Board Effectiveness Review- Improve the Performance of your Board
The UK Corporate Governance code recommends that FTSE 350 companies or their equivalent, should be evaluated with external assistance every three years. The UK financial services regulators suggest that if a firm falls under the Solvency II regulations, they too, should look to do the same. Non- directive firms may decide to do so as part of best practice management. Regardless of firm size, a Board Effectiveness Review can benefit all boards
By Clare Owen, Director
updated March 2024
Unsurprisingly, the 2008 financial crisis resulted in the scrutiny of Firm’s governance and risk management strategies. The UK Corporate Governance Code is the benchmark of good corporate governance practice and, within the financial services sector, credit is given by regulators to firms that follow the guidance of the Code. An externally assisted Board Effectiveness Review provides the opportunity for firms to review current policy and practice in line with the Code and to examine areas for improvement.
Board evaluation is sometimes viewed as a ‘tick box exercise’ rather than a transformative process. Of course, regulatory and institutional drivers are a valid reason to evaluate board effectiveness, yet many firms now acknowledge the added value of an external evaluation. Many firms have addressed specific issues, enhanced current practice, improved performance and unlocked talent through an external evaluation of their board.
A Board Effectiveness Review can assist boards to navigate and prepare for the many and varied demands of regulatory requirements.
Due to significant regulatory requirements, 2024 is shaping up to be a busy year for financial services firm’s boards. The FCA’s Consumer Duty requires a cultural shift for many firms, and boards are required to provide thorough and meaningful oversight and challenge of their firm’s Consumer Duty outcomes via analysis of Annual Board Reports. Many firms will undertake this exercise for the first time this year.
Both the FCA and PRA have published Diversity and Inclusion Consultation Papers (CPs), with final regulatory requirements to be published in a Policy Statement due in 2024. The CPs outline proposed measures to support healthy work cultures, reduce group think and unlock talent. Many in scope firms will be required to create a Diversity and Inclusion Strategy, to be embedded through effective board governance. In addition to this, the PRA proposes to require some firms to have and publish a strategy specifically promoting diversity and inclusion on the board.
Why Externally Evaluate?
Conducting an evaluation of the board by an external 3rd party can bring objectivity to the process, and the value of such an evaluation is increasingly recognised by both chair and the regulators.
An external Board Effectiveness Review can help your firm to build a better board through:
Fresh Perspective -most notably, a specialist external facilitator can add perspective which a board would otherwise not be able to access. Furthermore, an externally facilitated review will enable a firm to benchmark performance against industry peers, adding valuable insight. A rigorous board evaluation can identify areas of strength and weakness, leading firms to make changes that positively impact performance and stakeholder value.
Framework Assessment – undoubtedly, successful Governance is based on the assurance that the Leadership Team are performing to high standards in a well – defined governance framework which meets regulatory standards. Assurance of this involves suitability of the framework itself, the individuals concerned and the team as a unit.
Behavioural Analysis – an independent evaluation can provide essential insight into the behaviour of a board through examination of key areas such as teamwork and communication. Frequently, research has shown that behavioural factors can have a far greater impact on a firm’s performance than pure governance.
Value Added?
The challenge for every board is to add value to the organisations that they govern. With this in mind, a specialist, independent evaluation can recommend improvements and add value on three levels: the organisation, board and individual director. At the organisational level, an evaluation can develop and improve “the tone at the top” and culture of the organisation. At board level, strategic focus and decision taking can be honed. At director level, increased effectiveness of individual contributions and ability to challenge can be developed.
So why delay? Plan now for an externally assisted assessment early this year and bring your board up to a whole new level!
If you wish to develop this opportunity further please contact us for a discussion.