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Essential Corporate News – Week ending September 23, 2016

Publication September 23, 2016


Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.

BIS Committee: Corporate governance inquiry launched

On September 16, 2016 the Business, Innovation and Skills (BIS) Committee announced the launch of an inquiry on corporate governance, focussing on executive pay, directors’ duties and the composition of board rooms, including worker representation and gender balance in executive positions. The inquiry follows on from recent inquiries by the BIS Committee into BHS and Sports Direct and the Prime Minister’s commitment to overhaul corporate governance.

Written submissions are requested by October 26, 2016 and particular points on which the BIS Committee is seeking submissions include the following:

Directors’ duties

  • Is company law sufficiently clear on the roles of directors and non-executive directors, and are those duties the right ones? If not, how should it be amended?
  • Is the duty to promote the long-term success of the company clear and enforceable?
  • How are the interests of shareholders, current and former employees best balanced?
  • How best should the decisions of boards be scrutinised and open to challenge?
  • Should there be greater alignment between the rules governing public and private companies?
  • Should additional duties be placed on companies to promote greater transparency, for example, around the role of advisers?
  • How best can shareholders have confidence that executives are subject to independent challenge?

Executive pay

  • What factors have influenced the steep rise in executive pay over the past 30 years relative to salaries of more junior employees?
  • How should executive pay take account of a company’s long-term performance?
  • Should executive pay reflect the value added by executives to companies relative to more junior employees? If so, how?
  • Should government seek to influence or control executive pay?
  • Should shareholders have a greater role in controlling executive pay?

Composition of boards

  • What evidence is there that more diverse company boards perform better?
  • How should greater diversity of board membership be achieved and what should diversity include?
  • Should there be worker representation on boards and/or remuneration committees and, if so, what form should this take?
  • What more should be done to increase the number of women in executive positions on boards?

(BIS Committee, Corporate Governance Inquiry launched, 16.09.2016)

ICSA Guidance Note: Minute taking

On September 19, 2016 the ICSA Governance Institute issued new guidance about minute taking. This Guidance Note recognises that minutes are as individual as the board to which they relate. However, it advises that decisions as to format, style and content should be taken from a position of knowledge of the law and of regulatory and market practice so as to provide an accurate, impartial and balanced record of meetings, but comments that this a deceptively difficult task.

The Guidance Note, which follows a consultation launched in May 2016, highlights the following key points:

  • The purpose of minutes is to provide an accurate, impartial and balanced internal record of the business transacted at a meeting.
  • There is no ‘one-size fits all’ approach for minute writing and no ‘right way’ to draft minutes. Context is always important and each chairman and each board member will have their own preference for minuting style. It is up to each individual organisation to decide how best its meetings should be recorded.
  • The degree of detail recorded will depend to a large extent on the needs of the organisation, the sector in which it operates, the requirements of any regulator and the working practices of the chairman, the board and the company secretary. As a minimum, minutes should include the key points of discussion, decisions made and, where appropriate, the reasons for them and agreed actions, including a record of any delegated authority to act on behalf of the company.
  • Minutes should be clear, concise and free from any ambiguity as they will serve as a source of contemporaneous evidence in any judicial or regulatory proceedings.
  • Minutes should facilitate regulatory oversight, but this is not their primary purpose.  Nonetheless, those drafting minutes should be mindful of regulatory needs. The well-written minutes of an effective board meeting should convey all the assurance that a regulator needs.
  • Minutes should not be a verbatim record of the meeting.
  • Minutes should document the reasons for a decision and include sufficient background information for future reference.
  • Individual contributions should not normally be attributed by name, but this will be appropriate in some cases.
  • Draft minutes should be clearly marked as such and amendments to the draft minutes should be thought of as ‘enhancements’ rather than ‘corrections’.
  • The audio recording of board minutes or the publication of board minutes is not, generally, recommended. Any such recording should be deleted once the minutes have been approved.

The full Guidance Note is available to ICSA members only.

(ICSA, The Governance Institute, ICSA guidance on minute taking, 19.09.2016)

Tomorrow’s Good Governance Forum: Improving board evaluation to achieve greater board effectiveness

On September 20, 2016 Tomorrow’s Company released guidance produced by Tomorrow’s Good Governance Forum on improving board evaluations, focusing on how this is a process of shared learning and feedback. The guidance addresses matters such as critically evaluating self-performance and tackling weaknesses as part of the evaluation process, which as a result will enhance shareholder and stakeholder confidence in the board’s effectiveness and adaptability.

The guidance notes that the most effective board evaluation:

  • Prompts reflection and learning;
  • Begins after discussion amongst the chair, senior independent director (SID) and company secretary with a clear brief setting out the uniqueness of the organisation and what it needs from its board to fulfil its value creation potential;
  • Is grounded in the purpose, values and strategy of the company and the mandate the board has defined for itself;
  • Is informative to the chair and board about what they can improve in board dynamics and behaviours and what they can learn from other boards;
  • Is based on actual observation of the board in action as well as interviews with board members;
  • Is open and honestly disclosed in the form of a summary of the process and outcomes that is agreed by the evaluator as accurate and provides a basis for more detailed and private follow-up conversations with investors, executives and other interested parties;
  • Leads to an action plan based on the results of the evaluation and learning from the changes made.

The guidance notes that the most effective board evaluation is/does not:

  • An end in itself undertaken purely to comply with guidelines produced by the Financial Reporting Council (FRC);
  • A private exercise commissioned by the chairman in isolation;
  • A standard product easily replicated from company to company;
  • Restricted to suggestions about board papers and board process;
  • Restricted to interviews of surveys with board members;
  • Offer a blow-by-blow account of board dynamics in a way that could compromise those giving frank feedback;
  • Ignored at future board meetings or the plan filed away on completion of the review.

The guidance considers points arising from the action plan resulting from the board discussion about the review of the evaluation, issues in relation to disclosing the results of the board evaluation, appointing an external evaluator, widening the sources of feedback in the evaluation process and the roles of the chair, SID and company secretary in the process.

(Tomorrow’s Company, Improving board evaluation for greater board effectiveness, 20.09.2016)

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