Board Reviews- The New Direction

Typically this has led to a Board Effectiveness Review being based upon assessments of management procedures being in place and executed to a high standard. For example, Board Terms of Reference, Board and Sub-Committee composition, skill sets of Board Members, quality of Board Information Packs, and the quality of minutes and follow-through on agreed actions/conclusions. 

Given that it is accepted good practice that a BER should happen about every third year then, surely, successive BERs conducted on the same basis will lead to diminishing returns in respect of possible improvements. So, has the time come for a change of emphasis when your next BER is due?

Our experience of working in smaller financial services businesses leads us to believe that many of them are now heading into their third or fourth Board Effectiveness Review and will now learn little that is new, or of cost-effective value to them. We think this can be changed by altering the scope of their next BER and one way to do this is to follow the evolution that has occurred in the Regulator’s aspirations.

Both the PRA and the FCA have evolved since the financial crisis and the shift has been from “rules-based regulation” to “principles based regulation” to “outcomes based regulation”. All three versions are still there but it is clear to us, from our contact with firms and the regulators, that there is an emphasis on the latter. There is no more powerful demonstration of this than the arrival of the outcomes-based “Consumer Duty Rules”, which on the 31 July 2024 will have been in place for a year. A second, strong example is the rapid re-write by the FCA of the Listing Rules because an unacceptable outcome of the old rules was a flight by companies, who could have listed on the London stock markets, to listing in the USA or Europe.

We believe the major component of your next BER should be an assessment of how effectively the Board identifies, specifies, implements and then monitors the outcomes it wants to achieve for its stakeholders (and which the regulators expect it to have in place). At Mutual Governance, we work mostly with smaller mutual financial services firms, who have limited resources and can find developing outcomes-based approaches challenging.

Of particular importance to the FCA, in its expectations for implementation of Consumer Duty, is firms’ monitoring of success with excellent management Information evidencing the degree of improved outcome achieved. Please ask yourselves what has the Board done to ensure this happens? It’s not the responsibility of the “IT guys” or any of the various outsourced providers being deployed. It’s the Board’s and one way to get an independent view and good guidance on what you need to do is by making it the main part of your next Board Effectiveness Review. 

If you’d like to discuss this further or if you need any assistance with your BER then please do get in touch.