Board effectiveness and performance beyond the annual evaluation_ICSA Dublin 11 June

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Board effectiveness and performance beyond the annual
evaluation;
Understanding the DNA of your board’s performance
David O’Callaghan, Director, Board Excellence
KPMG, Stokes Place, Dublin 2
11 June 2019

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Introduction to Board Excellence
• Specialist consultancy and advisory practice supporting boards, working as teams, and individual
directors excel in effectiveness, performance and corporate governance best practices;
• We support client boards in all company and business types across all sectors and of all sizes in
Ireland and UK, both directly and through relevant representative and umbrella organisations;
• Collaborating with Irish and UK legal, accounting and corporate finance firms in supporting their
clients, and partnership in UK with London Stock Exchange;
• Preferred director training partner of two European Development Finance Institutions, and
provider of governance training with an Asian Leadership and Governance training organisation;
• Our board performance services include:
- External board evaluations and facilitated internal reviews;
- Board best practices and director training built on our proprietary and international research and philosophies;
- Non-executive director and chair search and recruitment, and chair, director and company secretary mentoring;
- Governance and culture assessments and dispute resolution.

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Board effectiveness and
performance beyond the
annual evaluation

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Through which lens do you consider board evaluation?
Annual, process-driven obligation Culture and behaviours
vs.

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Board evaluation … a culture rather than an event
• A vital process for improving board performance and
dynamics;
• Tends to be associated with the annual evaluation
process rather than an engrained culture of continuous
improvement;
• Many boards continue to associate evaluation with an
annual, compliance-led, box-ticking exercise of little
value, regardless of whether internal or external;
Not yet where it
needs to be!

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Codified and regulatory requirements
“There should be a formal and
rigorous annual evaluation of the
performance of the board, its
committees, the chair and individual
directors. The chair should consider
having a regular externally facilitated
board evaluation. In FTSE 350
companies this should happen at
least every three years."
UK Corporate Governance Code
“Conduct a regular review that
includes an assessment of the
effectiveness of your board as a
whole, office holders and individual
charity trustees;”
Irish Charities Governance Code 2018

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Codified and regulatory requirements
State the objective and scope of the
evaluation review, the methodology
applied and the rationale for this
methodology;
Specify when the most recent externally
facilitated performance evaluation was
undertaken … ;
Where the process is one of self-
evaluation … explain the steps."
Irish Corporate Governance Annex
“The Board should undertake an
annual self-assessment evaluation of
its own performance and that of its
committees. An external evaluation
proportionate to the size and
requirements of the State body should
be carried out at least every 3 years.
Code of Practice for the Governance
of State Bodies

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Codified and regulatory requirements
“The board should regularly review the
effectiveness of its performance as a
unit, as well as that of its committees
and the individual directors. The board
performance review may be carried
out internally or, ideally, externally
facilitated from time to time."
UK Quoted Companies Alliance
Corporate Governance Code
“The board of directors shall carry
out at least annually a
comprehensive review of its overall
performance, relative to its
objectives and implement any
necessary changes or
improvements.”
Credit Union Governance Handbook

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Codified and regulatory requirements
“Regular evaluation of the board can
help individual directors to contribute
effectively and highlight the strengths
and weaknesses of the board as a
whole. The chair should act on the
recommendations of such evaluations.
This approach may be part of board
refreshment and succession plans.”
Wates Corporate Governance
Principles for Large Private Companies
Require large* companies to disclose
which corporate governance code, if
any, they applied during the financial
year in question.
*(defined as either more than 2,000 employees
or having a turnover of more than £200 million
and balance sheet of more than £2 billion)
UK Companies (Miscellaneous
Reporting) Regulations 2018

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Evolution of Board Evaluation
• Driven by codes and regulations requiring an annual evaluation with an external
evaluation at least every three years;
• This has translated into two internally-conducted evaluations followed by an evaluation
in year three conducted by an external party;
• Internal evaluations tend to offer little value in understanding the real strengths or
weaknesses of the board, or in providing a programme of improvement;
• Few companies retain the same provider for successive external evaluations.
• brings different approaches, perspectives and philosophies;
• lack of consistency is of little value to a board that needs to step up its performance and is
looking for consistent support in improving;

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Quality of evaluations and outcomes under scrutiny
• ICSA consultation into the effectiveness of
independent board evaluation in the UK listed sector
to assess the quality of evaluations and identify ways
in which board evaluation might be improved;
• Considerable variations in the standard of evaluators
and evaluations;
• Companies’ willingness to accept findings and
implement recommendations;
• Quality of disclosure on outcomes of evaluations.
Uncertainty among
shareholders and stakeholders

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“Beyond compliance: The building blocks of strong corporate culture”
Grant Thornton, 2017
“A ‘tick in the box’ mentality ... will
ultimately result in a lack of achievement
and [a lack of] ongoing success.”
“Conversations have changed over
recent years … to now understanding
culture as a way to create value and
gain competitive advantage.”
“Corporate culture should exist to do more
than just tick a box in a report. It should act
as a guide to future growth and success.”
“The role of the board is to weave culture
into their corporate governance
responsibilities.”

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The board must engender a performance evaluation culture
Average
Board
Effective
Board
High-
Performing
Board
Boards should constantly strive to achieve step-changes
in their performance and in the value they add to their
organisations …
… and high-performing boards
should constantly strive to find
that extra 10-20% improvement.

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A simple model for board effectiveness and performance

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What are the drivers of sustained board performance?
• Strong leadership in the form of an engaging, experienced and
objective chair;
• The board functioning as a high-performing team with a
common purpose;
• Membership consisting of independent, diverse and
appropriately experienced directors;
• Non-executive directors who act with independence,
intelligence (competence) and integrity (behaviour); and
• Best in class processes and dynamics;
• All underpinned by a strong trust-based partnership between
executives and non-executive directors.
Company Secretary can influence the quality of these drivers

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• The art of directing the simultaneous performance of
several players … by the use of gesture;
• Alchemy … a power or process that changes or
transforms something in a mysterious or impressive way;
• Might not make a sound, but they unite the ‘musicians’
and, depending on their power, authority and style, they
can help them create truly beautiful music!
The Company Secretary … Conductor of the Orchestra

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Company Secretary role in enabling and sustaining performance
Supporting the chair in achieving effective leadership of the board by:
• being a valued adviser on promoting and sustaining the robustness and efficacy of
corporate governance arrangements and practices, and
• by ensuring alignment of the board’s oversight focus with the company’s strategic
priorities and governance considerations through proactive management of board and
committee work programmes and agendas; and
• advising and guiding on forum authorities, roles and responsibilities, membership,
interdependencies, conflicts of interest, operations, performance and effectiveness;

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Company Secretary role in enabling and sustaining performance
Supporting the chair and the board in achieving the appropriate mix of independence,
diversity and experience on the board by:
• assisting with skills reviews to assist the board and committees in determining skills
and membership appropriate to their purpose and organisation strategy;
• facilitating related succession planning requirements; and
• facilitating directors’ induction, development and training requirements;

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Board Competency Framework
Industry
Technical
Governance
Behavioural
Experience in and knowledge of the industry in which the
organisation operates
Technical and professional skills and specialist knowledge to
assist with ongoing aspects of the board’s role
The essential governance knowledge and understanding all
board members should possess or develop if they are to be
effective, including some technical competencies at board level
The personal attributes and competencies enabling individual
board members to use their knowledge and skills to function
well as team members and to interact with key stakeholders
G.C.Kiel et al., 2012, Directors at work: a practical guide for boards

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Company Secretary role in enabling and sustaining performance
Ensuring best in class board information management, processes and dynamics, by :
• ensuring alignment of board focus with strategic priorities and performance;
• facilitating and supporting the board and committees in functioning effectively;
• timely delivery of meeting papers based on approved templates and processes;
• ensuring all papers are concise, complete and coherent and adequately reflect the
substantive matters for consideration and the decisions or actions required; and
• delivery of concise, complete and coherent minutes following all meetings;

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Company Secretary role in enabling and sustaining performance
Supporting the board as a ‘team’ and development of a trust-based partnership by:
• encouraging open, engaging and active dialogue;
• ensuring the circular and timely flow of relevant information; and
• organising informal social gatherings of the directors, and periodically directors and
management, around the board meetings:
• time spent by directors on getting to know each other is time well spent and an
investment in the effectiveness of the board;
• “you can discover more about a person in an hour of play than in a year of
conversation”.

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Pillars of board effectiveness
Strength of
the Chair’s
leadership;
Quality of the
executive / non-
executive
partnership;
Best in class
information and
process
architecture;
Competence,
character and
behaviour of
the directors;
Board team
dynamics;
Performance
evaluation
culture.
Strong and
influential company
secretary

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Board effectiveness and
performance beyond the
annual evaluation
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