ABI report highlights best practice amongst listed companies
The Association of British Insurers yesterday published a “Report on Board Effectiveness – highlighting best practice: encouraging progress“. The purpose of the ABI Report is to draw together:
“recommendations for maximizing the performance of company boards. It uses practical business examples to illustrate ways in which a variety of leading companies currently implement diversity, succession planning strategies and board evaluation”.
The ABI has focused on diversity, succession planning and board evaluation as key areas “fundamental to improving board effectiveness”.
The ABI Report – with its many examples of best practice – can usefully be read alongside the Financial Reporting Council’s formal guidance on board effectiveness, which the FRC published in March 2011 as a supporting document to the UK Corporate Governance Code. We discuss the FRC guidance in this post.
ABI Report recommendations
On board diversity:
- Companies should ensure that achieving diversity of perspective is a key objective in appointing board members.
- Companies should provide clear statements on the steps they are taking to achieve diversity in their boardroom and should openly discuss the issues and challenges that they face in their Annual Reports.
- Chairmen should widen the search for non-executive directors, broadening traditional talent pools, when making board appointments.
- Companies should recognise their role in developing the potential of women throughout the corporate pipeline.
- Companies should wherever possible set and report on measurable objectives and other steps being taken to promote gender and other diversity in their organisations, particularly at senior management level.
On succession planning:
- Companies should ensure that they actively engage in planning for the succession of all senior management rather than just board level executives.
- Companies should improve their disclosures on the work they do with regards to succession planning.
- As it is material to investors, companies should disclose this information in their Annual Report, as part of their business review or corporate governance statement, rather than in a standalone document.
On board evaluation:
- Companies should explain the methodology used in their board evaluations in line with the recommendations of the UK Corporate Governance Code.
- Companies should report more openly on the key outcomes of their evaluations and the steps they intend to take to address the issues that have been highlighted. We expect the outcomes of these evaluations will be different year on year as the board evolves.
- Companies should report progress on the key remedial actions taken in the following year’s Annual Report.
- External evaluations should be carried out by an independent party who is not subject to conflicts of interest. This should preclude those who provide other services, such as search agents who assist in the recruitment of directors and remuneration consultants.
The ABI Report is principally aimed at companies that must “comply or explain” with the UK Corporate Governance Code, but will also be of interest to all large companies, public or private
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