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FRC Guidance on Board Effectiveness

The FRC has released the 2018 Guidance on Board Effectiveness, to be used by companies alongside the 2018 UK Corporate Governance Code.  Both will be effective from 1st January 2019.

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DESCRIPTION

The primary purpose of the Guidance on Board Effectiveness (the Guidance) is to stimulate boards’ thinking on how they can carry out their role and encourage them to focus on continually improving theireffectiveness.

Ultimately, it is for individual boards to decide on the governance arrangements most appropriate to their company’s circumstances, applying the Principles of The UK Corporate Governance Code (the Code) and following good practice set out in the Code provisions and supplemented in this Guidance.

The Guidance is not mandatory and is not prescriptive. It contains suggestions of good practice to support directors and their advisors in applying the Code. We encourage boards to refer to the Guidance alongside the Code. The Guidance will be updated periodically as good practice develops.

The Guidance will also be helpful to a wide range of stakeholders when assessing the actions taken by the board in relation to the governance of the company.

The Code has evolved since it was first introduced in 1992. It hasalways placed great importance on clarity of roles and responsibilities, and on accountability and transparency. While these are necessaryfor good governance, they are not sufficient on their own. Thestructures and processes that boards put in place are essential forthem to function effectively and efficiently, but on their own they willnot deliver success.

Boards need to think deeply about the way in which they carry out their role. The behaviours that they display, individually as directors and collectively as the board, set the tone from the top.

The Code places considerable emphasis on decision-making and outcomes. It promotes a more inclusive approach to stakeholderengagement and encourages boards to reflect on the way in which decisions are taken and how that might affect the quality of thosedecisions. By encouraging a broader focus and a willingness to listento different voices and influences, the Code, supplemented by theGuidance, supports openness and accountability in delivering the long-term sustainable success of the company.

The structure of the Guidance follows the structure of the Code. Itprimarily covers matters related to board effectiveness dealt withinSections 1-3 of the Code and matters related to remuneration dealt within Section 5 of the Code. The FRC has issued separate, in-depth guidance documents on audit, risk and internal control. Section 4 ofthe Code is therefore covered only briefly in the Guidance.

The Guidance now includes some of the procedural aspects ofgovernance which, historically, were covered by the Code. Such former features of the Code are now well-established as good practice and compliance levels are high. The Guidance is intended to act as a reminder to boards and their support teams that good practice and procedure should continue to be followed.

The tools and techniques for board effectiveness suggested in theGuidance will assist companies in applying the Principles in the Codeand offer inspiration when it comes to illustrating in the annual reporthow this has been done.

To download your copy of the Code click on the "download" button above.

 

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