Southern Africa DivisionCentenary Conference

September 2009

Better Boardroom Behaviour

Seamus Gillen BA(Hons) MBA FCISSenior Policy Adviser ICSA UK

•Risk•Board Support•Boardroom Behaviours

ICSA’s focus

Benefit – best practice governance as a business facilitator and not a business killer. The value proposition – maintain and grow the legitimacy, credibility and capability of the company to deliver the business plan and strategy

Failure – failure to perform at a satisfactory level can carry negative consequences. Behavioural change in the Boardroom will also be driven by taking account of directors’ duties, responsibilities and potential liabilities 

Business case for best practice governance

Walker

“..board level engagement in the high-level risk process should be materially increased with particular attention to the monitoring of risk and discussion leading to decisions on the entity’s risk appetite and tolerance”

FRC

“Should the board’s responsibility for strategic risks and setting risk appetite – as set out in the Turnbull Guidance – be made more explicit in the Code? Is the current balance between the Code and the Guidance right?”

Regulators’ views on risk

The Code should encourage the establishment in listed companies of an adequately resourced company secretariat, headed by a company secretary appropriately experienced in matters of law, regulation, secretaryship, accounting, business finance, strategy, ethics and governance, with a reporting line to the chairman.

The Institute’s view on the Secretary

FRC

‘The role of the company secretary was considered important to the effective functioning of the board. Various proposals were put forward for increasing its effectiveness, for example through greater resource, more clearly defined responsibilities or a change of reporting lines’.

The Regulators’ view on the Secretary

Walker

‘There has been extensive comment to this Review on the importance of assuring fully adequate and dedicated internal support for NEDs. A practical process, used in several cases, is through installation of a dedicated resource under the group secretary – which can also coordinate arrangements for induction and training. Where the group secretariat is the focal point for such support, adequate resourcing in terms of available time commitment and capability will be required.

… external (adviser) involvement would be unlikely to provide more continuously dependable support than that provided by the company secretariat ...’

The Regulators’ view on the Secretary

Improvements in behavioural practice will also be built on a deeper understanding of the relevance of, and emphasis on, culture, vision and values – informed, in turn, by greater buy-in to the importance of the relationship between issues of disclosure, transparency, accountability, confidence and trust. Business-critical areas as much for Boards operating in steady state as for those contemplating strategic or corporate change.

Reputational risk – the ultimate driver

Walker

‘… principal deficiencies in [bank] boards related much more to patterns of behaviour than to organisation. The most critical need is for an environment in which effective challenge of the executive is expected and achieved in the boardroom...As part of their role as members of the unitary board of a [bank], NEDs should be ready, able and encouraged to challenge and test proposals on strategy put forward by the executive....’

Regulators’ views on behaviours

FRC

‘There is a recognition that the quality of corporate governance ultimately depends on behaviour not process, with the result that there is a limit to the extent to which any regulatory framework can deliver good governance...’

Regulators’ views on behaviours

FRC

Should the FRC give further clarification of the role, key responsibilities and expected behaviours of the Chairman, the Senior Independent Director and the NEDS in the Code or in non-binding guidance?

Regulators’ views on behaviours

London Times and the Financial Times.

[graphic]

Maintain and grow the legitimacy, credibility and capability of the company to deliver the business plan and strategy

 

Business case for best practice governance

• need to strengthen process on risk and board support

• ‘missing piece’ in the governance jigsaw – boardroom behaviours

• business case for best practice governance

• importance of the concepts of director benefit and failure; reputation risk; the relevance of culture, vision, values, transparency and trust

• case for the presence at the centre of the boardroom of a secretary with the essential skills needed to ensure best practice governance practice

• high-profile and prestigious awards scheme to reward improved standards in disclosure (and, ultimately, in governance performance)

Raising the issues which matter