Although a lot of the “ideal” Board” criteria are aimed at larger and listed companies, other organisations should also strive for “best practise” where possible and start out in the way they want to continue.

The ideal Board should be simultaneously entrepreneurial to drive the business forward while keeping it under prudent control with appropriate financial and risk expertise – the entrepreneurial drive and Corporate Governance are polar opposites so it is essential that a Board has Directors in both camps.

The ideal Board should be sufficiently knowledgeable about the workings of the company, be answerable for its actions, yet be able to stand back from the day to day management of the company and retain a long term view. In order to do this successfully a balance of skills and types of personalities is required around the Boardroom table.

The Board should be sensitive to the pressures of short term issues and yet be informed about broader long term trends and should focus on the commercial needs of the business while acting responsibly towards its employees, business partners and society as a whole.

The “ideal” Board should:

  • Set itself regular performance objectives and regularly review its achievement against the objectives it sets and have a significant input to the company strategy and its development.
  • Be both entrepreneurial and deliver robust and effective risk management – this requires a diversity of skills, personalities, gender and knowledge so it can debate healthily and deliver against future strategies; this helps to avoid “group think” whereby all the Board view things in the same way and problems get overlooked.
  • Be up to date with all regulatory legislation and market activity in particular with competitive developments and must be able to respond constructively and quickly to problems or crises.
  • Be well led by an effective Chairman who delivers relevant papers covering the appropriate subjects on the board agenda for consideration by the Board.

Non-Executive Directors:

As per the Corporate Governance Code except for smaller companies at least half the Board excluding the Chairman should comprise Non-Executive Directors who are truly independent. A smaller company should have at least two independent Non-Executive Directors.

The Non Execs should be well prepared and well informed for each Board meeting, having read the papers thoroughly, devoting sufficient time and effort to understand the company and its business.

They should make strong contributions to Board meetings especially on the development of strategy and risk management. They should be resolute in maintaining their views whilst constructively resisting pressure from others and effectively follow up areas of concern.

They must have good relations with other members of the board, the CoSec and senior management and listen constructively to their colleagues.

The role of the Chairman:

Good Boards are created by good Chairmen. The Chairman creates the conditions for effective Boards and the effectiveness of individual Directors. It is the responsibility of the Chairman to lead the Board, manage Board Meetings by setting the Board agenda ensuring the Board Pack is not too big (a maximum of 80 pages).

The Chairman should provide strong but not dominant leadership of the Board including the Non Execs, whilst encouraging all Board members contribute and robustly debate all key issues. He/she must ensure the effective implementation of Board decisions.

The Chair should ensure there is an annual assessment of the board’s performance and its individual members and have a close working relationship with the Managing Director but challenging where necessary.

Good Chairmanship will often go “unremarked”.

Board Evaluations:

A Company’s Board should undertake an annual evaluation of its own performance and the evaluation should include a “competency and skills” evaluation to ensure that the company has the breadth and depth of skills it requires to debate issues effectively. The Chairman is responsible for addressing any weaknesses that the Board has identified.

Remuneration Committee:

There should be a formal and transparent procedure for developing policy on executive remuneration and no Director should be responsible for deciding his or her own remuneration.

Audit Committee:

The Audit Committee should present to the Board a balanced and understandable assessment of the company’s position and prospects based on sound systems of internal control and meet regularly to monitor financial info, and provide regular reviews of controls and audit function.

Nomination Committee:

This Committee is often thought of as the weakest committee but if a company’s Board is going to be effective it needs the right Non Execs – truly independent with the rights skills and available time to understand the business and contribute effectively. A Board needs a cross section of skills to cover all the key areas: strategy, sector & operational expertise, entrepreneurial flair, finance and risk.

Nomination Committees do not always approach Board appointments in a ‘professional’ or ‘scientific’ manner and are often unduly influenced by either deep rooted ‘traditions’ or fashionable causes and they should take professional advice when determining the role and capabilities required for a particular appointment. 

It should lead the process for Board appointments and make recommendations to the Board and identify what skills and competencies the Board requires and fill the gaps with suitable Non Execs; they should manage these appointments so the Chairman and/or CEO don’t dominate the process.

It should ensure that the Board has a diversity of background, gender, thought and most importantly skills.

Shareholder Relations:

The Chairman, MD, Finance Director and Non-Executive Directors should have regular dialogue and meetings with shareholders. The Chairman is responsible for ensuring that the Board are aware of shareholder views.

Above article also published in The European Magazine. (see link below)

http://www.the-european.eu/story-4371/meet-the-ideal-board.html

Chris Spencer-Phillips MD

First Flight Non-Executive Directors Ltd

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