London, 21 July 2023 –The Chartered Governance Institute UK & Ireland (CGIUKI) has launched a Code of Practice, which will be underpinned by an accreditation framework, to support effective board performance reviews.
The demands and expectations on boards have never been higher. Boards set the strategic direction for their organisation and ensure the business operates within UK law and regulations on issues such as financial transparency or on climate change. Increasingly boards are also expected to ensure their organisation meets society’s expectations on issues such as gender, ethnicity, safeguarding and social mobility. In a CGIUKI survey more than 50% of FTSE companies now believe that demands on board’s time is reducing the amount of time they have to focus on business strategy.
To manage complex and competing issues effectively, boards must operate at peak performance meeting after meeting, year after year despite continuously emerging issues and rotating memberships. Getting this right involves continuous reflection on the behaviour and knowledge of the board members and board development when needed. Increasingly organisations are conducting board performance reviews to help them assess what is working well and where they could improve.
To help boards to meet this challenge and, as part of the CGIUKI’s mission to champion effective governance, we have published a new Code of Practice for those conducting board performance reviews, alongside further guidance for boards which commission and undergo such reviews. Adherence to the Code will give assurance about the quality and value for money of a service provider to those commissioning external board review services, as well as to investors and other stakeholders.
The Code was created with the support of an independent working group which included the Financial Reporting Council (FRC). It builds upon a draft Code created by CGIUKI in 2021, requested at the time by the Department for Business and Trade (then the Department for Business, Energy and Industrial Strategy). Board reviewers can choose to demonstrate compliance with the Code as a marker of the highest standards of practice in their work.
CGIUKI recognises that the impact of any board performance review depends as much on the commitment of the board as it does on the ability of the reviewer. The board appoints the reviewer, sets the terms of the review, and decides how to respond to the findings. The role of the external board reviewer is to identify and highlight any issues that the board should consider; and the role of the board is to take appropriate action to address them in the interests of its own improvement and to create long term value for shareholders. For this reason, any action to improve the conduct and accountability of externally facilitated board performance reviews must look at the role of the board as well as that of the reviewer.
The Code is therefore accompanied by two other, related, documents. Firstly, the Principles of Good Practice for listed companies using external board reviewers. These principles outline how an organisation should engage with its reviewer in order both to achieve the maximum benefit and to give assurance to its stakeholders. Secondly, new guidance for listed companies about reporting on board performance reviews, which particularly looks at striking the balance between the information needs of the organisation’s stakeholders and the board’s legitimate desire to avoid breaching confidentiality.
Peter Swabey, Policy and Research Director at CGIUKI, commented:
“We firmly believe that effective governance leads to better decisions which is why we are launching this new guidance to facilitate board reviews which are both more transparent and more effective. To achieve this goal, we are taking a multi-pronged approach, through overseeing compliance within the Code of Practice, providing training to board reviewers and those who commission them, and accrediting those who have satisfied us of the standard of their work. This in turn will support both reviewers and boards in achieving the best possible outcomes from board performance reviews.”
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For further information, please contact Peter Swabey, Policy & Research Director
email@example.com or +44 20 7612 7014