Board evaluation results – Insights from an analysis of FTSE350 annual reports

The UK is famous for its rigorous governance code and almost universal adoption of regular board evaluations. Yet, in examining the outcome of board reviews, a strange pattern emerges. As new research from AvS Advisors reveals, British boards are excellent at some things and surprisingly neglectful of others.

In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner, is joined by Frederik Otto, who leads AvS Advisors’ London office. Frederik advises Chairs, CEOs, and their leadership teams on preparing boards for uncertain futures, bringing a distinctive perspective to board performance reviews, leadership development, and board search assignments. Frederik is internationally recognised for his expertise in modern board leadership amid global issues.

“You need to understand first what’s going on.”

For Frederik, thorough board reviews are critical to assessing a board’s performance baseline. To get a baseline for the entire UK market, AvS Advisors took the reported results of board evaluations, publicly disclosed in the annual reports of the FTSE 350, and fed them to an extractive AI system. This system analysed the key conversations, concerns, and issues. In today’s conversation, Frederik separates investment trusts from corporates, focusing on a pool of 240 FTSE corporates and their concerns.

“Strategic oversight was by far the highest priority that came out of the board review results.”

Frederik was unsurprised that boards continue to prioritise strategic oversight. Most see this as their core focus and the place they want to spend their time. In overloaded agendas, research shows this should be first on the docket to maximise discussion quality, with “tick box” topics saved for later in the day.

“Boards are rapidly deprioritising sustainability.”

Frederik reports that boards are giving less time to sustainability. This confirms soft data from the last 12 to 24 months. ESG is still a part of board disclosures, but it is getting less discussion time in meetings.

“Risk oversight is a significant blind spot.”

Frederik thinks this is quite worrisome. Only 22 per cent of boards disclosed anything about risk management, internal control, cybersecurity, or risk oversight. Whether this is a true blind spot for boards or a gap in disclosures is debatable.

“Just over half of boards engage with global issues.”

Frederik notes that global issues, such as climate change, macroeconomic volatility, geopolitics, geoeconomics, and supply chain disruptions, are often discussed only peripherally. He feels they should be discussed more and in more depth. He sees too many boards squeezing in global issues over dinner or as side notes rather than giving them focused attention.

“There are layers of thematic coverage in board review results.”

Frederiks sees layers in the disclosures. A top-layer strategic oversight takes up some 80 per cent of board time. Second-layer topics receive only 40 to 58 per cent coverage. Yet these items, such as governance and compliance, succession planning, and board dynamics, can have a huge impact on business results. The third layer, which Frederik calls the neglected layer, addresses issues such as board composition and risk management.

 

The top three takeaways from our conversation for effective boards are:

• Directors and Non-executive Directors underestimate their power to speak up, shape decisions, and drive change.
• Board preparedness for global issues is lacking, and there is more work to be done there.
• There are many tools boards can use to do better. Start with a skills matrix and find people to match to specific risks and opportunities.

 

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