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Achieving excellence: board disclosure

16 February 2015

The ICSA policy team and judges of the Excellence in Governance Awards identify examples of corporate reporting good practice in FTSE 350 companies

Good board disclosure clearly and concisely explains how it exercises its stewardship responsibilities on behalf of investors, ensuring that its members comply with the statutory duty of directors to ‘promote the success of the company for the benefit of its members as a whole’. This includes discussion of the role of the chairman and board in leading the company and promoting an appropriate culture; the activities of the board as a whole and of its various committees, with a particular focus on board refreshment, diversity and succession planning; and the effectiveness of the board, supported by board evaluation. This is a personal aspect of corporate reporting – much will depend on the culture of the company and the personality of the chairman – and so it is unsurprising that companies tackled board disclosure in a variety of ways.

The chairman and the board

The better reports showed clear evidence of the chairman taking personal responsibility for leading the company, explaining how he or she leads the board and ensures that the culture of the company is appropriate. Most companies commenced their strategic report with a statement from the chairman, which generally created a positive impression – although some were better written than others.

Some companies however failed to link the chairman’s statement with the rest of the governance report and made it seem almost a separate paper. Personality and the personal touch counts for a lot – in one case the chairman’s statement slipped from ‘I’ to ‘we’ to ‘your company’ within the first page – even if the chairman did not write it personally, it is better to make it look as if he or she did. Examples of good practice:

  • The joint statement of the Cairn Energy chairman and CEO is interesting, it includes a high level of detail on the strategic direction, operational and risk management and assurance.  
  • Johnson Matthey differentiates clearly between roles and the chairman’s statement is insightful. The report is very people focused and, in the words of one of our judges, ‘oozed integrity’.  
  • The Land Securities report gives a clear impression of strong leadership.   
  • Marks and Spencer includes some very good examples of long-term thinking in the chairman’s report.
  • The Provident Financial chairman’s statement is engaging, with a good level of detail and feels fresh throughout. It is clear that the company is doing what it can to the best of its ability. The graphics are clearly thought through and are helpful.  
  • SEGRO chairman’s statement gives a clear and straightforward analysis of how the company has progressed against strategic priorities, and the description of board activities through the year is very clear.

Issues for the board

Investors are interested in understanding what the board actually does. For example, how many meetings did they have; what did they discuss; and how do the issues discussed by the board relate to the corporate strategy? The best reports therefore included a discussion of the specific issues considered by the board and its committees and, in particular, those issues where there has been active debate. These will almost always be about judgement issues and the report should demonstrate how the board challenged the management approach. Companies should also consider explaining why the number of board and board committee meetings that they held was the right number – some companies had relatively few meetings, which suggests a lack of oversight and requires some explanation. The same would apply if there were a lot of meetings, as that might imply that there are issues. One effective way of dealing with this was a summary of the headline agenda items for each meeting.

If you have had a major issue in the course of the year, investors will have noted it and will see how you report it. If it is not mentioned, or glossed over, that will set alarm bells ringing. A number of companies should have been more open about particular ‘problems’ in the year under report. Investors will appreciate companies demonstrating that the board is active in resolving the issue. Finally, too many companies ignored the role of the company secretary. Some examples of good practice:

  • Aviva’s discussion of the audit investigation into late trades is good and its discussion of the risk management function is very detailed. 
  • Cairn Energy is open and honest, particularly about an investigation by the Indian tax authorities.
  • The Land Securities conflicts of interest section is excellent and has some good examples. Corporate responsibility is clearly embedded in the corporate strategy, with an emphasis on diversity – particularly of gender. The audit committee report is very clear on risks, and there is excellent presentation in terms of graphics, colour and box outs.
  • The Marks and Spencer board expressly takes responsibility for the report being fair, balanced and understandable. This is highlighted in the very honest depiction of trading results and there is an excellent section on how the board spends its time. The board’s action plan is set out and there is a useful section on how shareholder feedback on the last report has been incorporated.
  • Provident Financial gives a good insight into the board calendar and committees, and the company secretary is included in the report. Its nomination committee report is another strength and includes details of the achievements and qualifications of the directors. 
  • Board activity is well covered by SEGRO and it gives a good case study on assessing the viability of a project. The nomination committee report is a highlight, including clear succession planning and case studies on the appointment of the COO and CIO. 
  • Thomas Cook provides an excellent summary of the business transformation and clear presentation of the board’s responsibilities and activities. It gives a good description of shareholder engagement and communication, and the board’s approach to risk management is extremely clear.

Succession planning and diversity

Previous articles have explored good practice audit and risk reporting and remuneration reporting (see February issue of Governance + Compliance). The following review will therefore concentrate on the report of the nomination committee.  

The nomination committee may be considered the ‘Cinderella’ committee of the board – in recent years there has been a considerable focus on the role of the audit and remuneration committees over that of  nomination, despite its responsibility for selecting the individuals that are proposed for service on the other committees.

This report should discuss the mix of skills and other attributes on the board – including how any gaps are likely to be filled and looking at diversity in its widest sense – with clear evidence of succession planning.  There should be some description of the skills and capabilities required and/or obtained in the course of board refreshment and an explanation of why these are important to the board and company’s strategic purpose. When providing biographical details of existing board members, it is helpful to discuss what each director brings to the board and give specific reasons why they should be re-elected. Examples of good practice include:

  • The process for appointing people to the Johnson Matthey board and committees is very well described, as is the process for succession planning. The nomination committee section is particularly strong; terms of appointment for directors and their time commitment are considered, and there is a good explanation of succession planning.
  • Land Securities gives a good explanation of why there are some longer-term directors on the board.
  • Marks and Spencer’s analysis of succession planning, both internally and externally, is particularly clear and covers details of board induction and what this entails, as well as a very clear overview of the board diversity policy and talent management. 

Board effectiveness and board evaluation

There were times when the reporting of board evaluation felt like pulling teeth, with some companies seeming to say as little as they thought they could get away with on the subject. No-one expects a company to report that the board are at each others’ throats at every board meeting but it should not be so difficult to achieve more flavour of what was done, what the outcomes were and – perhaps most importantly  – what has been done following the previous review. Examples of good practice:

  • Land Securities gives a good explanation of the board evaluation process. 
  • The Marks and Spencer board evaluation section is excellent – the details of outcomes and actions giving some real insight.
  • The Thomas Cook board evaluation process and outcomes are very clearly reported and included comparisons from previous years and an assessment of progress.

Peter Swabey is Policy and Research Director at ICSA

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