CEOs: 7 reasons why the FRC Code is your unlikely roadmap through COVID-19, even for SMEs

Simon Sinek is unlikely to shout out “Start with the FRC Code”.

You won’t find a Ted Talk titled “FRC – The Cool Code out of COVID City.

Nor will #CorpGov be trending any time soon.

J A Sutherland writing in his book Ensuring General Wisdom: The critical role non-executive directors and trustees play in executive performance says “No-one leaps out of bed in the morning, breathes deeply and cries: “today I am going to govern corporately”.

Let’s face it; the term corporate governance is a bit boring. J A Sutherland believes corporate governance is about good leadership. He’s right.

Amid the COVID-19 pandemic, there’s a secure link between good leadership, good governance and getting your organisation through the crisis and out the other side.

If you’re lost, you need a map. And many CEOs, although they wouldn’t necessarily admit it, are lost as to how to lead their organisations at this time. They need a map. The UK FRC Code on Corporate Governance 2018 is an unlikely map for CEOs, even for SMEs and those organisations not obliged to comply with it. Here are seven reasons why: 

  1. It’s mercifully short at a time when you need brevity: the authors must have followed Churchill’s advice and went through the pain of writing a short document when it would have been much easier to write a long rambling one. It’s only 15 pages long.
  2. It’s clear at a time when you need clarity: the Code is written in plain English favouring sentences with ordinary nouns and verbs, especially the modal verb “should”. You are left in no doubt as to what you should do.
  3. The Code is well structured for your needs during COVID: five sections covering leadership/purpose – yours as CEO and perhaps the urgent need now to reframe your purpose; responsibilities – these may have to change; composition/succession/evaluation – do you have the right people on the bus for this time?; audit/risk/internal control – these three invariably suffer in a crisis and finally remuneration – well, it’s not as if that won’t be top of mind, is it?
  4. Each Section sets out clear Principles at a time when you need to reduce board and team conflict by everyone first signing up to agreed Principles. Arguments when they arise, as they surely will, will be settled faster in the light of these Principles.
  5. Each provision in each Section is practical, actionable and relevant to your organisation’s needs during COVID-19 unless it is evident that a Provision doesn’t apply to your organisation because of its size. There are not many of those.
  6. The Code does not favour a tick-box approach. It is strong on behaviour and a good thing too since your organisation’s survival in this crisis depends on your, and your team’s conduct and the definition of conduct is behaviour over time.
  7. Finally, an excellent set of notes, titled, The FRC Guidance on Board Effectiveness 2018 accompanies the Code. These expand on each Section of the Code with useful lists of questions.

If I were facilitating your next COVID crisis meeting, I would start with three from the first set of questions in the Guidance on Page 4 because the temptation now may be to focus on cutting costs and maximising cash which may be the wrong strategy. These questions would help CEOs and boards stop and reflect in order to agree a new strategy in the light of the pandemic.

  • What proportion of board time is spent on financial performance management versus other matters of strategic importance?
  • How will we assess and measure the impact of our decisions on financial performance, the value for shareholders and the impact on key stakeholders?
  • Are shareholders driving the company to act in a way that is out of line with its purpose, values and wider responsibilities?

Those three simple questions should bring more light and less heat to any crisis discussion at this time.

You can download the Code here: https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.pdf

And the Guidance here: https://www.frc.org.uk/getattachment/61232f60-a338-471b-ba5a-bfed25219147/2018-Guidance-on-Board-Effectiveness-FINAL.PDF

Ciarán Fenton

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