Boardroom Behavioursa report prepared for sir david Walker by the institute of Chartered secretaries and administrators (‘iCsa’)
June 2009
international
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I Executivesummary 3
II Observations 4
III Conclusions 7
IV Recommendations 9
Appendices
A Backgroundandprocess 10
B Questionnaire 12
C AboutICSA 13
Contents
ICSAEducationandResearchFoundation,registeredcharityno.1027579,whoseobjectsaretoadvancetheeducationofthepublicinthelawandpracticeofsecretaryshipandbusinessadministrationbyundertakingorassistingintheundertakingofresearchandthepublicationoftheusefulresultsofsuchresearchforthepublicbenefit,hasgenerouslyagreedtofundsomeoftheconsultancycostsICSAhasincurredinconductingthisstudyandinproducingahigh-qualityprintedversionofthereport.
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i executive summary
1.1 Sincetheonsetofthefinancialcrisis,andtheeconomicslowdownwhichfollowed,aprominentquestionofpolicymakers,andmarketparticipantsandobservers,hasbeenwhysomecompaniesfailedtoforesee,andatleastmitigate,theeventswhichengulfedthem.Attentionhasfocusedparticularlyondirectorsandboards,andapparentcorporategovernancefailures,leadingtoaseriesofreviewscoveringfinancialregulation,bankinggovernanceandtheoperationoftheCombinedCode(the‘Code’).
1.2 Althoughfurtherregulation,particularlyinthebankingsector,appearsinevitable,anemergingviewisthatthesystemofgovernanceforcompaniesisnotinherently‘broken’,butratherthatitseffectivenesshasbeenunderminedbyafailuretoobserveappropriateboardroombehaviours.
1.3 Inrecognitionofthis,ICSAembarkedonananalysisofboardroombehaviours,theoutcomeofwhich–assetoutinthisreport–isbeingpresentedtoSirDavidWalker.AtthesametimeacopyofthisreportisbeingsenttotheFinancialReportingCouncil(‘FRC’).
1.4 This report concludes that:
• appropriate boardroom behaviours are an essential component of best practice corporate governance; and that the absence of guidance on appropriate boardroom behaviours represents a structural weakness in the current system;
• had that guidance been available and, more importantly, observed, some of the consequences of the current crisis might have been less severe and that, in any case, prevention of a recurrence of the events of the last year is at least partly dependent upon guidance on appropriate boardroom behaviours being incorporated in the Code; and
• better articulation of the business case for best practice corporate governance, and more focus on directors’ responsibilities and potential liabilities, should incentivise directors to exhibit appropriate boardroom behaviours.
1.5 ToassistICSAindevelopingtheviewssetoutinthisreport,itconsultedarangeofitsownMembers,andothermembersofthecompanysecretarycommunity.ExpertviewsweregatheredfromcolleaguesandadvisersoperatingintheboardroomsofmajorUKcompanies,includingthosefromtheFTSE100and250.Amajorcontributiontotheexercisecamefromcompanysecretariesoperatinginthefinancialservicessector,includingsomeoftheUK’slargesthigh-streetbanks,aswellasrepresentativesfromothersectorsincludingenergy,defence,manufacturing,propertyandsupportservices.
1.6 ICSAconsidersthatthefindingsinthisreporthaveawiderrelevancethan‘simply’thatofaddressingthecurrentcrisis,andlooksforwardtoworkingwithinterestedpartiestodevelopthinking,andbestpractice,onboardroombehaviours.
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ii observations
Theconsultationprocessgeneratedthefollowingobservations:
2.1 Bestpracticeboardroombehaviourmaybecharacterisedby:
• aclearunderstandingoftheroleoftheboard; • theappropriatedeploymentofknowledge,skills,experience,andjudgment; • independentthinking; • thequestioningofassumptionsandestablishedorthodoxy; • challengewhichisconstructive,confident,principledandproportionate; • rigorousdebate; • asupportivedecision-makingenvironment; • acommonvision;and • theachievementofclosureonindividualitemsofboardbusiness.
2.2 Thedegreetowhichthesebehaviourscanbedeliveredisshapedbyanumberofkeyfactors:
• thecharacterandpersonalityofthedirectorsandthedynamicsoftheirinteractions; • thebalanceintherelationshipbetweenthekeyplayers,especiallythechair
andtheCEO,theCEOandtheboardasawhole,andbetweenexecutiveandnon-executivedirectors;
• theenvironmentwithinwhichboardmeetingstakeplace;and • thecultureoftheboardroomand,morewidely,ofthecompany.
2.3 Despitetheimportanceoftheseandotherconsiderations,itisremarkablethatthereispracticallynoguidanceintheCodeonthemaindriversof,andfactorsaffecting,boardroombehaviours.WhileICSAconsidersitmaybeundesirable,evenunhelpful,toprescribeappropriatebehavioursbylegislativeprovision,supportedbypenalorregulatorysanctions,ICSAneverthelessconsidersitispossibletoformulateguidelinesonthebehaviourstobeexpectedofdirectorswhendischargingtheirdutiestothecompany.‘Gettingthebestoutoftheboard’,andencouragingbestpracticeboardroombehaviours,arecriticalaspectsofcorporategovernance,butseemcurrentlytobeaneglectedarea.
2.4 Notwithstandingthefuroresurroundingthecollapse,ornearcollapse,ofanumberofcompanies,thereshouldbearecognitionthatdirectorsaregenerallywell-intentioned,andaremotivatedtodowellfortheircompanies.Itshouldalsobeacknowledgedthatdirectorshavemadesignificantprogressinstrengtheningthegovernanceframeworkswithintheircompaniesonthebasisofexistingguidance.
2.5 Toimproveonexistingstandardsofbehaviourintheboardroom,directorsneedtodevelopagreaterawarenessof,andcommitmentto,‘fitforpurpose’governanceasthemeansbywhichtheboardcancollectivelyagreethebusinessobjectivesofthecompanyandastrategyfortheirimplementationbyexecutivemanagement.
2.6 Heighteningdirectors’sensitivitytotheimportanceoftheneedforfurtherchangecanbeachievedbyacknowledginganddevelopingthemotivationsforimprovedperformance.Thetwoprincipaldriversare:
• ‘Benefit’–helpingdirectorstoseebestpracticecorporategovernanceasabusinessfacilitatorandnotabusinesskiller.Thevaluepropositionofbestpracticegovernanceshouldbeframedintermsoftheaimtomaintainandgrowthelegitimacy,credibilityandcapabilityofthecompanytodeliverthebusinessplanandstrategy.Thepursuitofbestpracticecorporategovernanceshouldbeseenasdeliveringcompetitiveadvantage,becauseitstrengthenstheprocessandqualityofdecision-makingand,hence,theoverallefficiencyandeffectivenessoftheboardand,ultimately,thecompany.
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• ‘Failure’–remindingdirectorshowfailuretoperformatasatisfactorylevelcancarrynegativeconsequences.Behaviouralchangewillalsobedrivenbytakingaccountofdirectors’duties,responsibilitiesandpotentialliabilities.Directorsneedconsciouslytoreflectonawiderrangeofconsiderationsthanthosesimplyrelatedtoshort-termprofitandshare-pricegrowth.Greaterawarenessofthenon-financialfactorswhichdeliverthesustainabilityofthebusinessmodel,andtakeaccountofthelegitimateexpectationsofshareholdersandotherbusiness-criticalstakeholders,iscrucialinhelpingthecompanyachieveitsbusinessobjectives.Thedutytopromotethesuccessofthecompanyplaysakeyrolehere.Section172oftheCompaniesAct2006states:
(1) Adirectorofacompanymustactinthewayheconsiders,ingoodfaith,wouldbemostlikelytopromotethesuccessofthecompanyforthebenefitofitsmembersasawhole,andindoingsohaveregard(amongstothermatters)to:
(a) thelikelyconsequencesofanydecisioninthelongterm, (b) theinterestsofthecompany’semployees, (c) theneedtofosterthecompany’sbusinessrelationshipswithsuppliers,
customersandothers, (d) theimpactofthecompany’soperationsonthecommunityandthe
environment, (e) thedesirabilityofthecompanymaintainingareputationforhigh
standardsofbusinessconduct,and (f) theneedtoactfairlyasbetweenmembersofthecompany.
(2) Whereortotheextentthatthepurposesofthecompanyconsistoforincludepurposesotherthanthebenefitofitsmembers,subsection(1)haseffectasifthereferencetopromotingthesuccessofthecompanyforthebenefitofitsmembersweretoachievingthosepurposes.
(3) Thedutyimposedbythissectionhaseffectsubjecttoanyenactmentorruleoflawrequiringdirectors,incertaincircumstances,toconsideroractintheinterestsofcreditorsofthecompany.
2.7 Ultimately,issuesofrisktoreputationunderliebothdrivers.Strongstandardsofperformanceintermsofboardroombehaviourshouldbolsterdirectors’reputations.Incontrast,thecurrentfinancialcrisishasconfirmedtheirreparabledamagethathasbeendonetosomedirectors’reputationsasaresultofbeingperceivedasresponsibleforsomeoftherecentcorporatefailures.
2.8 Thereputationsofotherboardsofdirectorshavesufferedasremunerationcommitteeshaveexerciseddiscretionbyawardingbonusesincircumstanceswhereexecutivedirectorshavenotmetagreedperformancetargets,leadingtowell-publicisedanddamagingshareholderdisapprovalofboards’remunerationreports.Thereisgrowingpublicinterestinwhatboardsdoandhowtheyaregoverned,butthereremainsamismatchbetweentheattitudesandexpectationsofexecutivedirectors,theapproachtakentorewardissuesbyremunerationcommittees,andtheprevailingmoodofshareholdersandtheultimatestakeholderbody,thepublicatlarge.
2.9 Improvementsinbehaviouralpracticewillalsobebuiltonadeeperunderstandingoftherelevanceof,andemphasison,culture,visionandvalues–informed,inturn,bygreatercommitmenttotheimportanceoftherelationshipbetweenissuesoftransparency,accountability,disclosure,trustandconfidence.Thesearebusiness-criticalareasasmuchforboardsoperatinginsteadystateasforthosemanagingacrisis,contemplatingstrategicchange,orpursuingduediligenceinrelationtoaproposedacquisitionorotheraspectofcorporateactivity.
2.10 Alldirectors–includingexecutives–shouldseektoimprovetheirperformanceintheseimportantareas.Theyshouldbridgethe‘knowledgegap’,withcorrespondingpersonaldevelopmentandlearningopportunitiesfocusedonthefundamentalsofgoodcorporategovernanceasdeterminedbydirectors’duties,relatedtothespecificbusinessmodel,strategyandoperationsofthecompany.
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2.11 Theprocessforhelpingnon-executivedirectorsdeepentheirknowledgeofthebusinesstoalevelthatoptimisestheirunderstanding,andallowsthemtochallengeproposalsconstructively,canbemademoreeffectivebyallowingthemgreaterexposuretothecompany’soperations.ICSAsubmitsthatthereshouldbeageneralpresumptiontowardsunhinderedaccessbydirectorstoinformationandstaffinkeyareasofthebusiness.
2.12 Knowledgeisalsoafunctionofboardbalance.Thetrendtowardsadecreaseinthenumbersofexecutivesattendingboardmeetingsmaybedetrimental.TheCode’srequirement(otherthanforsmallcompanies)foramajorityofindependentnon-executivedirectorshasledtoareductioninthenumberofexecutivedirectors,sometimestojusttwo–theCEOandtheCFO–inordernottoincreaseboardsize.Thishas,unintentionally,ledtoasituationofinformationflowthroughtwoorsometimesthreeexecutivedirectorswho,withthebestwillintheworld,willbeunabletomasterthewholecorpusofthecompany’sobjectivesandoperations.Periodicappearancesbysenioroperationalexecutivesmaynotbesufficienttoaddressthispotentialstructuralweakness.Itmightthereforebenecessaryforsomeorganisationstoreviewthisbalanceofexecutiveandnon-executivedirectors.
2.13 Diversityofboardmembershipisnecessarytoprovideforthekindofindependentchallengewhichthecurrentfinancialcrisissuggestsmayhavebeenusefulontheboardsofsomecompaniesthatencountereddifficulties.Itisevidentthatboardsdonotcurrentlycontainasufficientlywiderangeofskillsets,experienceandbackground–includingthoserecruitedfromacademia,thepublicandnot-for-profitsectors.
2.14 Highstandardsofrigorousand,occasionally,independentevaluationareneededtoincreaseboards’effectiveness.Generally,furtheremphasisshouldbeplacedonthemeansforensuringaccountabilityintheareasofindividualdirectorandwholeboardperformance.
2.15 Directorsshouldbeassessed,inter alia,againstexpectationsrelatingtoboardroomperformanceandbehavioursand,whereappropriate,theirremunerationarrangementsshouldreflectthoseaspects.Atthemomentmanyexecutivedirectorsappeartofaceapotentialconflictbecausetheyareremuneratedonthebasisofthewayinwhichtheymanagethebusinesstomaximiseshort-termvalueratherthanpursuingthegoalofasustainablebusinessmodel.Generally,theseremunerationarrangementsseemtoplacelittleemphasisontheirbehavioursasdirectorsintheboardroomworkingonbehalfofshareholders’long-terminterests.
2.16 Intermsofdevelopingawiderperspective,boardsshouldshowmoreclearly,notleastintheirworkofsupervisingriskmanagementanddevisingthecompany’sriskappetite,thattheyarelookingforwardandout,aswellasbackwardsandin,includingbytheiruseofleadratherthansimplylagKPIs.
2.17 Theboardshouldexercisecompellingandrelentlessleadershipandshouldnotunderestimatethepowerofleadingbyexample–evidencedbyhighlevelsofvisibilityandintegrity,strongcommunications,anddemandingexpectations.Thisleadershipshouldbecleartoallwithintheorganisation,aswellasshareholdersandotherexternalstakeholders.
2.18 Theboardshouldconsciouslyandformallyagreeitsbehaviouralobjectivessoastoactasaunifiedbody,irrespectiveofthenatureofthetenureofindividualmembers,andtodriveboardprocessthroughaunitingsetofbehaviours.
2.19 Mechanisticissues–suchasthetimelinessofcirculationofboardpapers–canhaveadisproportionateeffectonthequalityofdecision-making.Otherorganisationalfeaturesofboardactivity–includingawaydays,andchangestothe‘establishedwayofdoingthings’–mayhelpinjectnewperspectivesintopracticeswhichhavebecometooconventional.
2.20 Thecompanysecretaryhasakeyroletoplayinhelpingboardsperformevenbetter.Insummary,theroleshouldbecomethatofthechair’schiefofstaff,orchef de cabinet,inhelpingtoassuredeliveryofawell-functioningboard.
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iii Conclusions
3.1 Generalconclusions
3.1.1 ICSAconsidersthatweaknessesintheapplicationofgovernanceprocesseslieattheheartofsomeofthecasesofcorporatecollapseandnearcollapse.AlthoughtheCodemaynotbe‘broken’,atleastfouruncomfortabletruthshaveemerged:
• well-runcompanieswerecapableofmakingstrategic,sometimescatastrophic,misjudgments; • riskmanagementwasnotproperlyoverseen,monitoredandreviewedatboardlevelandboards
werenotaddressinganddiscussingthecompany’sriskappetite; • remunerationandincentivisationwerenotalignedwithshareholders’objectives;and • disclosurefailedtoinformstakeholderssufficiently.
3.1.2 ICSAconsidersthatanalysisofthesefailuresrequiresaresponseatthreelevels:
• Institutional–arethecorporategovernancepoliciesandarchitecturefit-for-purpose? • Organisational–hasmanagementinstalledadequateprocessesandsystems? • Behavioural–aredirectorsexhibitingtheappropriatebehaviours?
3.1.3 TherequiredinstitutionalandorganisationalresponsesarebeinghandledbythescopeoftheWalkerandFRCreviews.Asagreed,therefore,ICSA’sresponsetotheWalkerreviewfocusesonthebehaviouralaspectsofboardperformanceduringthefinancialcrisis,andthewayinwhichboardsbehavemoregenerally,irrespectiveofsectorandeconomiccircumstances.
3.2 Specificconclusionsrelatingtoboardroombehaviours
3.2.1 TheevidencecollectedduringICSA’sconsultationexercisesuggeststhat,behaviourally,someboardshavebeenperformingtowhatmightnormallyhavebeenconsideredreasonablyhighstandards.Thenatureandscaleofthevaluedestruction,however,confirmsthatexistingstandardswereinadequate,andthatamorerobustapproachtocorporategovernancebehavioursisnecessary.Moreover,thelinksbetweenboardroombehavioursandtheinstitutionalandorganisationalcorporategovernanceissueswhichhavestilltobeaddressedaspartoftheWalkerandFRCreviews,confirmsthatgovernancebehaviourscannotbeviewedinisolation.
3.2.2 Asmattersstand,theabsenceofguidanceonappropriateboardroombehavioursrepresentsastructuralweaknessinthecurrentsystem.Furtherimprovementsinperformanceonbehavioursarenecessary,anditispossiblethat,hadsomeoftheguidancesuggestedinthissubmissionalreadybeeninplace,andobserved,someofthesubsequentfailuresincorporategovernancewouldhavebeenlesspronounced,andtheirconsequenceslesssevere.Inanycase,preventionofarecurrenceoftheeventsofthelastyearisatleastpartlydependentuponmorerobustguidanceonboardroombehavioursbeingincorporatedintheCode.
3.2.3 Aspartofitsapproachindevisingpracticalsolutionstothecurrentchallenges,ICSAiswillingtoprepareabestpracticeguidancenoteonhowboardscancreatethecircumstancesforimprovedboardroombehaviours.Nevertheless,ICSAisfirmlyoftheviewthatsuchaguidancenotewillnotinjectthenecessarylevelsofurgencyandobligationunlesstheCodeisalsoamended.
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3.2.4 ICSAconsidersthat:
• thecasehasstillnotbeensufficientlyarticulatedforthevaluesandbenefitswhichflowfromgoodcorporategovernanceand,therefore,thebusinesscaseforencouragingdirectorstopursuebestpracticewithenthusiasmandgenuinecommitment;
• better articulation of the business case for best practice corporate governance is likely to incentivise directors to exhibit appropriate boardroom behaviours more rigorously and more readily;
• despitetheforegoing,itisalsoreasonabletoassumethatsomedirectorsareincentivisedmore,oratleastasmuch,byfearoftheconsequencesofthingsgoingwrong;and
• in these circumstances, more focus on directors’ duties, responsibilities and potential liabilities, is likely to generate a heightened awareness of the need to exhibit appropriate boardroom behaviours more rigorously and more readily.
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iv recommendations
4.1 Fromtheseconclusions,ICSAconsidersitappropriatetorecommendthat,toprovidethenecessaryobligationandfocus,theCodeshouldbeamendedtoincorporatewordingorreferencesrelatingto:
• appropriateboardroombehaviours; • thebusinesscaseforpursuingbestpracticecorporategovernance; • directors’dutiesundertheCompaniesAct2006:particularlys172,thedutytopromotethe
successofthecompany;and • anaccompanyingbestpracticeguidancenoteonhowboardscancreatethecircumstances
forimprovedboardroombehaviours.
4.2 Theserecommendationsfallshortofcallingforamoreformalrequirementforboardroombehaviourstobeprescribed,orfortheretobeoversightoftheimplementationofthenew/existingprovisionsbytheFinancialReportingReviewPanelortheFSA.
4.3 SomeoftheobservationsinthisreportrelatemoredirectlytotheworkoftheWalkerandFRCreviews,andrequireresponsesfromthosereviewsiftheyaretobegivenpropercontext.ThelinksbetweenboardroombehavioursandinstitutionalandorganisationalaspectsofboardroomgovernancemeanthattherecommendationsmadebyICSAmayneedtobeaccompaniedbyadditionalCodechangesiftheyaretohavefulleffect.
4.4 TheFRCshouldconsiderwhetheritwouldbeappropriatetoendorseabestpracticeguidancenoteaspartoftheFRCassuminganenhancedleadershiproleindefiningthecharacteristicsofawellperformingboard,soastoencouragebehavioursintheboardroomthatenablecompaniestoattainandmaintaintheseappropriatestandardsofboardroombehaviour.TheFRCmaywishtoconsiderwhetherabestpracticeguideshouldformanappendixtotheCode.
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appendix a
BackgroundOn9February2009,theChancelloroftheExchequer,theSecretaryofStateforBusiness,EnterpriseandRegulatoryReformandtheFinancialServicesSecretarytotheTreasuryannouncedareviewtorecommendmeasuresforimprovingthecorporategovernanceofUKbanks,particularlyintermsofriskmanagement.Thereviewisbeingchairedbytheformerfinancialservicesregulator,SirDavidWalker.
Scope of reviewThereviewwillexamineboardmanagementofrisk(includingtheeffectivenessofriskandauditcommittees),incentivestomanageriskinbankremunerationpolicies,thecompetencesneededonbankboards,boardpracticesandstructures,andtheroleplayedbyinstitutionalshareholders.ThereviewwillpresentpreliminaryconclusionstocommissioningMinistersintheautumn,andmakefinalrecommendationsbytheendoftheyear.
Inlaunchingthereview,theChancelloroftheExchequersaidthat‘…itisclearthatcorporategovernanceshouldhavebeenfarmoreeffectiveinholdingbankexecutivestoaccount.’TheBusinessSecretarystatedthatthereviewwasneededtoensurethat‘…wehavecompetent,well-runandtransparentboards,whichareengagedwiththeirshareholders,andcapableofunderstandingandmanagingriskeffectively.’Finally,theFinancialServicesSecretarypointedoutthattheissuewasnotsimplyonefortheboardsthemselves–‘Boardsareeffectiveonlywhenheldtoaccountbyvigorousandalertownerswhodevotethetimeandeffortneededforengagement.’
ICSA’s response to the Walker Review FollowingameetingwithTreasuryofficialson12March,itwasagreedthatICSAwouldcontributetothereviewbyconductingresearchon‘appropriateboardroombehaviours’.ThebasisforthisworkwasthepositionICSAhadadoptedinrelationtocorporategovernanceissues,particularlythroughtheICSAHermesTransparencyinGovernanceAwards,itsspecificexpertiseas‘owners’ofboardroomprocess,thespecialprivilegeenjoyedbymanyofitsMembersintermsofboardroomaccess,andtheprofessionalqualitiesofitsMembersintermsofindependenceandintegrity.
Review of the Combined CodeThechairoftheFinancialReportingCouncil(FRC),SirChristopherHogg,announcedatICSA’sCorporateGovernanceConferenceon18MarchthatitintendedtoreviewtheoperationoftheCode.GiventherelevanceofICSA’swork,itwasagreedthattheoutputsfromICSA’sresearchfortheWalkerReviewwouldbesharedwiththeFRC.
Consultation processICSAistheprofessionalbodythatqualifiesCharteredSecretaries.ManyofourMembersarecompanysecretariesinpubliclistedcompaniesandtakeresponsibilityforensuringthattheCodeisembeddedinthegovernancestructureofthecompany,andthatappropriatedisclosuresaremadeaboutcorporategovernancetothecompanies’shareholders,usuallythroughtheannualreport.Theirpresenceintheboardroom,andtheirdirectrelationshipwiththechairman,givecompanysecretariesaclearperspectiveontheeffectivenessorotherwiseoftheCodeinencouragingthemostsuitablegovernanceframeworkfortheirparticularcompanies.
ICSAconsidersthecurrentexerciseanimportantopportunitytocontributepracticalideastotheWalkerandFRCreviewsonanychangesneededtorestoretheperception,andreality,ofUKcompaniesaswell-run,value-creatingandaccountable.
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ProcessICSAdevisedaquestionnaire(seeAppendixB)seekingtheviewsofmembersofthecompanysecretarycommunityonanumberofboardroomgovernance-behaviourissues.Thequestionnairewaspre-testedwitharepresentativerangeofMembers,andcirculatedwidely,includinginICSA’smagazine,Chartered Secretary,andonICSA’swebsite,aswellastothecompanysecretariesoftheFTSE350directly.
ThequestionnairewasusedastheframeworkfordiscussionataseriesofworkshopshostedbyICSAatitsheadquartersinLondonon11May2009,withagoodrepresentationfrombothFTSE100companiesandthosefromthewidercompanysecretarycommunity,andconductedunderChathamHouserules.ICSAconsiderstheviewspresentedintheexerciserepresentanauthoritativeperspectiveonthecurrentstateofboardroombehavioursinsidelargerUKcompanies.
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appendix BBoardroom behaviours – questionnaire
Questions1. Towhatdegreedoyoubelieveyourboard,anditsdirectors,areresponsiblefordefiningthe
cultureandbehavioursoftheorganisation?Isthisanessentialpartofensuringthebusiness’slong-termsustainability?
2. Doyoubelievemoreworkisneededtoensurethattheappropriateorganisationalcultureisobserved,andthecompany’sspecificvaluesexhibited,bydirectorswhenmakingboard-leveldecisions?Ifso,how?
3. Dodirectorsfeelencouraged,orinhibited,indisplayingthenecessarybehavioursintheboardroomtoenablethemtochallenge,independently,theviewsofcolleagues?Pleasegiveexamples?
4. Doyoubelieveadifferentapproachtogovernancebehavioursorotherprocessesintheboardroomcouldhavechangedthewayinwhichdecisionsweretakeninrelationtorecentwell-documentedcasesofvaluedestructionand(near)corporatecollapse?Ifyes,how?
5. HowdoestheCombinedCodeplayaroleinencouragingtheappropriateboardroombehaviourstodeliverhigh-standardgovernance?Ifitdoesnot,whatrecommendationswouldyoumakeforimprovingboardroomgovernancebehaviourthroughtheCombinedCodemechanism?
6. Intermsofstrengtheninggovernancebehaviours,isthereagreaterroleforinduction,continuedprofessionaldevelopmentandassessmentinimprovingtheknowledge,skills,experience,judgementandindependenceofdirectors?
7. Assumingthattransparencyfacilitatesaccountability,andcreatestheconditionsforengenderingtrust,wouldgreaterdisclosureonboardroomprocess–includingintheannualreport–facilitateorhinderdesiredchangesinboardroombehaviour?
8. Whichprovidesthegreaterincentivefordirectorstoconsidertheimportanceofboardroombehaviours–theriskof‘punishment’(e.g.underthedirectors’dutiesprovisions)ortherewardof‘recognition’(e.g.throughremuneration)?
9. Towhatdegreeisthechairthepersonwhosebehaviourmostneedstochangeifthebehaviouroftheboardasawholeistochange?
10. Whichspecificaspectsofboardprocess–includingtimepressuresandthetimelinessofcirculationofpapers–mostmilitateagainsthigh-qualitydecision-makingbyboards?
11. Whatstepsmightbetakentoencourageboardstounderstandthattheyare‘onestepdown’fromtheowners,ratherthan‘onestepup’fromexecutivemanagement?
12. Howmightinstitutionalinvestorsplayaroleinchangingboardroombehaviours?
13. Doyoufeelthattheannualevaluationoftheboardanditscommitteesisgenuinelyformalandrigorousandthatareasforimprovementarefollowedupinaconsistentway?
14. Asregardsriskmanagement,doyoufeelthatyourboardisinvitedtoreviewtherightsubjectsandisprovidedwiththenecessaryinformation?
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appendix C
TheInstituteofCharteredSecretariesandAdministrators(ICSA)istheprofessionalbodyforCharteredSecretaries.ICSA’sRoyalCharterwasgrantedon4November1902,elevenyearsafterICSAwasfoundedin1891.UndertheCharter,theInstitutehasasitsobjective‘thepromotionandadvancementoftheefficientadministrationofcommerce,industryandpublicaffairs’.
CharteredSecretariesworkascompanysecretaries(someofthemfortheleadingpubliccompaniesinBritain),shareregistrars,charitysecretaries,seniormanagers,sometimesasboarddirectors,andinmanyotherrolesatthesenioradministrativeoroperationallevelintheprivate,publicandnot-for-profitsectorsoftheeconomy.Inlargecompaniestheroleofthecompanysecretary(manyofwhomareCharteredSecretariesqualifiedbyICSA)encompassesaconsiderablenumberofresponsibilitiesthatcollectivelyfacilitatetheefficientrunningoftheboardandtheorganisationanditscompliancewithallapplicablelawandregulation,andbestpracticeincorporategovernance.
ICSA:• qualifiesCharteredSecretariesthroughitsqualifyingschemes;
• setsandmaintainsstandardsofbehaviourandcompetence;
• enforcesastrictcodeofconductwithwhichallCharteredSecretariesarerequiredtocomply;
• supportstheprivate,publicandnot-for-profitsectorwithprofessionalresources;
• workswithitsMembersandgovernmentalandotherstatutorybodiestopromotebestpracticeandprovidesguidanceongoodgovernance;
• promotestheimportanceofgoodcorporategovernanceandthevalueofCharteredSecretariestoemployers,andconsultsitsMembershiponrelevantproposedlegislativechange;and
• publishesguidancenotesandbestpracticeguidesandthroughitssubsidiariesprovidesevents,informationandtraining,boardroomevaluationanddedicatedsoftware.
ICSAhas36,000Membersand27,000studentsinover70countries.ICSA’sheadquartersareinLondonwithseparateoperatingdivisionsintheUKandRepublicofIreland,Australia,Canada,HongKong,Malaysia,NewZealand,Singapore,SouthAfricaandZimbabwe.Asaglobalprofessionalbody,ICSAisuniquelyplacedtocommentontraining,regulatoryandbusinessissues.
TheprofessionalstandingofCharteredSecretariesisstrengthened,innosmallpart,bytheirrecognitioninstatutoryprovisions.Forexample,Section273oftheCompaniesAct2006statesthatMembersofICSAarerecognisedasqualifiedtoholdtheroleofCompanySecretaryinpubliccompanies,alongsidemembersofotherprofessionssuchasaccountantsandsolicitors.Section43(2),(3)and(4)oftheCharitiesAct1993asamendedbyStatutoryInstruments2008No.527statesthatCharteredSecretariescan,inadditiontoaccountants,actasindependentexaminersfortheannualauditofcharityaccounts.StatutoryprovisionsrecognisetheroleofCharteredSecretariesasMembersofaprofessionalbody,ICSA.
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