in each other will define both how well we exit the crisis and how creative and agile we can be in how we move forward.

Sustaining board unity while exiting lockdown

Tue, 12 May 2020 16:17:00 GMT

The government’s decision to ease lockdown measures across England, while a Level 4 COVID Alert indicates that transmission is ‘still high or rising exponentially’, has been met with mixed responses.

While some business leaders have welcomed the opportunity to mitigate the long-term risks associated with lockdown to their future viability, union leaders say a couple a days isn’t long enough to make workplaces safe, putting blue-collar workers at disproportionate risk.

With important ethical dilemmas needing to be resolved in the coming days and weeks, determining the best way to ease the lockdown will inevitably give rise to tensions on the board.

Critical to managing these tensions is uniting directors behind a shared set of values. Because without a shared belief system, it can become all too easy for directors to get into negative conversations based on their own differing viewpoints and personal values.

The danger being that when we come from a fixed mindset, based on our own beliefs, our focus is on defending our viewpoint and building evidence to support our point of view, instead of using shared principles to work with others to find the best solution.

Sustaining board unity
Critical to creating a shared belief system amongst directors, to sustain board unity, is establishing the values to underpin the board’s decision-making.

Take, for example, a bank, which has a difficult decision to make about allowing people to delay paying their mortgages at the current time, but not for so long that they risk incurring debts they might not be able to repay. This could easily give rise to conflicting opinions, but having agreed values, such as the value to ‘treat customers fairly’, creates a shared framework, which can be used to encourage debate around how best to ‘live’ those values when faced with difficult dilemmas.

In this sense, a board environment that allows people to safely voice concerns and differences of opinion, while also anchoring them to shared values, will experience less conflict and find more creative solutions than one where directors have to resort to using their own individual values, and potentially conflicting moral beliefs, to create and defend a position. So, if you want a united board, think about which values can be used to anchor decision-making.

Creating the right culture
The culture of the organisation and board drives the behaviours that determine how things get done. In normal times you usually have to create some kind of event or moment to generate culture change, such as appointing a new CEO. But the impact of this crisis has been so significant that the culture of the organisation and board will have already been impacted.

For example, organisations that told employees their safety was the most important thing and told them they were all going to start working from home, weeks before the government introduced the lockdown, will have created a culture where people feel valued. Similarly, how organisations bring people back and communicate with them regarding their concerns will now also impact greatly on how important and cared for people feel, which will in turn impact on their productivity and engagement levels.

Whether you focus on it or not, the culture of the organisation will be impacted by every decision made, so it’s important to think about how you want it to be impacted. If the crisis requires the business to become more agile, innovative or productive, or you were looking to achieve those things anyway, what are the behaviours needed to create that culture? How can the board communicate the need for this change in an open and candid way and role-model the new behaviours required?

Exiting coronavirus with a stronger board
In total, there are six elements of good corporate governance that boards need to consider if they want to exit the crisis with a stronger board and business. In addition to the culture and values elements touched on above, these include: roles, processes, strategy and beliefs.

To find out more, download our special guide to Exiting Coronavirus with a Stronger Board

Acknowledge anxiety to enhance board decision-making

Tue, 05 May 2020 07:51:00 GMT

Rather than pretending these feelings of anxiety don’t exist, or pushing them away, it’s important that we use these feelings to enhance decision-making. Emotion is a vital source of information.

There is substantial evidence that we make better decisions if we intentionally assess our emotional state prior to making a decision. So adopting a ‘feel-think-act-review’ cycle ensures that boards can leverage all the information available, including emotional information.

How boards are dealing with coronavirus

Mon, 04 May 2020 09:49:00 GMT

Find out what Alison Gill, Bvalco CEO, and Patrick Dunne, experienced chair and author of Boards, had to say when Governance magazine brought them together for a conversation about how boards are really dealing with the coronavirus crisis.

Please click to read the full article .

Sustaining board unity during coronavirus

Wed, 29 Apr 2020 07:49:00 GMT

Finding a way through the current crisis will inevitably give rise to tensions at board level. Critical to managing these tensions is uniting directors behind a shared set of values.

Although this might seem like an exercise for a less hectic time, values define how a group goes about making decisions and difficult choices.

‘What does COVID-19 mean for boards?’

Wed, 22 Apr 2020 17:00:00 GMT

In a recent interview on CNBC, Patrick Patrick Dunne, chair and author of ‘Boards’, stated that ‘There has never been a more testing time for Boards.’

He went on to explain:

‘ Covid-19 feels like SARs, 9-11 and the Financial crisis all rolled into one. The existential threat to businesses and more importantly to our colleagues, friends, families and selves is real. Lives and livelihoods are at stake. ‘

But what does this all mean for boards?

On Thursday 30th April, 12 – 12.45 pm (UK time) , Patrick and Alison Gill, behavioural psychologist & CEO of Bvalco will be taking part in an online discussion about what boards have learnt in the last few weeks, and where we go from here.

To join the discussion for the opportunity to put your questions live to Patrick and Alison, please click now to register your interest .

Enhance board decision-making during a crisis

Wed, 15 Apr 2020 11:02:00 GMT

From being clear about the problems that need to be solved to testing assumptions, boards need a solid approach to decision-making right now.

Crisis situations are characterised by threat to the long-term objectives of the organisation. We’re operating in a crisis situation in which all Boards are struggling with the impact of social distancing measures put in place to stop the spread of the coronavirus and will be worried about the health of both their workforce and their business.

As humans, our survival depends on our ability to make predictions, and a primary goal of the brain is to predict when and how we can avoid threats. Because the brain seeks to make accurate predictions, it has an aversion to uncertainty. Fundamentally, the brain dislikes ambiguity. This is problematic for leadership decision-making in crisis situations.

Everyone wants to find a way forward. But with the government itself still unclear as to how and when to exit the current situation, there are few certainties to base decisions on.

Focusing on the following three things can help enhancing decision-making in this situation.

1. Leverage emotional intelligence

Research on anxiety reveals a crucial lesson on uncertainty: Name it to tame it. Decades of research show a consistent story, that when we push away or ignore feelings, we are less able to solve problems and make good decisions. This is true for individuals as well as groups.

To make good decisions, Boards need to spend some time engaging their individual and collective emotional intelligence. The first doorway to engaging emotional intelligence is to recognise our own and others’ feelings. No judgement or action required: just notice. Emotion is a vital source of information – it is a message to help you cope.

Adopting a feel-think-act-review cycle ensures that we leverage all the information that is available to us, including emotional information. This creates a richer dialogue, enhances engagement and ultimately leverages whole-brain thinking.

2. Define the problem that needs to be solved

In a crisis situation, it’s easy to jump to solutions without being clear about the problems that need solving.

Even if you don’t yet have all the facts and information to hand, it’s important to define the problems that need to be solved properly. How exactly is the current situation hurting your business now, and in the future, and what do you most need to focus on addressing? What appears to matter and what actually matters?

Chunk problems into sub-groups so that they are easier to prioritise in terms of what needs solving now, versus those that may need longer-term or broader thinking. Consider the longer-term problems as questions that might be best resolved through collaboration.

3. Test assumptions and commitment

Any decisions being made will inevitably be based on some underlying assumptions, so it’s important to test if those assumptions are valid.

The assumptions being made risk not being tested if enthusiasm for a particular course of action means people don’t stop to ask if that course of action is actually needed, or if the assumptions it’s based on are valid.

Entrepreneurial-minded directors will want to get on with taking action, while those who are risk-averse will be inclined to hold back for more information to base decisions on. This can cause tension.

It is the role of the chair to tackle those tensions and keep testing commitment to decisions. This can be challenging at the best of times. When working face-to-face, commitment or concern can be garnered through body language or tested informally in conversation during a coffee break. When working digitally, the chair will need to more frequently go around the table asking for individual perspectives and even make use of side-bar chat functions to encourage directors to air concerns.

How to get the most out of a video board meeting

Mon, 06 Apr 2020 16:06:00 GMT

Now you’ve mastered video meeting etiquette, how do you replicate reading body language and the human interactions that still matter?

The video above has now been viewed over 2 million times because of the amusing way it highlights the challenges many of us face when adapting to the new ways of meeting necessitated by the coronavirus.

But for chairmen used to reading body language, and making people feel comfortable contributing during the social conversations before the meeting, the challenges associated with recreating those human interactions over a video link are not to be underestimated.

As a behavioural psychologist and board reviewer who has been considering how best to replicate the human interaction so important to a successful meeting, here are my top tips for getting the most out of a video board meeting.

Factor in ‘casual’ conversation
Although it might be a bit extreme to recreate everyone helping themselves to a tea or coffee at the start of a meeting from their various locations, it is still possible to replicate the casual conversation that used to coincide with this.

People are unlikely to dial into a video meeting before it starts, in the way they might get to a boardroom before a meeting was due to begin. So, instead of starting the meeting on time, allow 5-10 minutes of casual conversation before you get down to business as usual. Encourage people to chat about how they’re thinking and feeling to create the ‘space’ needed for them to sustain social interactions and relationships.

In between board meetings, get into a rhythm of scheduling one-on-one time with directors to replace the informal social interaction and private conversations needed for them to share what’s nagging them and keep relationships going. Where possible, use video calls, instead of the telephone, to boost the level of interaction.

Encourage candid conversation
Perhaps the biggest downside to video technology is the difficulties it creates when it comes to ‘reading the room’. Chairmen who were skilled at reading emotions and body language in a face-to-face setting now have to be good at asking people to share what they’re thinking and feeling.

People will be more reluctant to open up in this context, especially if they haven’t already had the opportunity to open up to one another through casual conversation as explained above, so you need to use silence well.

When trying to encourage people to talk, pause longer than you think you need to in order to give people space to speak and avoid the need to try and problem-solve. It’s okay to talk without getting straight to a solution. Sharing how you’re feeling and what you’re worried about can also encourage others to open up.

Review how well people are interacting
At the best of times, boards often overlook the importance of taking stock and reviewing how meetings went – but now that’s absolutely critical. Make sure you review how effectively the interactions were at the end of each meeting.

Ask your self: What has the quality of listening been? Is everyone getting equal airtime? Is the tempo of the meeting and tempo of decision-making appropriate to the crisis? If we’re having to make decisions-faster, are we still using good decision-making?

Also don’t just reflect on what the board achieved during the meeting, but also how effectively it’s working as a group and how well that that group is changing and responding in the face of the crisis. Are people being overly anxious or a bit too optimistic? How are your own feelings impacting on your tone of voice and contribution and how did that impact on the meeting?

If you enjoyed this blog, do share using the icons below and look out for next week’s article ‘Three ways to facilitate good decision-making during a crisis.’

Are boards predicting risk effectively?

Thu, 12 Mar 2020 09:32:00 GMT

Is the introduction of an audited resilience statement, to assess ability to cope with existential threats, enough to protect companies?

When the first case of coronavirus (COVID-19) was officially reported in Wuhan, China, on 31 December 2019, few people could have predicted the widespread impact less than two months later, which has brought entire countries to a halt and seen global stocks face their heaviest decline since the 2008 financial crisis .

Most boards would have listed the very real prospect of a pandemic on their risk register. But how many stress-tested the possibility of business travel being banned and central offices having to close, let alone brought forward their digitisation plans to allow as many people as possible to work remotely under quarantine measures?

With ever increasing pressure on the audit and risk functions to better protect clients from risk, the recommendations in the recent Brydon report, into the quality and effectiveness of audit , include the recommendation that directors publish a Resilience Statement and stress-test various scenarios that could threaten the company’s business model. This would allow auditors and shareholders to pass opinion on how well directors are strategically positioning the business to address the risks of existential threats, such as, say, climate change or pandemics.

But how far will this go towards protecting companies from existential risk?

Broadening the scope of audit
Given the uncertainty and complex interdependencies of the global world in which we now operate, any measure that encourages directors to prepare their companies for the future is to be welcomed.

The concern is how well-equipped directors and auditors actually are to pre-empt risks over the timescales put forward for each of the three components of the Resilience Statement:

The Report discusses how auditors would be expected to express views on each component with varying levels of confidence. It places on auditors an obligation to disclose any information they find (within the company or from external sources) during the course of the audit that materially contradicts anything in the Resilience Statement. It will primarily be for shareholders to judge the extent to which a company’s Audit and Assurance Policy enables satisfactory assurance over the Resilience Statement as a whole.

Preparing for the unexpected
In broadening the potential scope of audit beyond mere re-assurance of the truth and fairness of financial statements, the Brydon report raises an expectation that boards can and should be able to assure and inform its shareholders on a far broader array of issues than just the financials as per the diagram below.

This new model, not only requires the board to give a level of ‘audited’ assurance over ESG, cyber and mineral reserve areas, that it is now expected will require a pre-determined level of audit assurance, but also the culture of their clients, given the direct bearing of company culture on the behavior of boards and their attitude towards risk.

However, despite broadening the scope of audit and raising expectation about what this can achieve, Brydon stops short of asking auditors to acquire the skills needed to do this, conceding that, ‘whilst auditors may have a wide variety of skills, it is not a requirement of today’s auditors to have formal expertise in assessing business models, corporate strategy, culture, values and principles and management ability.’

Instead it is proposed other experts, be these cyber, cultural or environmental, be brought in to provide assurance on specific risks. With Brydon going on to recommend that the scope of the audit process be defined by the Audit and Assurance Policy and made available for scrutiny and comment by shareholders prior to the audit.

Who audits the board?
With directors themselves still retaining influence over deciding which topics matter when it comes to preparing for risk, the board’s thinking on risk and the cultural factors influencing this, such as the ability of directors to voice concerns and listen to one-another, is vitally important.

Although it is outside of the scope of an external board reviewer to judge the decisions being made by the board, as this could never be achieved in a three day review, an effective board review can and should look at whether conversations around risk are sufficiently challenging, or a bit too comfortable. As well as how regularly the board reviews the point at which an operational risk, causing business disruption, turns into strategic risk that could cause the company to fail.

An external review can also look at whether or not the board has the right skills, information and expertise to consider risk. Or if the topic is not being given sufficient time on the agenda or non-executive directors, with important expertise, not being given the opportunity to raise concerns.

Any recommendations on how the board can increase its effectiveness in this, and other areas, will then go on to form part of the annual report and be available for further scrutiny by both the auditors and shareholders.

In this sense, while a board review never can or should constitute an audit of the board , under the new broader guidelines being put forward by Brydon, board reviewers will have an increasingly important role to play in guiding directors to think about how they can create the right culture and relationships to give the topic of risk the attention it deserves. Only then will the Resilience Statement have any hope of achieving any of the outcomes desired.

The role of the company secretary in tackling the climate crisis

Thu, 23 Jan 2020 10:50:00 GMT

The company secretary sits at the heart of the organisation, a bridge between the executive and the board and holds a uniquely privileged position with an organisation wide view. So what role can (and should) the company secretary play in tackling the climate crisis?

1. Board agenda
The company secretary will support the chair with setting the agenda. In the past the implications of climate change may only have been discussed at the sustainability committee and formed only a small part of its agenda alongside health and safety, ethics and community issues. This was not dissimilar to how boards focused on strategy, at a single offsite a year. Now good boards will address strategy and sustainability at all meetings – sustainability is now a mainstream governance matter and must be integrated with all decision making.

2. Supporter
The climate (or environmental) function in most companies was, until recently, usually led by a subject matter expert reporting to the head of health, safety and environment. It remains rare to find this function well represented on the executive committee. Some companies have moved the climate head under the head of strategy. Wherever the climate head sits, a company secretary who supports them by getting them an audience with the right people and who guides them on presentation and influencing skills will be a crucial ally.

3. Investors
Traditionally the bulk of investor engagement would be handled by the Investor Relations Team with the CEO and CFO. Some engagement would be handled by the chair and the company secretary – often on more sensitive issues of governance or succession. Shareholder activism on the climate agenda in the UK became mainstream in 2015 and the company secretary has been a central figure with investors who engage in climate change discussions in many companies ever since. This has been a significant learning experience for some company secretaries, but a rewarding one for them and the investor relations team.

4. Disclosure
How many company secretaries are responsible for the annual reporting suite and sit on the disclosure committee, but until recently were not fully engaged by colleagues with the sustainability report? That report will help company secretaries understand first hand all the activities and issues and the metrics and targets. They will be ever mindful of creating hostages to fortune by promising future deliverables and understand the liability for false or misleading statements and will guide the editorial team accordingly.

5. Risk (and opportunity) management
The company secretary will work closely with the head of risk to ensure that board and committee papers and discussions are optimised to discharge the board and audit committee’s responsibilities for risk management (and internal control). Climate change is now a top global risk, but it also brings business opportunities and it is good to see more and more focus on the opportunities, setting climate issues apart from others areas of the risk agenda.

Take for example, SSE plc’s CEO statement in their 2019 annual report: “ A world of low-carbon opportunity. The opportunities afforded by decarbonisation are being driven by a number of key trends….I would summarise them as: electrification of heat and transport in the energy system; carbon pricing, legally-binding carbon targets and associated support mechanisms; a wave of innovation that is making the technological enablers of decarbonisation more affordable; and an inflow of capital into the sector, which is increasingly drawn to lower-emission assets and technologies “.

6. Metrics & targets
Companies are finding their way with how best to set measurable metrics and targets for remuneration purposes (as are the remuneration consultants). A well briefed company secretary will be instrumental in devising appropriate messaging as part of a consultation with shareholders ahead of the inevitable changes to a company’s remuneration policy (with many coming up for renewal in 2020). They will also likely be involved in proxy solicitation ahead of the vote.

7. Regulators & policy
The company secretary, whether or not a lawyer (and whether or not also the general counsel) will be instrumental in considering the requirements of regulation and disclosure against that regulation. They are also well versed with meeting with regulators to discuss reform and in working with industry groups to develop thinking. The climate crisis will yield numerous opportunities for engagement on matters of public policy and a company secretary will assist the chair, CEO and corporate relations in development of a market position.

8. Decision making
A board (or committee) will make the best decisions if they have been provided with the right information, in the right way, at the right time, allowing for a meaningful debate and consequently the right decision. No amount of drafting of board minutes will be a substitute for poor information or debate. So, the company secretary will have a crucial role in working with colleagues to seek to ensure the best possible paperwork is prepared. Happily, this is now topical given the renewed focus in the UK on section 172 of the companies Act 2006.

9. Board review
As an attendee at all board and committee meetings and someone who will be a central part, with the chairs, of the annual board review process, the company secretary will understand the behavioural dynamics around the board and committee table and have unique insights for the board review. They will also be mindful of the climate crisis skills needed around the board table – both for hiring and continuing education – as we go into 2020.

In conclusion, the company secretary’s role in putting the climate crisis on the board agenda is vital. Board time is precious and pressured, but what can be more important to discuss than the biggest existential risk of our time? This affects every company, either through its customers, investors, suppliers or employees and often all of these. It is central to the company secretary’s role to make sure these matters are properly considered and the board has the right information to make informed decisions. As company secretary, encourage your chair and non-executive directors to join at www.chapterzero.org.uk to make use of the Chapter Zero board toolkit and attend the range of events planned for 2020 – and join yourself. Chapter Zero will support you in getting the climate crisis onto the agenda. Build your own knowledge, take the time to understand the science sitting behind the metrics and avoid initiatives that do not have significant impact.

Invitation to “A conversation with Jennifer Duvalier”

Mon, 13 Jan 2020 11:31:00 GMT

I invite you to join me for a conversation with Jennifer Duvalier, experienced FTSE Board Director and RemCo Chair

An experienced FTSE40 board director, Jennifer will be talking about her experiences of successfully managing the challenges associated with chairing a remuneration committee.

One of the most influential women in technology, Jennifer was a key member of the executive committee of ARM Holdings, helping it to rapidly grow, leading to its sale for £24 billion in September 2016.

Since then Jennifer has taken on a portfolio of NED roles at cybersecurity firm NCC Group, facilities-management company Mitie and Guardian Media strategy and commercial operations group GMC.

The date for the conversation will be confirmed when the social distancing measures currently necessitated by spread of the coronavirus are lifted.

To be notified of the new date and register your interest in attending, please email jo.walker@bvalco.com .

I look forward to welcoming you.

Alison Gill

Top five boardroom priorities for 2020

Mon, 06 Jan 2020 09:10:00 GMT

Is the introduction of an audited resilience statement, to assess ability to cope with existential threats, enough to protect companies?

Last year only just scratched the surface on a number of issues which are set to dominate boardroom agendas this year. Here are my predictions for the top five challenges boards will need to address together over the coming year.

1. Uncertain decision-making

The days of having all the facts and information before you to make an informed decision are over. The rate at which companies are having to adjust to change, be this Brexit, disruptive technologies or digital transformation, will demand greater agility of institutions and their leaders over the coming year than ever before.

So, while boards typically sit between wanting to do the right thing and not knowing what the right thing is, the days of having time to wait for all the facts to unfold before having to make a decision are over.

Going forward, boards will have to work hard to embrace the state of not knowing. This will require constantly considering pros and cons and translating this into a framework for making decisions. A fluid Decision-Action-Review cycle that allows for decisions to be made without having all the information, then quickly reviewed in the light of new evidences to allow for constant reflection in light of rapidly changing developments.

2. Digital transformation

Over the past few years, responsibility for driving digital transformation has shifted from the IT function to CEOs and business leaders. 62% of employers now have a business digitalisation strategy prioritised in their corporate strategy , primarily as a means of creating competitive advantage and growth. But the issue lacks leadership.

Boards need to define what digitalisation means to them. Is it purely about putting systems and processes into the cloud or future-proofing the business to use artificial intelligence decision-making and new ways of agile working to transform the way customers and employees interact with the business?

The board has a huge responsibility to oversee the overall success of how the organisation adapts to the fourth digital revolution. While there weren’t many governance structures in place for the first three revolutions, steam, electricity and computing this next revolution will dramatically change the way we live work and interact with one another, so needs careful and considered leadership. All of which means ensuring individual directors are supported to acquire the knowledge needed to have intelligent and regular conversations about how well the company is adapting.

3. People agendas

Human Capital Management is evolving from viewing employees as ‘assets’ to ‘consumers of work’. Tightening labour markets, skills shortages and the need for more agile working have taken a toll on the workforce. There is now an epidemic of mental health issues across the workforce, with staff turnover, sickness and lost productivity resulting from poor mental health costing UK businesses £42bn last year. That’s around £1,300 for every single employee .

High pay will also be a key issue in 2020 as this is the first year that publicly listed firms with more than 250 UK employees must disclose the ratio between CEO pay and the pay of their average worker, bringing the issue of pay inequality to the fore.

All of which means the board can no longer afford to ignore ‘people issues’ which were once seen as the preserve of HR and not a c-suit matter. In response many boards are planning to appoint HR directors to the board or increase the scope of their remuneration committee to include the wider people and change agenda. While others, such as Capital, the FTSE 250 outsourcing giant, have started to appoint employees as non-executive directors, in keeping with a new focus on ‘representing the employee’s perspective at board level.’

4. Environmental, Social and Governance (ESG) risks

Although the recent UN climate talks ended with limited progress on emissions targets , four of the most impactful global risks now relate to the climate, with failure to act on climate change and extreme weather events not only considered to be the two most likely risks, but also two of the three most impactful, according to the World Economic Forum Global Risk Report .

Boards will need to sharpen their ability to respond and create effective strategies to cope with environmental and other ESG risks. They’ll need to contemplate what an environmental or public relations disaster would mean for their ability to operate, what opportunities there are to get ahead of the curve and what a demonstration of a commitment to the issues becoming of increasing importance to investors and the public could do for the business, instead of waiting for a crisis to force them into taking action.

5. Diverse strategic thinking

Another big focus for 2020 will be the importance of more diverse strategic thinking for driving productivity, increasing effectiveness and delivering outcomes.

Given the extent to which executive directors have struggled to address these challenges in the past, boards will have to get better at diversifying their strategic thinking by drawing on the experience of non-executive directors (NEDs), to find new and more effective ways of working and preparing for future challenges.

By allowing NEDs to bring the full wealth of experience and skills they have to offer, boards can increase diversity of opinion to offer the different perspectives and insights needed to create better decisions. Critical to achieving this is empowering NEDs to play a more active role and better including them in strategy formulation, instead of allowing the executive to dominate decision-making.

Addressing discontent over executive pay

Wed, 11 Dec 2019 10:05:00 GMT

It’s not just corporate failures creating a backlash against current levels of executive pay, says Alison Gill – so what do employers need to consider when deciding how much to pay leaders?

Please click to read the full article here .

The role of the company secretary in tackling the climate crisis

Tue, 10 Dec 2019 10:34:23 GMT

Read The Full Article Here .

Governance lessons to be learned from TSB debacle

Tue, 19 Nov 2019 09:56:00 GMT

The long-awaited probe into the IT crisis, that left 2m TSB customers without access to their current accounts, highlights key governance failings

Law firm Slaughter & May has published its much-anticipated report on TSB’s mishandling of its migration to a new IT platform, in April 2018, which left the bank reeling for weeks and could eventually total £400m.

The report looks at where and why the board failed to address ‘common sense’ challenges, concluding that:

The report also highlights where fault lies with those reporting into the board:

Governance shortcomings

Damning as these observations are, they focus more on the omissions that occurred, rather than shedding any real light onto why they occurred.

Other than stating that the board should have appointed independent experts, to guide them, the report does not provide any real insight on how the board might have adjusted its behaviour to have been more effective. In particular, it does not address the question as to why, the TBS board failed to ‘interrogate the status of the programme’, ‘pause and reflect’, ‘question more robustly’ or ‘consider the extent to which the board could rely on the opinions of [Risk] and [Audit]’.

This may well have been outside the author’s terms of reference, but the right lessons still need to be learned from these corporate debacles. So it’s important to understand that the real issues that often underlie the effectiveness of a board are typically related to process and behaviour.

It’s the behaviours of the board that created a culture that allowed it to go ahead with a project about which it did not have sufficiently accurate and sufficient information. By allowing it to feel sufficiently comfortable about not challenging more deeply or insisting on more accurate or sufficient information. While, it is the processes which were not sufficient to ensure that the defence (audit and risk) mechanisms in place were competent and sufficiently well-resourced to ensure the board was able to interrogate itself and allow itself the space needed to ‘pause and reflect’.

Three questions boards need to ask themselves

Going forward, the report’s exposure of the governance failings at least, highlights the need for boards to ask themselves three key questions when governing mission-critical projects:

1. Is sufficient thought being given to the composition of the board?

Does the board have the necessary expertise to oversee a complex project, be this a technology transformation of others? How wide is the knowledge gap between the executive and non-executive layer? Do independent experts need to be extensively relied upon to compensate?

2. Does the culture within the board allow for sufficient challenge?

Do the behaviours exhibited and the process in place encourage challenge? Is there a sufficient awareness within the board of any cognitive bias and appreciation of different types of questioning that can be deployed to unravel complexity? Is the organisations ability to resource the project, and the effectiveness of the resources in place, being questioned?

3. Does the Chairman allow enough time and scope for the board to ‘pause and reflect’?

Where important projects are listed on the agenda, is enough space being given for the chairs of Audit and Risk to report and how much challenge is there from those who are not members of those committees? Are non-executives being given the opportunity to build their relationship with the executive and share their expertise and any concerns?

These are just some of the questions any board needs to ask itself if it is to learn the lessons of this and other corporate debacles.

Preparing for a low-carbon economy

Thu, 14 Nov 2019 09:22:00 GMT

Ten years ago, the top five global risks were all geopolitical. Today environmental degradation is the risk that defines our age.

Once considered to be a long-term issue to be dealt with later this century, scientists are now warning that we have just eight years left to avoid a dangerous environmental tipping point .

According to the World Economic Forum’s Global Risk Report 2019 , four of the most impactful global risks now relate to the climate, with failure to act on climate change and extreme weather events not only considered to be the two most likely risks, but also two of the three most impactful risks.

In response, many boards are now leading their organisations’ transition to a low-carbon economy, not only to protect their investments, but also to make the most of the opportunities presented by getting ahead of the curve.

Three actions boards can take to prepare for a low-carbon economy

When it comes to accelerating your progress on the environment, there are three actions boards can take:

1. Understand your company’s climate risks and opportunities

Society is expecting you to demonstrate what you’re going to do in the short term, but this also needs to be effective in the long-term. So, you need to operate across all three time-horizons, short, medium and long, by taking stock of both the risks and opportunities. What would an environmental disaster or carbon pricing mean for your ability to operate? What would public discontent or boycotting of your organisation do for your reputation? What business opportunities arise from low carbon activity? How can you get ahead of the curve by demonstrating a commitment to the environment that appeals to investors, lenders, insurers, employees, suppliers and customers?

2. Make climate change a strategic priority

Instead of viewing the environment as a functional issue, make it business as usual and have it form part of Strategy. Think about how remuneration and compensation can be used to incentivise action on moving to a low carbon economy and ensure the issue is featured heavily in regular agenda-setting. As with most things in life, what gets measures gets managed, so the board needs to set carbon reduction targets, track performance against those targets and publish progress. One company that has very clear goals is SSE plc. SSE’s business strategy places addressing the challenge of climate change at the very core of what they do. They have deliberately decided to link long-term business goals to the UN’s global goals for sustainable development (the SDGs). Cut carbon intensity by 50%; treble renewable energy output; help accommodate 10 million electric vehicles; champion fair tax and a real living wage.

3. Adopt The FSB Task Force on Climate-related Financial Disclosures (TCFD) recommendations

TCFD has developed voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. It has considered the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries. The recommendations help companies understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs. If your company has not yet adopted TCFD’s recommendations, consider doing so. Emerging practice on scenario planning will require thoughtful consideration by boards.

Getting started

When it comes to tackling climate change, all board directors need to be conversant and understand the issues and the implications for the business.

There are only a certain number of seats on the board, so it’s not likely to be good practice to give one of those seats to someone with a very narrow environmental focus. The age-old board skills of insight, intellectual curiosity and strategic advice remain important, but the climate crisis will require boards to think outside the box, to be agile and adaptable and to engage hearts and minds of all stakeholders.

Preparing for a low-carbon economy is a complex topic, so it’s important to find ways of continuously educating the board by inviting subject experts to give ‘teach-ins’ as part of the boards ongoing development in this area. There’s a growing base of resources provided by Chapter Zero and ICAEW & Deloitte to help boards on this journey.

Shaping policy

The board will need to make decisions to address the things it can easily do to reduce its own energy consumption before starting to try and influence what it’s suppliers, customers and partners are doing.

At some point, the UK government will also need to introduce regulations to achieve its legally binding target of net-zero emissions by 2050, which has been criticised for lagging far behind what’s needed, even to meet previous, less stringent emission targets. By leading thinking on the transition towards a low-carbon economy, boards can generate fact-based evidence, which can be used to help inform government thinking on future industry targets and measures.

In this sense, only by taking stock of the problem, and the opportunities for helping to solve it, can boards move from aspirations on the environment to the practical measures now needed to avert a climate catastrophe.

How can non-executive directors be more effective?

Fri, 01 Nov 2019 09:21:00 GMT

Good governance requires non-executive directors to challenge the thinking of the board, particularly executive directors, so how can they do this effectively?

In the eyes of the law, there is no difference between an executive and a non-executive director (NED). The corporate governance code says NEDs must play a full part and have collective responsibility with executive directors for the performance of a company. That’s the theory anyway.

In reality, it’s the executive directors that drive strategy and dominate decision-making, on the grounds that they’re in the company all the time, have more information and are dealing with more tangible aspects. At best, the executive perceives non-executives to be there for governance and to give a view. At worst, they’re seen as a waste of time, their ideas beaten down or even ignored altogether.

Iain Martin’s book, Making It Happen, on the now infamous boardroom behaviours that led to the collapse of RBS and start of the deepest economic downturn in seven decades, highlights not only how a dominant Chairman and CEO discouraged NEDs from playing an active role on a scale that rendered it pointless having them, but also the extent to which boards failing to embrace this layer of governance do so at their own peril.

Unfortunately, the reason the vast majority of boards are not getting the best out of their NEDs isn’t just that the executive is being too controlling. It’s a duel conspiracy. NEDs are often quite happy to nod through strategy without challenge, failing to bring the full wealth of experience and skills they have to offer.

The reasons for this are complex. In the first instance, NEDs, especially those hired for their executive experience, often fall into the trap of thinking and acting like an executive, when the skills required by a non-executive director are very different.

Secondly, many NEDs lack the self-awareness and confidence needed to carefully consider and time any challenges to the board, causing them to instead respond instinctively and without first pulling together credible, evidence-based, arguments.

Thirdly, many NEDs lack the behavioural skills needed to understand the extent to which the relationships between individual board directors and the dynamics of the board as a whole need to be taken into account when attempting to challenge the boards thinking in any way.

Supporting NEDs to become more involved

Anyone keen to see a greater contribution from NEDs would do well to start by considering the ratio of talking and non-talking. In most boards, the reality is that the executive will be dominating the conversation, but is this balance right for the organisation? When the NEDs speak, is their contribution heard and listened to or are their ideas rejected out of hand and brushed aside?

In the event that the executive is unnecessarily dominating the boardroom and dismissing points out of hand, it’s important to consider the tone at the top. Is the chairman or company secretary meeting with NEDs before the meeting, asking them what issues they want to raise, ensuring the right papers and agenda items are distributed and scheduled, and making sure they don’t feel impeded from contributing?

And where the NEDs are given the opportunity to contribute but fail to do this effectively, to what extent are they actually listening themselves? This matters because, in many cases, NEDs need to be reminded about the extent to which their role differs from that of an executive director and encouraged to listen more, observe the dynamics of the board and ask the right questions to help drive better conversations.

Encouraging considered, as opposed to instinctive, challenges

Instead of immediately responding to points made, NEDs need to take time to watch, listen, use the evidence at their disposal to form a challenge and decide upon the best time to make this challenge.

Critical to this is ensuring that NEDs understand that the board is as much defined by the people and relationships between them as any formal process or structures in place. If a NED challenges the executives in a way that undermines their view of the world, for example by challenging the feasibility of a business target, this will not be welcomed. So the onus is on the NED to ask the questions the board needs to hear to challenge its own thinking. It’s about making well-informed and well-timed interjections in a careful and evidence-based way. Tone of voice, timing and intonation are just as important to their delivery as the point being made.

When coaching NEDs to do this, via a mixture of theory and boardroom simulation, it never fails to strike me that individuals with big egos, who initially resort to telling people what they should do, are never as successful as those who are self-confidence and self-aware and happy to work through others, by letting others take on their ideas as their own.

Meaning that to be a successful NED, you need powerful influencing skills and the ability to encourage others to discuss and explore issues they might otherwise be reluctant to consider, let alone address.

Improving the relationship between the execs and non-execs

Creating the right boardroom culture to allow NEDs to play an active and beneficial role depends on executives and non-executives understanding and respecting each other’s roles and the dynamics of the board as a whole.

NEDs need to appreciate that they’re not executives with the day-to-day knowledge of the business needed to influence thinking in this area. Meanwhile, executives need to understand that NEDs provide a powerful check and balance on them, providing the sounding board needed to ensure their decision-making stands up to scrutiny and is fit for purpose.

Given the extent to which business are having to remain agile and adapt to nearly constant change, this is also as much about being able to make a decision even when all the information needed to make that decision isn’t available. It requires making decisions based on the best of knowledge at any one time, reviewing and adjusting as needed.

This framework of decide, review, adjust, cannot be done during one-off strategy days. Instead, it has to become an integral part of the boardroom’s activity, with all directors given the opportunity to shape thinking in a dynamic and fluid way.

How boards can address discontent over executive pay

Thu, 03 Oct 2019 13:49:00 GMT

The ability of boards to regulate executive pay is again being questioned, as MPs fast track an inquiry into “corporate greed” at Thomas Cook

Few people would question the need for a Thomas Cook inquiry to investigate why bosses took £20m in bonuses while overseeing the collapse of the company, resulting in the loss of 9,000 jobs and stranding 150,000 Brits abroad. However, it’s not just corporate failures creating a backlash against current levels of executive pay.

Since January, listed companies employing over 250 people have had to publish the difference between what their CEO is paid and what the average worker gets paid, under new corporate governance requirements. This has revealed that it would take most workers two lifetimes to earn what top execs get in a single year , with the average FTSE 100 boss earning £3.5m a year, 117 times more than the average full-time UK worker, at £29,574.

Although this has fallen by 13% compared to last year, the Business Select Committee wants more to be done to make sure businesses are sharing rewards with workers, while the High Pay Centre, an independent think tank, is urging boards to ‘align pay with the wider interests of society.’

At the same time, the recent decision of 70% of Royal Mail shareholders to vote against a £5.8m “golden hello” for new boss Rico Back highlights the extent to which shareholders are becoming increasingly willing to object to what they see as excessive pay.

This all puts pressure on boards to do more to link executive pay to high performance over the long term. So what can boards do to respond?

Three ways to prevent executive pay becoming an issue

1. Broaden your talent pool

The pressure that boards are under to be seen to be governing wisely and not taking unnecessary risks often creates boardroom desire to hire a ‘tried and tested’ chief executive, someone with a ‘proven’ track record and relevant industry experience.

However, these individuals come with a hefty price tag and no guarantee of success. So one of the best ways to close the differential between CEO and employee pay, is to look outside of the usual closed groups and networks, placing less importance of existing track record and industry experience and more focus on the behaviours and competencies needed to successfully run a business.

Female CEOs, for example, cost 54 per cent less than their male counterparts , even though research by McKinsey shows companies in the top quartile for gender diversity are 20 per cent more likely to have above average financial performance. Despite this, there are more CEOs called Dave than women CEOs in the FSTE 100, highlighting the extent to which companies are still paying a huge premium to compete for ‘proven’ talent. This makes it harder for new talent to gain the experience needed to enter these pools and increases the market rate for those who already reside in them.

2. Support remuneration committees

Remuneration committees need to be given the same level of support as risk and audit committees so that important issues can be discussed, such as what more could be done to link bonuses to the long-term sustainability of the business and whether or not the business is doing enough to establish an internal pipeline of future leaders.

However, in reality, the topic of executive pay may well fall down the agenda, or not have enough time allocated to it. So while individual directors might highlight concerns to the chair of the remuneration committee, there often isn’t the opportunity to raise and discuss them collectively in board meetings.

At the same time, chairs of remuneration committees often report what a lonely and unrewarding job it can be. So, it’s important that boards recognise and engage with the individuals tasked with this huge responsibility, giving them the time and support needed to get under the skin of what action needs to take place and how best to make it happen. As well as giving them the opportunity to interact with other remuneration chairs so they can share fresh insights and bring best practice back to the organisation.

3. Recognise it’s an emotive issue

With one in five workers skipping meals to make ends meet and two thirds saying their biggest concern about work is pay not keeping up with living costs , tolerance for large director bonuses, while wages continue to stagnate, is at an all-time low.

Boards that want to reduce the reputational risks now associated with the issue must think carefully about their duties under revisions to section 172 of the Companies Act 2006 , which requires the director of a company to ‘act in the way he [or she] considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole’ – specifically including ‘the interests of the company’s employees’.

This requires thinking about how best to create a culture of fairness when it comes to sharing any company profits. For example, could the consequence of a multi-million pound director bonus be that no-one else gets a pay rise? Are directors carrying enough risk, with their packages linked to transparent and meaningful long-term measures of performance? And where rewards for success are offered, are these being linked to broader objectives, such as the impact of the company on the employees, society and the environment?

Only by setting aside sufficient time to properly debate the board’s approach to executive pay, supporting the remuneration committee and ensuring all appropriately talented people are considered for the top jobs, can boards that haven’t already addressed the issue to good effect start to do so.

The annual board review can be a good time to do this, allowing the time and space needed to review the topic of executive pay, and how openly board members feel able to discuss this, in the context of other governance issues.

The only way is ethics

Thu, 05 Sep 2019 14:11:00 GMT

Nearly two decades since the creation of the first Corporate Governance Code, board accountability has evolved to place much greater emphasis on empowering directors to create the right culture and behaviours to navigate new social and environmental challenges.

Please click to read the full article online .

Women’s role in solving the productivity puzzle

Mon, 02 Sep 2019 11:34:00 GMT

Bvalco’s CEO, Alison Gill, talks to Governance about why only by creating diversity targets based on the business benefits that women can bring to boards, instead of viewing this as some kind of tick-box exercise, will organisations be able to see beyond the 33% representation target set by the Hampton-Alexander Review.

Please click to read the full article here (page 8) .

Invitation to “A conversation with Steve Allen”

Fri, 23 Aug 2019 09:20:00 GMT

I invite you to join me for a conversation with Steve Allen , Group Company Secretary, Rio Tinto.

Steve will share his experiences of the Company Secretary role in helping the board navigate the challenges of Environmental, Social and Governance (ESG) factors and the associated risks.

The conversation takes place on Wednesday 9th October 2019 , 5.30-7.30pm at The Landmark Hotel, 222 Marylebone Road, London, NW1 6JQ .

To register your attendance please email jo.walker@bvalco.com.

I look forward to welcoming you.

Alison Gill

Productivity Crisis will force boards to appoint more women

Thu, 22 Aug 2019 14:19:00 GMT

Every negative trend has a crisis point that initiates change, says Alison Gill – so will the productivity crisis help smash the glass ceiling?

Please click to read the full article here.

Should we be rating boards as good or bad?

Wed, 26 Jun 2019 15:02:00 GMT

With boards under ever-increasing levels of scrutiny, is The ICSA, The Governance Institute right to ask if a board can ever be assessed as good or bad?

In the wake of the large-scale failures of firms such as Carillion and BHS, the government is under pressure to crack down on ‘reckless’ directors who attempt to profit from dissolving companies at the expense of workers, pension pots and suppliers.

Amongst the new measures announced is a drive to improve corporate governance standards. The ICSA, has been tasked with carrying out a review of effectiveness of independent board evaluation in the UK listed sector, with a view to creating a code of practice for external board reviewers.

As part of their consultation on this code , the ICSA seeks to get to the very heart of what the purpose of a board review is, asking: is the purpose of a board review…

A: to guide directors through a process of self-improvement, which might include making changes to the board… to provide reassurance to others that it takes its responsibilities seriously

B: to provide an assessment of whether the board is or is not effective, in either absolute or relative terms, to provide assurance as to the future performance of the board and company

We agree with the ICSA’s concerns that it would be dangerous to assume that the process of evaluation can ever result in a 100% effective board. Not just because to rate boards as effective might lead to complacency, but because the idea that a board can ever be definitively assessed as being ‘good or bad’ is ludicrous.

To raise such an expectation would be very unhelpful and misguided because there is no way a board reviewer could give such assurance as to the future performance of a company based on a handful of director interviews and board observation once every three years.

Not only is there insufficient time to identify any fraudulent, reckless or even misguided behaviour in this time, let alone judge whether any decisions being made are likely to turn out good or bad in the years to come, but to place this responsibility on board reviewers would be most unwise.

What is the purpose of a board review?
In our experience of carrying out board reviews for FTSE 100 and other organisations, the role of a board reviewer is not to ‘evaluate’ the board – which literally means to ascribe a number or value – but rather to ‘review’ the six elements of its corporate governance . Not with a view to judging or grading it, but rather to provide its chairman and directors with the deep insights needed to catalyse debate into the ways in which they might go about making any necessary or desirable improvements to the way they operate, rather than the substantive issues they’re focused on. It’s about the how and not the what.

For example, it might be observed that the relationship between the executives and some of the non-executive directors is not as strong as it might be. This could mean valuable opportunities for highly skilled individuals to share their specific knowledge on issues ranging from cyber security to environmental threats are being lost, because the executives are not confident that the non-execs have the necessary familiarity with the business needed to make a meaningful contribution.

Does this make the board ‘bad’ or a board making unwise decisions but doing so collectively ‘good’? Of course not, there are a myriad of factors that if focused on can increase the effectiveness of the board, but none of them can be used to deliver a ‘fail’ in the way that a driving instructor might ‘fail’ someone for approaching a roundabout too fast.

The purpose of a board review shouldn’t be to try and catch the board out, but rather to provide the board with the insights needed to improve its preparedness to meet future challenges and safeguard the business for future generations.

Why we shouldn’t be rating boards as good or bad
Although it’s tempting to think of a board as being governed by charters, mandates and codes that can be easily reviewed and assessed, history proves this doesn’t amount to much. Several companies, with apparently good compliance have failed spectacularly. Board effectiveness is as much influenced by the informal culture, values and beliefs at play as the formal roles, processes and structures in place.

For example, directors’ beliefs in issues ranging from risk to business agility and diversity and inclusion, are as much influenced by their personal views as any formal targets in place.

These beliefs can remain undetected and will only emerge if directors on the board feel safe disclosing their concerns or values, critical to which is refraining from assessing, marking or evaluating directors or boards as ‘good or bad’ so that the reviewer can create a safe environment to help them identify any unconscious beliefs driving their behaviour. This safe environment is also essential for encouraging individual directors to raise sensitive issues, such as how to bring up the topic of chairman succession planning when the current chair clearly has no intention of resigning.

With so many subjective issues at play, the benefits of a good board review does not lie in ‘evaluating’ companies but rather giving them the space to think about how they’re operating on both a formal and informal level and flagging up areas they might want to give some thought to, along with practical recommendations they can put into practice.

In giving their feedback, it is also important for the board reviewer to be challenging and straight talking about how beliefs might be holding a board back, which behaviours are inappropriate and/or ineffective and which board processes simply aren’t working.

For example, if a review identifies that the board is unhappy with its strategy process, uncovering evidence as to why this might be could be useful. Perhaps the executives are excluding non-executive directors from the creation of strategy, by presenting strategy instead of inviting them to explore key strategic issues. Or maybe insufficient preparation has been done to identify the objectives and deliverables, and how the board will get there, meaning the strategy discussion feels insufficient and confused.

Either way, it’s the role of the reviewer to challenge the board to think about how it’s doing things, with practical recommendations, rather than ‘pass or fail’ the board or attempt to come up with a solution on its behalf.

Is a ‘warts and all’ approach the right solution?
As to the extent to which the recommendations arising from a board review should be made public, The ICSA is calling for clearer disclosure on the content and outcome of evaluations, with a view to publishing guidance for listed companies on how they should publish the findings of their board evaluation.

Our concern with encouraging companies to disclose their ‘warts and all’ findings is that where sensitive issues about relationship issues between directors, concerns about chairman performance or lack of succession planning have been identified, it could potentially do more harm to publish than not. Plus, if directors go into a review knowing any issues they raise will be published, they will inevitably be more likely to censor any concerns and much less open with reviewers.

Also, it’s often the case that many issues flagged up during the course of a board review offer an obvious solution, which is easily agreed upon and resolved before the review is even completed. It is only those much more sensitive issues, as to which there is no immediate and collectively acceptable solution, that require time and space for them to be resolved. In this case, it is totally acceptable for the chairman and CEO to work on these issues without public scrutiny. Best done with an action for the reviewer to revisit to make sure that they have been dealt with and not just brushed under the carpet.

The objective must be to empower and motivate boards to be the best that they can be, by creating the conditions needed for them to talk openly and honestly about what they need to do differently, rather than encouraging them to indulge in ‘tick-box’ paper reviews or less in-depth or taxing reviews, for fear of harsh scrutiny.

In this sense Bvalco welcomes the introduction of a code of conduct for board reviews so long as, at its heart, this code is focused on helping boards to become fit for the future, rather than simply attempting to ‘evaluate’ them on how they are now.

You can contribute to the ICSA’s consultation here .

Why subsidiaries need to embrace independence

Mon, 03 Jun 2019 13:28:00 GMT

Even if a wholly owned subsidiary only differs from its parent company ten percent of the time, it matters that it can think and act in its own interests

For those holding companies that have flown under the radar of the UK regulators for some time, finding out that even a wholly owned subsidiary may not only be expected to have an independent board of directors, but also carry out external board reviews, can come as a bit of a shock.

The parent company after all has its own board and governance procedures in place, with the subsidiary totally answerable to the parent’s shareholders. So why the need for yet another board, let alone one created to act entirely in the interests of the subsidiary?

Why subsidiary independence matters
Although it might seem onerous to some, the reason the Prudential Regulation Authority (PRA) wishes to regulate and supervise wholly owned subsidiary financial firms conducting significant levels of business in the UK is because where a subsidiary’s interests are at odds with the group, it must act in its own interests, and not its parent.

For example, now that the UK Parliament has declared climate change a state of emergency , it might not be in the interests of the subsidiary of an American-owned company to take on investment risk, when this might still stand to reward the parent company and its shareholders overall.

In the event that there are common directors between both parent and subsidiary company, there is a risk that the subsidiary board will decide to act in the interests of the parent company. The PRA therefore takes the view that the board of a regulated subsidiary company will generally need to have its own independent directors if it is to have any chance of acting in the interests of the subsidiary as and when conflicts arise. However, this does not mean that a group executive or non-executive board member cannot sit on the board of a subsidiary, as a non-executive director, so long as the PRA feels this doesn’t adversely affect the overall independent balance of the board.

The PRA further takes the view that to further reduce the risks of an over-controlling parent company, a significant regulated subsidiary should adopt good practice by following the principles of governance typically associated with listed companies and conduct an independent external board review every three years.

The benefits of external board reviews
Of course a balance has to be struck between the subsidiary acting in ways that reflect the interests of the parent company or group as a whole, but in a way that ultimately puts the interests of the subsidiary first.

An effective external board review can help by creating an opportunity for subsidiary directors to “discuss undiscussables” and find solutions to any issues of concern to directors. As well as plan for regulatory issues and situations that differ in the UK. As well as ensure that the subsidiary is alert to the potential for conflicts of interest and able to take decisions independently where required to meet its own legal and governance responsibilities.

Critical to achieving these benefits is not just conducting a paper review, merely to be seen to be complying, but conducting an in-depth review. The reviews we carry out for subsidiaries for example, look at the culture, values and behaviour driving decision-making, as well as the more formal structures and governance processes in place. This matters because although it might be tempting to view any board as being governed by charters, mandates and codes, the reality is that a board is a social entity whose decisions are as much influenced by the informal culture in place.

By looking at both the formal and informal factors influencing the effectiveness of the board, an in-depth board review provides an opportunity to enhance how the board manages itself and director contributions, how it oversees performance, risk and compliance issues and how engaged it is with key strategic issues. It also encompasses the subsidiary’s recovery and resolution plans and the need for the board of an insurer to take into account the effect of its business decisions on those who are, or may become, policy holders.

This can provide valuable insights that reduce underlying tensions and greatly enhance the effectiveness of the leadership team, demonstrating to the regulator that it takes the need for independence seriously.

In this sense, while the need for a wholly owned subsidiary to undergo a separate board evaluation might seem excessive, it is in fact an opportunity to ensure that the governance of the subsidiary is effective and that the board is capable of taking decisions in the interests of the safety and soundness of their firm, even if this means taking decisions which are at variance with the holding company at times.

Productivity crisis means boards should appoint more women

Thu, 25 Apr 2019 15:28:00 GMT

Every negative trend needs a point of crisis to drive real change. Could the productivity crisis be the tipping point needed to smash the glass ceiling?

Britain is the only large advanced economy likely to see a decline in productivity growth this year . Although the Bank of England governor has blamed this on Brexit, the current crisis started over ten years ago, with Britain now in its tenth year of feeble productivity growth.

While economists continue to puzzle over why greater employment and more people working longer hours is resulting in consistently less output per hour compared to all our major competitors, including the US, Germany and France, one thing is clear: companies with a significant number of senior female leaders are bucking the trend.

Companies in the top quartile for gender diversity are 15% more likely to outperform their industry peers . While further research shows that average employee productivity growth is higher for companies that employ three or more women at board level, compared to those that have just a single or no female directors.

All of which means companies with greater female representation at board level are not only able to generate higher levels of productivity and profits, as measured by returns on equity, but also higher dividend payouts to investors.

You would think that with results such as these, companies would be clamouring to realise the business benefits associated with greater female representation. Unfortunately, despite the growing body of evidence that gender-diverse boards lead to productivity gains, this is not an argument that can be won by logic alone.

Why boards don’t want more female directors

Despite the evidence of the business and productivity benefits that greater female representation at board level can generate, boards are failing to realise these benefits because there is a cognitive dissonance at play. Those in a position to allow more women to progress onto boards are either consciously, or unconsciously, blocking them because of deeply held beliefs that override the evidence before them.

Beliefs such as those recently expressed by FTSE 350 chairmen and CEOs to the Department for Business, Energy and Industrial Strategy, which included the notion that women are not able to understand the ‘extremely complex’ issues FTSE boards deal with and that most of them don’t want the ‘hassle or pressure’ of sitting on the board.

These views cannot be overcome with equality targets or data alone, not least because even though the FTSE 100 is on track to ensure that at least a third of their board members are women by 2020 , there is concern that these quotas are being filled by appointing female non-executive directors (NEDs) as ‘outsiders’ who can represent a ‘woman’s view’ without giving them any real input. Similarly, by bringing the heads of HR, communications, and other functions traditionally associated with women, into the board, without giving them a voice outside of their specialist areas.

Instead of ineffective gender targets, which are doing nothing to challenge the deeply held beliefs holding women back from attaining senior leadership positions, what’s needed now is a way of making the consequences of clinging to these views clear. That’s why the impact of the productivity crisis on business results might yet prove to be the tipping point that shatters the glass ceiling.

Challenging deeply held beliefs

Of all the beliefs holding women back, perhaps the most detrimental is the belief that women don’t really want the top roles, because they are too invested in their families.
Not only does this assumption have no basis in reality, with research showing that individuals who identify highly with both work and family invest twice as much time in work (compared to a person who is highly identified only with one or the other). But the reality of motherhood and commitment are two different things. To suggest you can’t be committed to anything if you have any other priorities is simply confusing the issue. Many successful male board directors have many competing demands on their time, without these causing others to question their dedication in the way that the commitment of working mothers is constantly viewed with suspicion.

There are many high-performing women in the workplace who are discriminated against for working flexibly or part-time, even though the reality is that they have often learned to become more focused and effective than those who have the ‘luxury’ of working late, precisely because of this time constraint. In fact, a large study has found that women at work are 10% more productive than men , despite being paid 18% less.

That we currently have a situation whereby an individual working late every night is perceived to be a ‘better’ and more ‘committed’ employee, than someone who can get everything done to leave work at 3pm every day, goes a long way to explaining why the UK produces less by the end of Friday than all its major competitors can produce by Thursday.

Going forward, instead of assuming that women who have worked flexibly or part-time in the past must be uncommitted, and therefore unfit for the boardroom, directors must instead consider which business metrics are most appropriate for identifying high performers and consider whether or not the ability to adhere to a traditional working pattern is the most important criteria at a time when productivity and the ability to innovate and generate results are becoming increasingly important.

At the same time, instead of making assumptions about whether or not women want to be included in boards, directors must talk to individuals to find out what they actually want. They should also talk to their own families – because it’s often only once someone holding deeply held views realises the extent to which their loved ones are also affected, and wants their daughter or sister to have choices, instead of being subjected to bias, that they will be able to finally update their beliefs.

Setting meaningful targets

Only by creating diversity targets based on the business benefits that women can bring to boards, instead of viewing this as some kind of tick-box exercise, will organisations be able to see beyond the 33% representation target set by the Hampton-Alexander Review.

Critical amongst these targets must be realising the productivity gains that greater female representation at board level can achieve. Senior female leaders not only have a valuable role to play in making organisations more flexible, agile and productive. They can also do this in a way that can reduce the stress and anxiety issues that poor work-life balance and unhealthy working patterns have already resulted in. Poor wellbeing is another factor driving low levels of productivity, with a major study sponsored by Mercer finding that the healthiest workplaces are able to save 10.6 days of productive time per employee by improving the health of their workforce.

Essential to realising these benefits is not only recognising the extent to which greater female representation can help to achieve this, but also putting in place clear strategies outlining what values and behaviours are needed to deliver this change. These strategies should be based on organisational data, root-cause analysis and change mindset action plans, with feedback loops incorporated, rather than more assumptions and beliefs.

At the same time, anyone who continues to undermine the appointment of more women at board level, be this by creating insufficient solutions, failing to take action or scaremongering, must also be dealt with. Because changing a system of male-domination and a particular style of leadership and working that has persisted for centuries will inevitably leave some people feeling threatened.

As is so often the case, it is the role of the chairman to assess the extent to which deeply held beliefs towards women reside within themselves and the board in general, so that they can objectively challenge any outdated assumptions and take stock of the business benefits that can be realised. Only by focusing on these benefits can they unite the board in wanting to realise the productivity and wellbeing advantages that more female leaders now have an essential role to play in creating.

70% of FTSE 350 chairs under pressure to step down

Thu, 18 Apr 2019 15:28:00 GMT

The nine-year limit for chairs is putting a number FTSE 350 companies under pressure to replace their chairs. But is this cause for concern or a good thing?

Pub chain founder Tim Martin is vehemently opposed to the idea that he should no longer sit as chair of JD Weatherspoon, after already serving 36 years in the role. Telling the Financial Times that the revised corporate governance rules, which now include a requirement that chairs step down after serving on the board for nine years, are “deeply flawed” and “institutionalise inexperience.”

While in America, Facebook founder, Mark Zuckerberg, is more than a little reluctant to relinquish his dual role as CEO and chairman. Despite increasing calls for him to install an independent chair after a series of scandals recently knocked $37bn off the company’s Market Cap in just four days .

What’s more, it’s not just company founders who are reluctant to let go of the reins. According to research by government consultancy Minerva, just under a third of the FTSE 350 (110 companies) have chairs who are already non-compliant with the nine-year rule. And a further two-fifths (137 companies) have chairs in place who have already served more than eight years.

This means an overwhelming 70% of FTSE 350 chairs now face pressure to step down if their organisation is to ‘comply’ with the code. Or, where there are good reasons for them not to do so, ‘explain’ their decision to stay on to the Financial Reporting Council (FRC).

And that’s assuming shareholders don’t get there first. Mike Turner CBE, chairman of Babcock, the FTSE 250 defence contractor, recently told reporters his decision to step down after 10 years was prompted by two top-20 shareholders informing him that they thought the company would have more credibility if he resigned in response to the new code.

Why chair independence matters

The purpose of a good chair isn’t to lead thinking for the board, but rather to be an independent facilitator. Someone capable of encouraging people to think around topics and seek knowledge and data to make good decisions, instead of relying on existing beliefs.

Unfortunately, as soon as you put people in groups, they become notoriously bad at making good decisions, because of the psychological phenomenon known as ‘group think’, which encourages group members to withhold dissenting opinions and gravitate towards popular decisions and consensus, without critical evaluation of alternative viewpoints.

Essential to overcoming this human tendency, especially in light of the constantly changing economic, social and governance (ESG) issues, is the ability of the chair to not only emulate agendas based on the most important emerging priorities, but also encourage open debate to deliver the benefits of independent thinking.

Although there might be good reasons for someone staying on as chair past the nine-year tenure rule, for example where the organisation has particularly long business cycles, the longer someone remains as chair, the more likely they are to inadvertently lead the board into group think and the less likely they are to look at new and emerging issues with a fresh perspective. This means blind spots can easily build up.

Entrenchment isn’t good for business

Another risk associated with entrenched chairs is the extent to which the board and business can become dependent, meaning the board struggles to initiate ideas or reach decisions without the chair’s input. This exacerbates the stress and anxiety associated with the prospect of replacing a particularly long-serving chair – when they eventually decide to step down or retire, all of which can impact negatively on the business and share price.

Also, at the heart of being a good leader is the ability to make yourself redundant by encouraging other leaders to develop and flourish and by making the process of decision-making independent of you, so that new people can come in and run it.

As soon as a leader becomes entrenched, the opportunities for someone new to take over become much less. So, it’s perhaps a good thing that the revised code is forcing boards to consider the incredibly important issue of chair succession planning as a matter of course, by introducing a timeframe that prevents them from becoming automatically entrenched. All of which will ‘allow’ the board to openly discuss and identify what skills any future chair needs to have as part of their annual review, in keeping with ever-changing market conditions, customer needs and investor expectations.

Succession planning fit for the future

With the new rules already encouraging several FTSE boards to consider chair succession planning and chair independence sooner than they otherwise might have, the next challenge will be finding an appropriate successor.

Given the scrutiny that boards are under, the temptation may well be to ‘play it safe’ by appointing another tried and tested FTSE chair. The problem here though is that if all FTSE 350 boards are doing is effectively swapping chairs around amongst themselves, everyone will be fishing from the same pool, exacerbating diversity and executive remuneration issues while unnecessarily limiting their choices.

Instead of turning to the same closed industry and professional networks, boards would do well to consider what behaviours go into making up a great chair. Namely, the ability to be a great facilitator, active listener, get the best out of different types of people, recognise differences yet galvanise opinion, and be a succinct yet inspiring communicator.

Looking at the current pool of chairs, it would be easy to assume that these are skills predominantly residing in white men over the age of 60, when this is of course by no means the case. Going forward, it’s essential that the FSTE 350 try to make the most out of the opportunities the nine-year rule presents for increasing diversity of representation and diversity of thought, by prioritising the behaviours needed for good chairmanship over length of service or existing track-record.

Only then can the natural-born facilitators – many of whom are currently residing in charities, not-for-profits and smaller organisations – be given the opportunities they deserve to make the new nine year rule a success.

Boardroom Conversations

Tue, 05 Mar 2019 16:23:00 GMT

Converse with an acknowledged expert and take the benefit of their experience back to your board.

Our ‘Boardroom Conversation’ series of events is designed to facilitate sharing best practice amongst the largest companies in the UK. After the ‘Conversation’, the floor will be opened for questions from the specially invited audience. The session is divided equally between these two parts of the conversation. A buffet breakfast aids an informal and open atmosphere in which participants discuss board effectiveness, sharing their collective perspectives. Held in conjunction with the Financial Times Non-Executive Directors’ Club.

To read discussion papers on our previous events, please click on the links below.

Read A boardroom conversation with Douglas Flint CBE

Read A Boardroom Conversation with Sir Howard Davies

Read A Boardroom Conversation with Sir Simon Robertson

10 September 2013 A Boardroom Conversation with Jim Leng

9 April 2013 A Boardroom Conversation with John McFarlane

20 February 2013 A Boardroom Conversation with Sir Winfried Bischoff

26 October 2012 HSBC Group Company Secretaries Conference

1 October 2012 A Boardroom Conversation with Sir David Walker

26 June 2012 A Boardroom Conversation with Rachel Lomax

13 March 2012 A Boardroom Conversation with Sir Martin Jacomb

22 February 2012 A Boardroom Conversation with Sir David Lees

23 November 2011 Food for Thought Forum: Building Investor Confidence

27 October 2011 Food for Thought Forum: The Unitary Board

26 October 2011 The Effective Board: Half Day Workshop

8 June 2011 Food for Thought Forum: Co Hosted with 30% Club

Why Brexit wouldn’t happen in a boardroom

Tue, 05 Feb 2019 10:13:00 GMT

Parliament could learn a thing or two about how successful boards manage divided opinion to identify creative shared solutions.

There was a time in the not too dim and distant past when ‘groupthink’ was derided. When government and businesses alike worried that if all the individuals involved in a decision-making process were very closely aligned in their beliefs, decisions would go unchallenged, debate would be closed and risks and opportunities would be overlooked.

Now that we have successfully achieved ‘diversity of opinion’, with most people feeling safe airing their widely differing thoughts and opinions on an almost daily basis, it’s tempting to yearn for a time where our political leaders weren’t dependent on referendums to sort out their differences.

But is it the diversity of opinion, or how those differences of opinion are being managed, that’s the real problem?

Why independent facilitation matters

Parliament is a very different beast to the corporate world, but perhaps the biggest difference between a FTSE company and the government is the role of the Chairman as an independent facilitator.

When Douglas Flint, former Chairman of the Board of HSBC Holdings, found himself responsible for facilitating the decision-making process required to keep HSBC’s headquarters in London a couple of years ago, he talked about the importance of staying neutral and not putting his views on the table.

Recalling his experience at an event held by the Financial Times , he said, “I saw it as my role to keep asking the board what more information they needed to make the decision. It wasn’t until we were all sure that we had all the information about every aspect of the issue that we had the discussion that led to the final decision. It was unanimous.”

Compare that to debate about the controversial ‘backstop’, the clause in the EU Withdrawal Agreement that, if needed, keeps the UK in the customs union to avoid a hard border between Ireland and Northern Ireland, and the impact of the lack of an independent facilitator becomes clear.

Instead of open and honest debate about the many complex issues surrounding the assumption that Northern Ireland needs to be treated exactly the same as the rest of the UK – when this assumption has already contributed to the collapse of its own government – closed and ineffective debate has resulted in deadlock with both Parliament and Europe.

With most of the general public also lacking the detailed information needed to make an informed decision about how best to overcome this most sensitive and complex aspects of Brexit, throwing the fight back to the people, via a ’people’s vote’, is just as unlikely to unite the country behind a shared vision.

What’s needed isn’t a second referendum, but rather an independent facilitator, like that provided by the role of a chairman, who can provide the neutral ground needed for MPs to rigorously debate the technicalities of the problem until they can find a creative shared solution.

Why the Queen is right to call for common ground

Amidst all the conflict, resignations and votes of no confidence already brought about by Brexit, the Queen was right to recently highlight the importance of “respecting different points of view, coming together to seek out the common ground and never losing sight of the bigger picture”. Because difficult as it is to believe when you pick up a paper or watch Prime Minister’s Questions, there will indeed still be substantial areas of common ground.

Identifying and keeping this front of mind matters because, in a slight return to the psychology of groupthink, it’s only when people feel that they are all in someway united that they feel best able to consider alternative perspectives, instead of clinging to the views held by their own ‘tribe’.

When guiding boards to reach collective decisions, Chairmen work hard to ensure everyone involved in the debate is agreed on the issues that actually need to be addressed. If a Chair were residing over Parliament, his or her first step would be to agree what actually needs to be agreed upon.

For example, it’s clear that many MPs still wish to override the result of the initial referendum, on the grounds that people didn’t have all the facts required to make a properly informed decision. While others believe that to do this would be undemocratic and undermine the workings of government.

Critical to progressing the decision-making process is therefore taking the time required to agree on what it is Parliament is trying to achieve and what everyone is united in wanting to make happen. Only then can creative debate into how best to make that happen commence.

Using ‘diversity of opinion’ to identify creative solutions

Once the issues to address have been agreed upon and the areas where there is already agreement defined, boards typically start the process of collectively creating possible solutions. This involves each individual accepting that even though they could come up with their own solution to the problem, talking to other people with differing views will give them different perspectives and insights that will help them to make a better and more rounded decision.

By creating her own solution, then presenting this to Parliament as a ‘done deal’, instead of allowing cross-party teams to collaborate on formulating a creative more rounded solution from the outside, the Prime Minister has lost a valuable opportunity to tap into the opportunities that ‘diversity of opinion’ creates for generating creative solutions.

Following the historic defeat, in which many of her own party voted against her, resulting in her Brexit plan being rejected by a majority of 230, she now has no option but to better take into the conflicting views of those she is surrounded by.

With the clock ticking, the upshot is that if the Prime Minister can’t now facilitate a creative shared solution, she may well have to look to someone else who can perform the role of ‘independent facilitator’ in order to find the consensus needed to move forward.

A boardroom conversation with Douglas Flint CBE

Wed, 11 May 2016 09:14:36 GMT

“ A BOARDROOM CONVERSATION WITH DOUGLAS FLINT CBE ” facilitated by Alison Gill, Director of Bvalco Ltd

A Boardroom Conversation with Sir Howard Davies

Tue, 04 Feb 2014 10:17:14 GMT

“ A BOARDROOM CONVERSATION WITH SIR HOWARD DAVIES ” FACILITATED BY JAMES BAGGE DIRECTOR OF BVALCO LTD

A Boardroom Conversation with Sir Simon Robertson

Tue, 05 Nov 2013 10:19:09 GMT

“ A BOARDROOM CONVERSATION WITH SIR SIMON ROBERTSON ” FACILITATED BY JAMES BAGGE DIRECTOR OF BVALCO LTD

A Boardroom Conversation with Jim Leng

Tue, 10 Sep 2013 09:21:17 GMT

“ A BOARDROOM CONVERSATION WITH JIM LENG ” FACILITATED BY ALISON GILL DIRECTOR OF BVALCO LTD

A Boardroom Conversation with John McFarlane

Tue, 09 Apr 2013 09:30:09 GMT

“ A BOARDROOM CONVERSATION WITH JOHN MCFARLANE ” FACILITATED BY JAMES BAGGE DIRECTOR OF BVALCO LTD

A Boardroom Conversation with Sir David Walker

Mon, 01 Oct 2012 09:36:07 GMT

“ A BOARDROOM CONVERSATION WITH SIR DAVID WALKER " FACILITATED BY ALISON GILL DIRECTOR OF BVALCO LTD

A Boardroom Conversation with Rachel Lomax

Tue, 26 Jun 2012 09:45:42 GMT

“ A BOARDROOM CONVERSATION WITH RACHEL LOMAX " FACILITATED BY JAMES BAGGE DIRECTOR OF BVALCO LTD

A Boardroom Conversation with Sir Martin Jacomb

Tue, 13 Mar 2012 10:47:57 GMT

" A BOARDROOM CONVERSATION WITH SIR MARTIN JACOMB ” FACILITATED BY JAMES BAGGE DIRECTOR OF BVALCO LTD

A Boardroom Conversation with Sir David Lees

Wed, 22 Feb 2012 10:49:42 GMT

" A BOARDROOM CONVERSATION WITH SIR DAVID LEES ” FACILITATED BY ALISON GILL DIRECTOR OF BVALCO LTD

Food for Thought Forum: Building Investor Confidence

Wed, 23 Nov 2011 10:51:29 GMT

THE BVALCO ‘FOOD FOR THOUGHT FORUM': 8 Building Investor Confidence - Bridging the Gap between Owner and Manager

Food for Thought Forum: The Unitary Board

Thu, 27 Oct 2011 09:52:59 GMT

THE BVALCO ‘FOOD FOR THOUGHT FORUM’: The Unitary Board

The Effective Board: Half Day Workshop

Wed, 26 Oct 2011 09:55:57 GMT

THE EFFECTIVE BOARD: A HALFDAY WORKSHOP

Food for Thought Forum: Co Hosted with 30% Club

Wed, 08 Jun 2011 09:58:39 GMT

THE BVALCO ‘FOOD FOR THOUGHT FORUM’: What are the Obstacles to Women on Boards?