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Nick Lindsay

Elemental CoSec

Director

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Strategic Board evaluations

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When we talk about training it is very easy to concentrate our efforts on the training of new or existing employees, of making sure that they have the skills which they need to operate in an increasingly digital and customer service world.  But there is one group of people for whom training often comes as an afterthought, and that is the Board of Directors.

It is true that there are a lot of business coaches out there, all eager to help directors to be better leaders. But in far too many instances, those trainers are only called upon when a problem comes to light and even then, the focus in usually confined to leadership skills.  Why is this?  Is it because directors are appointed for their existing skills and it is assumed that they don’t need further training or is it perhaps that in a financially-aware world, resources are seen to be better addressed at the employee level.

Whatever the reason, those organisations which fail to address the question of Board training are potentially in breach of the corporate governance code.  This code requires a formal and rigorous annual evaluation of the board with the evaluation being externally facilitated at least every three years for a FTSE 350 company.   Section B of the code goes so far as to stipulate that: “All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge” and that “the chairman should regularly review and agree with each director their training and development needs.”

Compulsory for larger corporations, best practice for others; the issue of board evaluations and training is one which deserves to be higher on the agenda.  In our experience, despite investor desire for this information there has been a lack of disclosure in annual reports regarding the findings of board evaluations.  In a number of instances, our experience is that boards are going through the motions, rather than treating board evaluations as a valuable exercise.  And here, we are not just talking about training.  Board evaluations should also rigorously examine board performance and consider whether the existing composition of the board is the optimum one, given current market circumstances.

For example, in the period since the last evaluation the organisation may have added new product lines, started trading abroad or taken the decision to move into the digital marketplace.  And the evaluation should not simply cover internal issues.  A change in external regulation, pressure from a competitor or changing world circumstances could all result in a need for further training or for a different mix of board members. 

Even when board evaluations take place, they are often criticised as being too insular, with little or no input from outside.  This can lead to a skewing of results.  For example, according to Steve Bowman of Australian organisation ConsciousGovernance, a board gave itself a rating of 4.6/5 in response to the question “How effectively did the Board contribute to development of and review the implementation of strategy” and yet there was no evidence of a strategic plan in the board minutes or elsewhere in the organisation.

As the FRC says, “the purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.”  Unless the board is rigorous in maintaining a strategy which takes effective account of its own oversight and the need for training then it has little chance of ensuring that it is delivering the levels of performance which its  employees, investors and customers expect.

If you would like to find out more about company reporting feel free to browse our website www.elementalcosec.com or contact Nick on[email protected]

Author Profile Picture
Nick Lindsay

Director

Read more from Nick Lindsay
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