small change: all boards – listed, private, family, even golf clubs and especially law firms – should apply the FRC Code. ‘Tis a work of “art”…

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small change
by
Ciarán Fenton
How small changes in your behaviour have a big impact on how you work, lead and follow.
That’s the working title of a book I’m writing, initially as a series of short blogs.
You can see the full blog index here as it builds.
Blog 47 small change: all boards – listed, private, family, even golf clubs and especially law firms – should apply the FRC Code. ‘Tis a work of “art”…
•When I say “board” I mean: main & operating boards, ExCos, and management teams
the frc code is a woek of art
If your board wants to avoid, what lawyers euphemistically term “serious risk events” then it should apply the FRC UK Corporate Governance Code 2018 and follow the accompanying Guidance on Board Effectiveness 2018, whether it has to or not.
Your board should  not feel that it is too small or “unimportant” or be in any way daunted by the Code, for ’tis a work of “art” for three reasons:
  • it’s short: only 15 pages
  • it’s clear: simple English used throughout
  • it focuses on the “art” of good govenrnace, not the science

In addition, the accompanying FRC Guidance on Board Effectiveness 2018 is excellent because:

  • it’s also short, for a guide: only 45 pages
  • it’s also clear: simple English used throughout
  • it contains lists of great questions under each section: what I call “questions a curious Martian might ask”

The “best bits” of the Code for me if, like a good book, a Code can have “best bits”, are these, with keywords in bold:

  • 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. (Section 1; Principle A)
  • The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture. (Section 1; Principle B)
  • An “annual evaluation of the board should consider…how effectively members work together to achieve objectives”. (Section 3; Principle L)

The Guidance also contains gems:

Section 116  states: “The chair is responsible for making sure the board gets the most from an externally-facilitated board evaluation and should ensure it is not approached as a compliance exercise. The chair is likely to find the board evaluation process more valuable if:

  • its recommendations are constructive, meaningful and forward-looking;
  • there is a clear set of recommendations and actions, and a time-period for review of progress against agreed outcomes by the evaluator with the board;
  • it includes views from beyond the boardroom, e.g. shareholders, senior executives who regularly interact with the board, auditors and other advisors, and the workforce;
  • it includes peer reviews of directors and the chair plus feedback on each director;
  • good practice observed in other companies is shared;
  • the evaluator observes the interaction between directors and between the chief executive and chair;
  • there is a robust analysis of the quality of information provided to the board;
  • feedback is provided to each individual board member;
  • and the board is challenged on composition, diversity, skills gaps, refreshment and succession.

What’s not to like?

In addition, it’s divided into five logical and useful sections:

  1. Board Leadership and Company Purpose
  2. Division of Responsibilities
  3. Composition, Succession and Evaluation
  4. Audit, Riks & Internal Control
  5. Remuneration

In my facilitation work with boards, my key focus is on the interdependence between the personal purpose, strategy (PSB) of board members, the PSB of the organisation and the PSB of the board.

Frequently I find that the systemic weakness on a board is a lack of shared purpose at a personal, organisational and board level.

If there is no clear shared purpose then it follows that strategy and behaviour will be inconsistent.

This leads to poor decision-making, the main purpose of any board.

The FRC Guidance asks good Martian-type questions on this issue (page 13):

“Questions for boards

• Have relevant members of the executive team been invited to explain the issues at the earlier stages, enabling all directors to share concerns or challenge assumptions well before the point of decision?

• Does the board have a clear idea of the success criteria related to a particular decision?

• What are we doing to test key decisions for alignment with values? Can we give examples and explain how this was considered?

• What are the risks that the decision could encourage undesirable behaviours or send the wrong message?

• Can we explain how the impact on key stakeholders has been taken into account?” (Guidance on Board Effectiveness, Page 13)

Reflection for you based on the Guidance:

  • Think about the last three key decisions your board – main, operating, ExCo or management team – took
  • What process did it use?
  • Had it used the process above, how different would the decisions have been?

 

A question of mine:

To what extent did one individual’s behaviour play a part in the decision?

 

Ciarán Fenton

 

 

 

 

 

 

 

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