Fantasy letter to a Chair from a board evaluator:
While I’m sure you will find a way of asserting in next year’s annual report, as you did last year, that your Board complies with FRC/QCA/Wates codes and principles I feel I should draw your attention to the following seven statements by members of your board made during the course of my evaluation:
– while we may comply with the code, behind the scenes the board is utterly & behaviourally dysfunctional
– the Chair is too weak/too overbearing/in post too long
– excellent recommendations from last year’s board evaluation were not implemented because they would have increased external oversight
– we don’t believe in all this ESG stuff and are totally sick to the teeth of ‘purpose’.
– some of the NEDs are lazy, don’t read the papers and terrified of challenging the Chair because they feel lucky to be NEDs at all
– most of the key decisions are made before board meetings; I wouldn’t be surprised if the minutes are too
– [Interestingly] I want us to ‘do’ ESG well but the board doesn’t know how
Of course this list will never see the light of day nor will it be addressed by your board.
But it does raise the question as to the return on investment in your board evaluation process and the value of your Corporate Governance statement in your Annual Reports.
For sure the codes force you through a public corporate governance process and “to comply or explain” and, at a level, to reassure stakeholders that the basics are in place, and while you do privately address some matters arising, it’s a lot of work and expense if it doesn’t lead to a measurable increase in board decision-making performance. For if not that, what is your board for?
What if this year, Chair, you took a different approach and since you have total control and responsibility over corporate governance you were to issue the following memo to your directors:
To: Main Board Directors, GC/CoSec
From: The Chair
Subject: The Board Evaluation Process
I’m concerned that the ROI from our annual board evaluation process in terms of time and money is too low. Our decision-making performance is not measurably improving.
In recent years all three codes and principles – FRC/QCA/Wates have been updated and are excellent frameworks for reflection.
But despite regulators’ appeal to us not to take a tick box approach, we do. We will in this year’s annual report, as we did last year, assert that we comply – in our case – with the QCA code. It would be odd, would it not, if we didn’t?
And yes, last year, we did privately address some of the matters raised by the evaluator but, hand on heart, we didn’t address any of the sensitive issues, did we?
For example, I happen to know that some directors are unhappy with my performance and that of some of the NEDs but that has not been addressed at all.
Nor has the complaint from some NEDs, including me, that the CEO and the CFO sometimes tightly manage the board pack to the point of censorship.
I’m also concerned that the GC/CoSec, who is meant to be independent under SRA regulations, just isn’t as they report to the CEO and not to me. You all will have witnessed evidence of the impact of this on some key legally and ethically borderline decisions we made last year.
The QCA code we use is excellent but we waste it. Not this year.
So while nothing will change in our Annual Report, because we don’t make the reporting rules, everything will change in the matters arising process. The evaluator will facilitate a closed-door, no minutes, no-holds-barred series of workshops on matters arising.
For a start, we willl spend far more time this year debating the first three Principles of the QCA Code:
1. Establish a strategy and business model which promote long-term value for shareholders
2. Seek to understand and meet shareholder needs and expectations
3. Take into account wider stakeholder and social responsibilities and their implications for long-term success.
We have a clear strategy and business model – but let’s not kid ourselves: it’s resolutely short-term.
We all know that we pander to some shareholders and ignore others.
As for “wider stakeholders” we know we haven’t gone through the pain of changing from a shareholder to a stakeholder model . Have we?
Next year I want to see a measurable increase in our decision-making performance under the QCA Code.
End of Memo.
Chair, what’s stopping you from sending a Memo like that?
Your Board Evaluator