by Shoosmiths, March 10th, 2011
This is a busy time for anyone involved in corporate governance issues.
It is widely agreed that good corporate governance practices result in stronger boards, underpin a company’s strategy and support business sustainability and success, and there is no shortage of codes, rules and guidance designed to achieve this.
The Financial Reporting Council (FRC) has published its Guidance on Board Effectiveness, replacing the Higgs Guidance issued five years ago. This is designed to support good practice and to help the boards of listed companies understand and implement the UK Corporate Governance Code.
Most importantly, it delivers practical advice to boards on how to apply the Code to improve their effectiveness. The Guidance is not prescriptive – it is intended to stimulate thought on how boards may carry out their role more effectively.
What makes an effective board?
The board is there to provide entrepreneurial leadership within a framework of prudent and effective controls which enable risks to be assessed and managed. Features of an effective board are listed – challenge and teamwork are considered essential, and diversity in board composition is an important driver.
The chairman’s role is to create the conditions for overall board and individual director effectiveness. New guidance is that the chairman must demonstrate ethical leadership, ensure a timely flow of high-quality supporting information, and ensure that there are no ‘no go’ areas. These are areas which prevent directors from operating effective oversight of significant risks. The chairman must also make certain that the board applies sufficient challenge to major proposals. (continue reading… )