international Boardroom Behaviours - ICSA: The … ICSA... · Boardroom Behaviours a report...

Boardroom Behavioursa report prepared for sir david Walker by the institute of Chartered secretaries and administrators (‘iCsa’)

June 2009

international

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iCsa: Boardroom Behaviours · 2

I Executivesummary 3

II Observations 4

III Conclusions 7

IV Recommendations 9

Appendices

A Backgroundandprocess 10

B Questionnaire 12

C AboutICSA 13

Contents

ICSAEducationandResearchFoundation,registeredcharityno.1027579,whoseobjectsaretoadvancetheeducationofthepublicinthelawandpracticeofsecretaryshipandbusinessadministrationbyundertakingorassistingintheundertakingofresearchandthepublicationoftheusefulresultsofsuchresearchforthepublicbenefit,hasgenerouslyagreedtofundsomeoftheconsultancycostsICSAhasincurredinconductingthisstudyandinproducingahigh-qualityprintedversionofthereport.

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i executive summary

1.1 Sincetheonsetofthefinancialcrisis,andtheeconomicslowdownwhichfollowed,aprominentquestionofpolicymakers,andmarketparticipantsandobservers,hasbeenwhysomecompaniesfailedtoforesee,andatleastmitigate,theeventswhichengulfedthem.Attentionhasfocusedparticularlyondirectorsandboards,andapparentcorporategovernancefailures,leadingtoaseriesofreviewscoveringfinancialregulation,bankinggovernanceandtheoperationoftheCombinedCode(the‘Code’).

1.2 Althoughfurtherregulation,particularlyinthebankingsector,appearsinevitable,anemergingviewisthatthesystemofgovernanceforcompaniesisnotinherently‘broken’,butratherthatitseffectivenesshasbeenunderminedbyafailuretoobserveappropriateboardroombehaviours.

1.3 Inrecognitionofthis,ICSAembarkedonananalysisofboardroombehaviours,theoutcomeofwhich–assetoutinthisreport–isbeingpresentedtoSirDavidWalker.AtthesametimeacopyofthisreportisbeingsenttotheFinancialReportingCouncil(‘FRC’).

1.4 This report concludes that:

• appropriate boardroom behaviours are an essential component of best practice corporate governance; and that the absence of guidance on appropriate boardroom behaviours represents a structural weakness in the current system;

• had that guidance been available and, more importantly, observed, some of the consequences of the current crisis might have been less severe and that, in any case, prevention of a recurrence of the events of the last year is at least partly dependent upon guidance on appropriate boardroom behaviours being incorporated in the Code; and

• better articulation of the business case for best practice corporate governance, and more focus on directors’ responsibilities and potential liabilities, should incentivise directors to exhibit appropriate boardroom behaviours.

1.5 ToassistICSAindevelopingtheviewssetoutinthisreport,itconsultedarangeofitsownMembers,andothermembersofthecompanysecretarycommunity.ExpertviewsweregatheredfromcolleaguesandadvisersoperatingintheboardroomsofmajorUKcompanies,includingthosefromtheFTSE100and250.Amajorcontributiontotheexercisecamefromcompanysecretariesoperatinginthefinancialservicessector,includingsomeoftheUK’slargesthigh-streetbanks,aswellasrepresentativesfromothersectorsincludingenergy,defence,manufacturing,propertyandsupportservices.

1.6 ICSAconsidersthatthefindingsinthisreporthaveawiderrelevancethan‘simply’thatofaddressingthecurrentcrisis,andlooksforwardtoworkingwithinterestedpartiestodevelopthinking,andbestpractice,onboardroombehaviours.

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ii observations

Theconsultationprocessgeneratedthefollowingobservations:

2.1 Bestpracticeboardroombehaviourmaybecharacterisedby:

• aclearunderstandingoftheroleoftheboard; • theappropriatedeploymentofknowledge,skills,experience,andjudgment; • independentthinking; • thequestioningofassumptionsandestablishedorthodoxy; • challengewhichisconstructive,confident,principledandproportionate; • rigorousdebate; • asupportivedecision-makingenvironment; • acommonvision;and • theachievementofclosureonindividualitemsofboardbusiness.

2.2 Thedegreetowhichthesebehaviourscanbedeliveredisshapedbyanumberofkeyfactors:

• thecharacterandpersonalityofthedirectorsandthedynamicsoftheirinteractions; • thebalanceintherelationshipbetweenthekeyplayers,especiallythechair

andtheCEO,theCEOandtheboardasawhole,andbetweenexecutiveandnon-executivedirectors;

• theenvironmentwithinwhichboardmeetingstakeplace;and • thecultureoftheboardroomand,morewidely,ofthecompany.

2.3 Despitetheimportanceoftheseandotherconsiderations,itisremarkablethatthereispracticallynoguidanceintheCodeonthemaindriversof,andfactorsaffecting,boardroombehaviours.WhileICSAconsidersitmaybeundesirable,evenunhelpful,toprescribeappropriatebehavioursbylegislativeprovision,supportedbypenalorregulatorysanctions,ICSAneverthelessconsidersitispossibletoformulateguidelinesonthebehaviourstobeexpectedofdirectorswhendischargingtheirdutiestothecompany.‘Gettingthebestoutoftheboard’,andencouragingbestpracticeboardroombehaviours,arecriticalaspectsofcorporategovernance,butseemcurrentlytobeaneglectedarea.

2.4 Notwithstandingthefuroresurroundingthecollapse,ornearcollapse,ofanumberofcompanies,thereshouldbearecognitionthatdirectorsaregenerallywell-intentioned,andaremotivatedtodowellfortheircompanies.Itshouldalsobeacknowledgedthatdirectorshavemadesignificantprogressinstrengtheningthegovernanceframeworkswithintheircompaniesonthebasisofexistingguidance.

2.5 Toimproveonexistingstandardsofbehaviourintheboardroom,directorsneedtodevelopagreaterawarenessof,andcommitmentto,‘fitforpurpose’governanceasthemeansbywhichtheboardcancollectivelyagreethebusinessobjectivesofthecompanyandastrategyfortheirimplementationbyexecutivemanagement.

2.6 Heighteningdirectors’sensitivitytotheimportanceoftheneedforfurtherchangecanbeachievedbyacknowledginganddevelopingthemotivationsforimprovedperformance.Thetwoprincipaldriversare:

• ‘Benefit’–helpingdirectorstoseebestpracticecorporategovernanceasabusinessfacilitatorandnotabusinesskiller.Thevaluepropositionofbestpracticegovernanceshouldbeframedintermsoftheaimtomaintainandgrowthelegitimacy,credibilityandcapabilityofthecompanytodeliverthebusinessplanandstrategy.Thepursuitofbestpracticecorporategovernanceshouldbeseenasdeliveringcompetitiveadvantage,becauseitstrengthenstheprocessandqualityofdecision-makingand,hence,theoverallefficiencyandeffectivenessoftheboardand,ultimately,thecompany.

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• ‘Failure’–remindingdirectorshowfailuretoperformatasatisfactorylevelcancarrynegativeconsequences.Behaviouralchangewillalsobedrivenbytakingaccountofdirectors’duties,responsibilitiesandpotentialliabilities.Directorsneedconsciouslytoreflectonawiderrangeofconsiderationsthanthosesimplyrelatedtoshort-termprofitandshare-pricegrowth.Greaterawarenessofthenon-financialfactorswhichdeliverthesustainabilityofthebusinessmodel,andtakeaccountofthelegitimateexpectationsofshareholdersandotherbusiness-criticalstakeholders,iscrucialinhelpingthecompanyachieveitsbusinessobjectives.Thedutytopromotethesuccessofthecompanyplaysakeyrolehere.Section172oftheCompaniesAct2006states:

(1) Adirectorofacompanymustactinthewayheconsiders,ingoodfaith,wouldbemostlikelytopromotethesuccessofthecompanyforthebenefitofitsmembersasawhole,andindoingsohaveregard(amongstothermatters)to:

(a) thelikelyconsequencesofanydecisioninthelongterm, (b) theinterestsofthecompany’semployees, (c) theneedtofosterthecompany’sbusinessrelationshipswithsuppliers,

customersandothers, (d) theimpactofthecompany’soperationsonthecommunityandthe

environment, (e) thedesirabilityofthecompanymaintainingareputationforhigh

standardsofbusinessconduct,and (f) theneedtoactfairlyasbetweenmembersofthecompany.

(2) Whereortotheextentthatthepurposesofthecompanyconsistoforincludepurposesotherthanthebenefitofitsmembers,subsection(1)haseffectasifthereferencetopromotingthesuccessofthecompanyforthebenefitofitsmembersweretoachievingthosepurposes.

(3) Thedutyimposedbythissectionhaseffectsubjecttoanyenactmentorruleoflawrequiringdirectors,incertaincircumstances,toconsideroractintheinterestsofcreditorsofthecompany.

2.7 Ultimately,issuesofrisktoreputationunderliebothdrivers.Strongstandardsofperformanceintermsofboardroombehaviourshouldbolsterdirectors’reputations.Incontrast,thecurrentfinancialcrisishasconfirmedtheirreparabledamagethathasbeendonetosomedirectors’reputationsasaresultofbeingperceivedasresponsibleforsomeoftherecentcorporatefailures.

2.8 Thereputationsofotherboardsofdirectorshavesufferedasremunerationcommitteeshaveexerciseddiscretionbyawardingbonusesincircumstanceswhereexecutivedirectorshavenotmetagreedperformancetargets,leadingtowell-publicisedanddamagingshareholderdisapprovalofboards’remunerationreports.Thereisgrowingpublicinterestinwhatboardsdoandhowtheyaregoverned,butthereremainsamismatchbetweentheattitudesandexpectationsofexecutivedirectors,theapproachtakentorewardissuesbyremunerationcommittees,andtheprevailingmoodofshareholdersandtheultimatestakeholderbody,thepublicatlarge.

2.9 Improvementsinbehaviouralpracticewillalsobebuiltonadeeperunderstandingoftherelevanceof,andemphasison,culture,visionandvalues–informed,inturn,bygreatercommitmenttotheimportanceoftherelationshipbetweenissuesoftransparency,accountability,disclosure,trustandconfidence.Thesearebusiness-criticalareasasmuchforboardsoperatinginsteadystateasforthosemanagingacrisis,contemplatingstrategicchange,orpursuingduediligenceinrelationtoaproposedacquisitionorotheraspectofcorporateactivity.

2.10 Alldirectors–includingexecutives–shouldseektoimprovetheirperformanceintheseimportantareas.Theyshouldbridgethe‘knowledgegap’,withcorrespondingpersonaldevelopmentandlearningopportunitiesfocusedonthefundamentalsofgoodcorporategovernanceasdeterminedbydirectors’duties,relatedtothespecificbusinessmodel,strategyandoperationsofthecompany.

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2.11 Theprocessforhelpingnon-executivedirectorsdeepentheirknowledgeofthebusinesstoalevelthatoptimisestheirunderstanding,andallowsthemtochallengeproposalsconstructively,canbemademoreeffectivebyallowingthemgreaterexposuretothecompany’soperations.ICSAsubmitsthatthereshouldbeageneralpresumptiontowardsunhinderedaccessbydirectorstoinformationandstaffinkeyareasofthebusiness.

2.12 Knowledgeisalsoafunctionofboardbalance.Thetrendtowardsadecreaseinthenumbersofexecutivesattendingboardmeetingsmaybedetrimental.TheCode’srequirement(otherthanforsmallcompanies)foramajorityofindependentnon-executivedirectorshasledtoareductioninthenumberofexecutivedirectors,sometimestojusttwo–theCEOandtheCFO–inordernottoincreaseboardsize.Thishas,unintentionally,ledtoasituationofinformationflowthroughtwoorsometimesthreeexecutivedirectorswho,withthebestwillintheworld,willbeunabletomasterthewholecorpusofthecompany’sobjectivesandoperations.Periodicappearancesbysenioroperationalexecutivesmaynotbesufficienttoaddressthispotentialstructuralweakness.Itmightthereforebenecessaryforsomeorganisationstoreviewthisbalanceofexecutiveandnon-executivedirectors.

2.13 Diversityofboardmembershipisnecessarytoprovideforthekindofindependentchallengewhichthecurrentfinancialcrisissuggestsmayhavebeenusefulontheboardsofsomecompaniesthatencountereddifficulties.Itisevidentthatboardsdonotcurrentlycontainasufficientlywiderangeofskillsets,experienceandbackground–includingthoserecruitedfromacademia,thepublicandnot-for-profitsectors.

2.14 Highstandardsofrigorousand,occasionally,independentevaluationareneededtoincreaseboards’effectiveness.Generally,furtheremphasisshouldbeplacedonthemeansforensuringaccountabilityintheareasofindividualdirectorandwholeboardperformance.

2.15 Directorsshouldbeassessed,inter alia,againstexpectationsrelatingtoboardroomperformanceandbehavioursand,whereappropriate,theirremunerationarrangementsshouldreflectthoseaspects.Atthemomentmanyexecutivedirectorsappeartofaceapotentialconflictbecausetheyareremuneratedonthebasisofthewayinwhichtheymanagethebusinesstomaximiseshort-termvalueratherthanpursuingthegoalofasustainablebusinessmodel.Generally,theseremunerationarrangementsseemtoplacelittleemphasisontheirbehavioursasdirectorsintheboardroomworkingonbehalfofshareholders’long-terminterests.

2.16 Intermsofdevelopingawiderperspective,boardsshouldshowmoreclearly,notleastintheirworkofsupervisingriskmanagementanddevisingthecompany’sriskappetite,thattheyarelookingforwardandout,aswellasbackwardsandin,includingbytheiruseofleadratherthansimplylagKPIs.

2.17 Theboardshouldexercisecompellingandrelentlessleadershipandshouldnotunderestimatethepowerofleadingbyexample–evidencedbyhighlevelsofvisibilityandintegrity,strongcommunications,anddemandingexpectations.Thisleadershipshouldbecleartoallwithintheorganisation,aswellasshareholdersandotherexternalstakeholders.

2.18 Theboardshouldconsciouslyandformallyagreeitsbehaviouralobjectivessoastoactasaunifiedbody,irrespectiveofthenatureofthetenureofindividualmembers,andtodriveboardprocessthroughaunitingsetofbehaviours.

2.19 Mechanisticissues–suchasthetimelinessofcirculationofboardpapers–canhaveadisproportionateeffectonthequalityofdecision-making.Otherorganisationalfeaturesofboardactivity–includingawaydays,andchangestothe‘establishedwayofdoingthings’–mayhelpinjectnewperspectivesintopracticeswhichhavebecometooconventional.

2.20 Thecompanysecretaryhasakeyroletoplayinhelpingboardsperformevenbetter.Insummary,theroleshouldbecomethatofthechair’schiefofstaff,orchef de cabinet,inhelpingtoassuredeliveryofawell-functioningboard.

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iii Conclusions

3.1 Generalconclusions

3.1.1 ICSAconsidersthatweaknessesintheapplicationofgovernanceprocesseslieattheheartofsomeofthecasesofcorporatecollapseandnearcollapse.AlthoughtheCodemaynotbe‘broken’,atleastfouruncomfortabletruthshaveemerged:

• well-runcompanieswerecapableofmakingstrategic,sometimescatastrophic,misjudgments; • riskmanagementwasnotproperlyoverseen,monitoredandreviewedatboardlevelandboards

werenotaddressinganddiscussingthecompany’sriskappetite; • remunerationandincentivisationwerenotalignedwithshareholders’objectives;and • disclosurefailedtoinformstakeholderssufficiently.

3.1.2 ICSAconsidersthatanalysisofthesefailuresrequiresaresponseatthreelevels:

• Institutional–arethecorporategovernancepoliciesandarchitecturefit-for-purpose? • Organisational–hasmanagementinstalledadequateprocessesandsystems? • Behavioural–aredirectorsexhibitingtheappropriatebehaviours?

3.1.3 TherequiredinstitutionalandorganisationalresponsesarebeinghandledbythescopeoftheWalkerandFRCreviews.Asagreed,therefore,ICSA’sresponsetotheWalkerreviewfocusesonthebehaviouralaspectsofboardperformanceduringthefinancialcrisis,andthewayinwhichboardsbehavemoregenerally,irrespectiveofsectorandeconomiccircumstances.

3.2 Specificconclusionsrelatingtoboardroombehaviours

3.2.1 TheevidencecollectedduringICSA’sconsultationexercisesuggeststhat,behaviourally,someboardshavebeenperformingtowhatmightnormallyhavebeenconsideredreasonablyhighstandards.Thenatureandscaleofthevaluedestruction,however,confirmsthatexistingstandardswereinadequate,andthatamorerobustapproachtocorporategovernancebehavioursisnecessary.Moreover,thelinksbetweenboardroombehavioursandtheinstitutionalandorganisationalcorporategovernanceissueswhichhavestilltobeaddressedaspartoftheWalkerandFRCreviews,confirmsthatgovernancebehaviourscannotbeviewedinisolation.

3.2.2 Asmattersstand,theabsenceofguidanceonappropriateboardroombehavioursrepresentsastructuralweaknessinthecurrentsystem.Furtherimprovementsinperformanceonbehavioursarenecessary,anditispossiblethat,hadsomeoftheguidancesuggestedinthissubmissionalreadybeeninplace,andobserved,someofthesubsequentfailuresincorporategovernancewouldhavebeenlesspronounced,andtheirconsequenceslesssevere.Inanycase,preventionofarecurrenceoftheeventsofthelastyearisatleastpartlydependentuponmorerobustguidanceonboardroombehavioursbeingincorporatedintheCode.

3.2.3 Aspartofitsapproachindevisingpracticalsolutionstothecurrentchallenges,ICSAiswillingtoprepareabestpracticeguidancenoteonhowboardscancreatethecircumstancesforimprovedboardroombehaviours.Nevertheless,ICSAisfirmlyoftheviewthatsuchaguidancenotewillnotinjectthenecessarylevelsofurgencyandobligationunlesstheCodeisalsoamended.

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3.2.4 ICSAconsidersthat:

• thecasehasstillnotbeensufficientlyarticulatedforthevaluesandbenefitswhichflowfromgoodcorporategovernanceand,therefore,thebusinesscaseforencouragingdirectorstopursuebestpracticewithenthusiasmandgenuinecommitment;

• better articulation of the business case for best practice corporate governance is likely to incentivise directors to exhibit appropriate boardroom behaviours more rigorously and more readily;

• despitetheforegoing,itisalsoreasonabletoassumethatsomedirectorsareincentivisedmore,oratleastasmuch,byfearoftheconsequencesofthingsgoingwrong;and

• in these circumstances, more focus on directors’ duties, responsibilities and potential liabilities, is likely to generate a heightened awareness of the need to exhibit appropriate boardroom behaviours more rigorously and more readily.

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iv recommendations

4.1 Fromtheseconclusions,ICSAconsidersitappropriatetorecommendthat,toprovidethenecessaryobligationandfocus,theCodeshouldbeamendedtoincorporatewordingorreferencesrelatingto:

• appropriateboardroombehaviours; • thebusinesscaseforpursuingbestpracticecorporategovernance; • directors’dutiesundertheCompaniesAct2006:particularlys172,thedutytopromotethe

successofthecompany;and • anaccompanyingbestpracticeguidancenoteonhowboardscancreatethecircumstances

forimprovedboardroombehaviours.

4.2 Theserecommendationsfallshortofcallingforamoreformalrequirementforboardroombehaviourstobeprescribed,orfortheretobeoversightoftheimplementationofthenew/existingprovisionsbytheFinancialReportingReviewPanelortheFSA.

4.3 SomeoftheobservationsinthisreportrelatemoredirectlytotheworkoftheWalkerandFRCreviews,andrequireresponsesfromthosereviewsiftheyaretobegivenpropercontext.ThelinksbetweenboardroombehavioursandinstitutionalandorganisationalaspectsofboardroomgovernancemeanthattherecommendationsmadebyICSAmayneedtobeaccompaniedbyadditionalCodechangesiftheyaretohavefulleffect.

4.4 TheFRCshouldconsiderwhetheritwouldbeappropriatetoendorseabestpracticeguidancenoteaspartoftheFRCassuminganenhancedleadershiproleindefiningthecharacteristicsofawellperformingboard,soastoencouragebehavioursintheboardroomthatenablecompaniestoattainandmaintaintheseappropriatestandardsofboardroombehaviour.TheFRCmaywishtoconsiderwhetherabestpracticeguideshouldformanappendixtotheCode.

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appendix a

BackgroundOn9February2009,theChancelloroftheExchequer,theSecretaryofStateforBusiness,EnterpriseandRegulatoryReformandtheFinancialServicesSecretarytotheTreasuryannouncedareviewtorecommendmeasuresforimprovingthecorporategovernanceofUKbanks,particularlyintermsofriskmanagement.Thereviewisbeingchairedbytheformerfinancialservicesregulator,SirDavidWalker.

Scope of reviewThereviewwillexamineboardmanagementofrisk(includingtheeffectivenessofriskandauditcommittees),incentivestomanageriskinbankremunerationpolicies,thecompetencesneededonbankboards,boardpracticesandstructures,andtheroleplayedbyinstitutionalshareholders.ThereviewwillpresentpreliminaryconclusionstocommissioningMinistersintheautumn,andmakefinalrecommendationsbytheendoftheyear.

Inlaunchingthereview,theChancelloroftheExchequersaidthat‘…itisclearthatcorporategovernanceshouldhavebeenfarmoreeffectiveinholdingbankexecutivestoaccount.’TheBusinessSecretarystatedthatthereviewwasneededtoensurethat‘…wehavecompetent,well-runandtransparentboards,whichareengagedwiththeirshareholders,andcapableofunderstandingandmanagingriskeffectively.’Finally,theFinancialServicesSecretarypointedoutthattheissuewasnotsimplyonefortheboardsthemselves–‘Boardsareeffectiveonlywhenheldtoaccountbyvigorousandalertownerswhodevotethetimeandeffortneededforengagement.’

ICSA’s response to the Walker Review FollowingameetingwithTreasuryofficialson12March,itwasagreedthatICSAwouldcontributetothereviewbyconductingresearchon‘appropriateboardroombehaviours’.ThebasisforthisworkwasthepositionICSAhadadoptedinrelationtocorporategovernanceissues,particularlythroughtheICSAHermesTransparencyinGovernanceAwards,itsspecificexpertiseas‘owners’ofboardroomprocess,thespecialprivilegeenjoyedbymanyofitsMembersintermsofboardroomaccess,andtheprofessionalqualitiesofitsMembersintermsofindependenceandintegrity.

Review of the Combined CodeThechairoftheFinancialReportingCouncil(FRC),SirChristopherHogg,announcedatICSA’sCorporateGovernanceConferenceon18MarchthatitintendedtoreviewtheoperationoftheCode.GiventherelevanceofICSA’swork,itwasagreedthattheoutputsfromICSA’sresearchfortheWalkerReviewwouldbesharedwiththeFRC.

Consultation processICSAistheprofessionalbodythatqualifiesCharteredSecretaries.ManyofourMembersarecompanysecretariesinpubliclistedcompaniesandtakeresponsibilityforensuringthattheCodeisembeddedinthegovernancestructureofthecompany,andthatappropriatedisclosuresaremadeaboutcorporategovernancetothecompanies’shareholders,usuallythroughtheannualreport.Theirpresenceintheboardroom,andtheirdirectrelationshipwiththechairman,givecompanysecretariesaclearperspectiveontheeffectivenessorotherwiseoftheCodeinencouragingthemostsuitablegovernanceframeworkfortheirparticularcompanies.

ICSAconsidersthecurrentexerciseanimportantopportunitytocontributepracticalideastotheWalkerandFRCreviewsonanychangesneededtorestoretheperception,andreality,ofUKcompaniesaswell-run,value-creatingandaccountable.

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ProcessICSAdevisedaquestionnaire(seeAppendixB)seekingtheviewsofmembersofthecompanysecretarycommunityonanumberofboardroomgovernance-behaviourissues.Thequestionnairewaspre-testedwitharepresentativerangeofMembers,andcirculatedwidely,includinginICSA’smagazine,Chartered Secretary,andonICSA’swebsite,aswellastothecompanysecretariesoftheFTSE350directly.

ThequestionnairewasusedastheframeworkfordiscussionataseriesofworkshopshostedbyICSAatitsheadquartersinLondonon11May2009,withagoodrepresentationfrombothFTSE100companiesandthosefromthewidercompanysecretarycommunity,andconductedunderChathamHouserules.ICSAconsiderstheviewspresentedintheexerciserepresentanauthoritativeperspectiveonthecurrentstateofboardroombehavioursinsidelargerUKcompanies.

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appendix BBoardroom behaviours – questionnaire

Questions1. Towhatdegreedoyoubelieveyourboard,anditsdirectors,areresponsiblefordefiningthe

cultureandbehavioursoftheorganisation?Isthisanessentialpartofensuringthebusiness’slong-termsustainability?

2. Doyoubelievemoreworkisneededtoensurethattheappropriateorganisationalcultureisobserved,andthecompany’sspecificvaluesexhibited,bydirectorswhenmakingboard-leveldecisions?Ifso,how?

3. Dodirectorsfeelencouraged,orinhibited,indisplayingthenecessarybehavioursintheboardroomtoenablethemtochallenge,independently,theviewsofcolleagues?Pleasegiveexamples?

4. Doyoubelieveadifferentapproachtogovernancebehavioursorotherprocessesintheboardroomcouldhavechangedthewayinwhichdecisionsweretakeninrelationtorecentwell-documentedcasesofvaluedestructionand(near)corporatecollapse?Ifyes,how?

5. HowdoestheCombinedCodeplayaroleinencouragingtheappropriateboardroombehaviourstodeliverhigh-standardgovernance?Ifitdoesnot,whatrecommendationswouldyoumakeforimprovingboardroomgovernancebehaviourthroughtheCombinedCodemechanism?

6. Intermsofstrengtheninggovernancebehaviours,isthereagreaterroleforinduction,continuedprofessionaldevelopmentandassessmentinimprovingtheknowledge,skills,experience,judgementandindependenceofdirectors?

7. Assumingthattransparencyfacilitatesaccountability,andcreatestheconditionsforengenderingtrust,wouldgreaterdisclosureonboardroomprocess–includingintheannualreport–facilitateorhinderdesiredchangesinboardroombehaviour?

8. Whichprovidesthegreaterincentivefordirectorstoconsidertheimportanceofboardroombehaviours–theriskof‘punishment’(e.g.underthedirectors’dutiesprovisions)ortherewardof‘recognition’(e.g.throughremuneration)?

9. Towhatdegreeisthechairthepersonwhosebehaviourmostneedstochangeifthebehaviouroftheboardasawholeistochange?

10. Whichspecificaspectsofboardprocess–includingtimepressuresandthetimelinessofcirculationofpapers–mostmilitateagainsthigh-qualitydecision-makingbyboards?

11. Whatstepsmightbetakentoencourageboardstounderstandthattheyare‘onestepdown’fromtheowners,ratherthan‘onestepup’fromexecutivemanagement?

12. Howmightinstitutionalinvestorsplayaroleinchangingboardroombehaviours?

13. Doyoufeelthattheannualevaluationoftheboardanditscommitteesisgenuinelyformalandrigorousandthatareasforimprovementarefollowedupinaconsistentway?

14. Asregardsriskmanagement,doyoufeelthatyourboardisinvitedtoreviewtherightsubjectsandisprovidedwiththenecessaryinformation?

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appendix C

TheInstituteofCharteredSecretariesandAdministrators(ICSA)istheprofessionalbodyforCharteredSecretaries.ICSA’sRoyalCharterwasgrantedon4November1902,elevenyearsafterICSAwasfoundedin1891.UndertheCharter,theInstitutehasasitsobjective‘thepromotionandadvancementoftheefficientadministrationofcommerce,industryandpublicaffairs’.

CharteredSecretariesworkascompanysecretaries(someofthemfortheleadingpubliccompaniesinBritain),shareregistrars,charitysecretaries,seniormanagers,sometimesasboarddirectors,andinmanyotherrolesatthesenioradministrativeoroperationallevelintheprivate,publicandnot-for-profitsectorsoftheeconomy.Inlargecompaniestheroleofthecompanysecretary(manyofwhomareCharteredSecretariesqualifiedbyICSA)encompassesaconsiderablenumberofresponsibilitiesthatcollectivelyfacilitatetheefficientrunningoftheboardandtheorganisationanditscompliancewithallapplicablelawandregulation,andbestpracticeincorporategovernance.

ICSA:• qualifiesCharteredSecretariesthroughitsqualifyingschemes;

• setsandmaintainsstandardsofbehaviourandcompetence;

• enforcesastrictcodeofconductwithwhichallCharteredSecretariesarerequiredtocomply;

• supportstheprivate,publicandnot-for-profitsectorwithprofessionalresources;

• workswithitsMembersandgovernmentalandotherstatutorybodiestopromotebestpracticeandprovidesguidanceongoodgovernance;

• promotestheimportanceofgoodcorporategovernanceandthevalueofCharteredSecretariestoemployers,andconsultsitsMembershiponrelevantproposedlegislativechange;and

• publishesguidancenotesandbestpracticeguidesandthroughitssubsidiariesprovidesevents,informationandtraining,boardroomevaluationanddedicatedsoftware.

ICSAhas36,000Membersand27,000studentsinover70countries.ICSA’sheadquartersareinLondonwithseparateoperatingdivisionsintheUKandRepublicofIreland,Australia,Canada,HongKong,Malaysia,NewZealand,Singapore,SouthAfricaandZimbabwe.Asaglobalprofessionalbody,ICSAisuniquelyplacedtocommentontraining,regulatoryandbusinessissues.

TheprofessionalstandingofCharteredSecretariesisstrengthened,innosmallpart,bytheirrecognitioninstatutoryprovisions.Forexample,Section273oftheCompaniesAct2006statesthatMembersofICSAarerecognisedasqualifiedtoholdtheroleofCompanySecretaryinpubliccompanies,alongsidemembersofotherprofessionssuchasaccountantsandsolicitors.Section43(2),(3)and(4)oftheCharitiesAct1993asamendedbyStatutoryInstruments2008No.527statesthatCharteredSecretariescan,inadditiontoaccountants,actasindependentexaminersfortheannualauditofcharityaccounts.StatutoryprovisionsrecognisetheroleofCharteredSecretariesasMembersofaprofessionalbody,ICSA.

TheInstituteofCharteredSecretaries

andAdministrators(ICSA)

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London

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Telephone:+44(0)2075804741

Facsimile:+44(0)2073231132

E-mail:[email protected]

Website:www.icsa.org.uk

©2009InstituteofCharteredSecretariesandAdministrators

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