Nowhere is the practice of conducting board evaluations more advanced than in the UK, and more boards of listed organisations conduct board evaluations here regularly than anywhere else.
In the second part of this podcast, Dr Sabine Dembkowski (Founder and Managing Partner of Better Boards) talks to Maureen Beresford, Head of Corporate Governance at the Financial Reporting Council (FRC), this time discussing how to analyse the results of board evaluations.
Maureen’s team is responsible for the UK Corporate Governance Code and its supporting guidance. She has been in this role for almost two years, and before this, she worked at the Department for Business, Energy and Industrial Strategy, where she was responsible for company law and reporting. As part of her current role, she produces the FRC report each year on how companies have complied with the Code. For the last three years, board evaluations have formed part of this review.
Some of the key takeaways of the conversation include:
“The output has to be agreed at the beginning of the exercise.”
Maureen Beresford believes that when gathering data for a board evaluation, it must first be established what the evaluation is – for example, is it to be a report or a presentation? She warns against boards and board members homing in too narrowly on specific details and issues, stating that it is better to allow the evaluators to explain their conclusions, ideally with a meeting where the findings from the evaluation can be outlined.
She admits it can be difficult if evaluations bring up controversial topics, so suggests possibly laying the groundwork first, by having a pre-meeting, so that discussions with the board over sensitive matters can be more constructive. Sabine Dembkowski also stresses the importance of going over issues with company secretaries before making a presentation to a board, (who typically hate surprises).
“It’s important to look at what’s behind what is disclosed in a report”
Board evaluations can provide great data and insight, but this does not always translate into subsequent action, and Maureen suggests that people look at what is behind that which is disclosed in a report. Some details may not be emphasised enough, or some actions may be overly ‘bigged up’.
She stresses that although companies do comply with corporate governance, there is always the risk of ‘boiler plate’ language, citing clichéd terms such as ‘working closely together’. She is keen for boards to think about the meaning behind the terms they are using – and more importantly to use actual examples, to show how a board is working together or taking on challenges.
Maureen gives the example of diversity- rather than saying you are going to be diverse, specify whether this means that the board will become more diverse, or does this refer to diversity across the company as a whole? It could also refer to issues such as succession planning or more specific targets in terms of recruitment. It’s important to be precise.
“The Company Secretary plays a pivotal role”
For Maureen, the role of Company Secretary is pivotal, as company secretaries are in a position to drive forward some of the actions that can come from a board evaluation. It also helps that they know what agendas are coming up, they discuss what should be on the agenda with the chair, and they collect information. Thus, they can ensure that actions progress and are taken forward.
She also argues that the chair has a role in looking at the board evaluation and whether it is tailored to the needs of the company. The chair has to discuss external facilitators with the rest of the board, she warns, to ensure they understand both why the external facilitator has been chosen and what their remit is.
“It’s important to be positive- if you don’t achieve a target, set one in place you can achieve”
Maureen believes that companies need to look both backward and forward. One example she gives is company culture- a board should look at how this can affect issues such as ESG, employee relations, remuneration policies and so forth. She believes it is important for companies to highlight positive action in their evaluations, as well as being honest, citing good examples of companies who highlighted failures, but also explaining the steps they were taking to address those failures.
She emphasises the importance of continuous monitoring of action plans, setting targets, and also making sure that recommendations are followed after the evaluation has been completed. She acknowledges that plans can change, and it may be that goals have to be re-evaluated, however, she also emphasises that companies need to remember what their goals are, and that they should not be forgotten if those objectives are not achieved.
Clarity is key
In terms of board disclosures, Maureen suggests including:
- an outline of how the evaluation was conducted,
- what the objective was,
- identifying the processes behind the valuation (data, interviews, etc),
- who oversaw the process and
- who undertook the evaluation.
She also emphasises outcomes and ‘joining up’, as well as clarifying the details behind any external evaluators (the name of the company involved, whether they have any connections to the company being evaluated, and the extent of contact the evaluator had with the board.)
The three top takeaways from our conversation are:
- Use the company secretary to assist in reporting to the board and make sure data is translated into later action.
- Be specific and avoid boilerplate catch-all phrases. Specific details help action.
- Be clear and transparent about the evaluation and provide detailed insights into the results and action planning.
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