Independent External Board Evaluations every three years became a key element of the 2010 Governance ‘Code’. Since then, there has been a growing development and focus on the Board as an independent entity. The ‘2010 Code’ stimulated an increased depth of Board effectiveness evaluation across the FTSE 350 and allied companies and organisations who now use the ‘Code’ as a benchmark of governance excellence.
This improved independence, development and effectiveness of Boards is not solely down to the Independent External Review, but to a quartet of self-reinforcing elements stimulated by the ‘Code’:
A major upgrade in the Governance ‘Code’ itself in 2010 following the ‘Financial Crisis’, which provided a strengthened framework for Board governance and effectiveness.
The nine-year tenure ‘rule’ in the ‘Code’ which reinforced independence and dynamic renewal of NED’s on Boards.
The increasing diversity, professionalisation, governance focus and a younger age profile of NEDs, has seen a natural progression for both male and female executives seeking to continue their contribution and enthusiasm to ‘corporate’ life.
Finally, the three-year Independent External Board Effectiveness Review has provided a regular mechanism for the Board, as a whole to take an external temperature of how it is doing as an effective Board entity.
Prior to the 2010 ‘Code’ the best of our companies saw high Governance Standards and Board Effectiveness as a mark of excellence for their company. However, the past 13 years has increased the depth of this view across the FTSE 350, with a marked uptick in the illumination and profile of Board standards, activities, responsibilities and accountabilities. There is now a much more ‘agreed’ sense of what makes for an effective Board. NEDs, SIDs and Chairs are much more aware of the part they play in the effective oversight and strategic sustainability of the company and see effective governance as part of the selection criteria when they seek to join a new Board.
The Board Review itself has been going through its own evolution, emerging from a medley of approaches, to gain some sense of the principles and content that should drive a cogent and convincing Board Review process. This improvement was driven by some of the leading practitioners in the field contributing to the search for an agreed approach and set of principles. This in turn became the catalyst for the consultation on and the creation of a Code of Practice for Board Reviewers under the auspices of the Department for Business, Energy & Industrial Strategy, published in 2021, which now resides with ICSA-The Governance Institute. (Initiated at the behest of Sir David Walker who asked our team to spearhead the process). (https://www.cgi.org.uk/knowledge/board-evaluation-report
This Board Reviewers Code has been in place for 3 years and is gaining increasing traction with Companies and Practitioners as a guiding light for conducting an effective Independent External Board Review. It is now being updated to reflect usage and evolving practice feedback, with views being co-ordinated by ICSA- The Governance Institute.
The newer generation of NED ‘get this’ having been subject to a lifetime career of performance reviews, governance and business oversight. They see the review of their activities as a Board as completely within the ‘norm’, to which they too should be exposed, as they seek to provide review and oversight on the organisations over which they preside.
Anyone wishing to comment on the Code of Practice for Board Reviewers should make their views known to ICA-The Governance Institute.
Further links
The code of practice: https://www.cgi.org.uk/assets/files/pdfs/Publications/code-of-practice.pdf
Principles of Good Practice for listed companies using external board reviewers: https://www.cgi.org.uk/assets/files/pdfs/Publications/principles-of-good-practice-for-listed-companies.pdf
Guidance on reporting on board performance reviews: https://www.cgi.org.uk/assets/files/pdfs/Publications/reporting-on-board-performance-reviews.pdf
