1. Mr Marcus Killick
Chief Executive Officer
The Financial Services Commission
Gibraltar
2. Overview of areas covered in this
presentation
Structure of the board
Independence
Board Committees
Evaluation of performance
Boardroom Behaviour
Conflict of interest
Role of the Regulator
3.
4. Structure of the Board
Directors
Chairman Chief Executive
Management
5. Structure of the Board
The Board should be diverse.
The structure should allow for the board to work effectively
and collaboratively as a team.
Boards with 8-12 members are ideal
Facilitates constructive debate
There should be a balance of expertise, skills and
experience
Appointment of Non Executive Directors “NEDs”
Distinction between roles
In particular, the board should have a clear division of
responsibilities and the posts of Chairman and Chief Executive
should not be combined in one individual
6. Role of the Chairman
Runs and leads the board in the determination
of its strategy
Ensures board has adequate information to
perform its role
Ensures effective relationships are maintained
Ensures the right and common values
7. Role of the CEO
Leading the executive directors and the senior
executive team in the day to day running of the firm.
Chairing the Executive Committee and communicating
its decisions/recommendations to the board.
Ensuring effective implementation of board decisions.
Regularly reviewing the operational performance and
strategic direction of the firm.
Ensures effective communication with shareholders
8. Role of the Non Executive Director
There is no distinction between the position of
executive and non executive directors. If a breach of
duty is to be attributed to a board on the basis that all
of its members were present at a meeting which had
approved a wrongful act, then the liability of each
director is joint and several and no allowance is made
for the fact that some are part timers and may have
acquiesced in a situation which they did not fully
understand
Re Lands Allotment Co. (1894) 1 Ch 616 63 LJ Ch 291 CA
9. Role of the NED
The NED role is complex and demanding.
It requires skills, experience, integrity, and particular behaviours and
personal attributes
Integrity and high ethical standards – these are a prerequisite for all
directors
Sound judgement and an inquiring mind.
10. The effective NED
NED’s should:
question intelligently;
debate constructively;
challenge rigorously; and
decide dispassionately
Scrutinise the performance of management in meeting agreed goals
and objectives and monitor the reporting of performance.
Satisfy themselves on the integrity of financial information and that
financial controls and systems of risk management are robust and
defensible.
Be responsible for determining appropriate levels of remuneration of
executive directors and have a prime role in appointing and, where
necessary, removing executive directors, and in succession planning.
11.
12. Independence of Directors
A director’s independence may be compromised for a variety of
reasons including if he/she:
Is an employee of the company or group within the last five
years;
Has material business relationship with the company
has received or receives additional material remuneration
from the company
has close personal relationships
holds cross-directorships
represents a significant shareholder; or
has served on the Board for more than nine years from the
date of his first appointment.
The board should be aware of these circumstances and make a
conscious decision to record where any of these, or other
reasons, may lead to the director not being considered to be
independent.
13. Examples of the types of Board Committees and the functions each
committee should undertake
Useful to look at the ICSA Terms of Reference published for Improving
Board Effectiveness which can be found online at the following URL;
http://www.icsaglobal.com/about-icsa/latest-from-icsa/article/icsa-
publishes-new-terms-of-reference
14. Board Committees
Committees play an important
role in the governance process.
The board can effectively
governs through clearly
mandated board committees, Risk Nomination
accompanied by monitoring and
reporting systems.
Each committee should have
specific written terms of
reference issued by the board
and adopted in committee. Audit Remuneration
The exact compliment of
committees will vary from firm
to firm
15. Nomination Committee
Formal and transparent process for the appointment of new directors to
the board
Before making an appointment, evaluate the balance of skills, knowledge
and experience on the board
Give full consideration to succession planning
Regularly review the structure, size and composition (including the skills,
knowledge and experience) of the board
Should consist of a majority of executive directors
Recommend appointments to the board
16. Audit Committee
Review accounting principles, policies and practices
Ensure all financial statements follow accounting practice and give an accurate
representation of the companies situation
Scope, examine and follow up audits (especially on controls)
Develop and monitor internal audit
Consider the appointment and remuneration of auditors
Should consist of non executive directors
17. Remuneration Committee
Approve service contracts for executive directors (and senior management)
Recommend to the board the remuneration for executive and senior
management
Review and recommend employee share schemes
Review pensions
Approve arrangements for retirement or termination
Chairman of the board (if independent) may be a member but not chair.
18. Risk Committee
Advise the board on the firms overall risk appetite, tolerance and strategy
Oversee and advise the board on the current risk exposures of the
company and future risk strategy
Review the firms capability to identify and manage new risk types
Consider and approve the remit of the risk management function
19. “It is best practise that the performance of the board as a whole, of its committees
and of its members, is evaluated at least once a year... Companies should disclose
in their annual report whether such performance evaluation is taking place.”
The Review of the role and effectiveness of non-executive directors 2003
(the Higgs Review)
20. Evaluation
Formal and
and that of its
rigorous annual
committees
evaluation of
and individual
its own
directors.
performance
21. Evaluation methods
Self evaluation
Peer evaluation
Evaluation by the chair
360 Feedback
External facilitator
22. When to choose external assistance?
For new
chairmen
Every so For old
often boards
When you
When
have a
challenged
problem
23. “Appropriate boardroom behaviours are an essential component of
best practice corporate governance; and that the absence of guidance
on appropriate boardroom behaviours represents a structural
weakness in the current system”
Boardroom behaviours - A report prepared for Sir David Walker by the Institute of
Chartered Secretaries and Administrators (‘ICSA’)
24. Boardroom behaviour
Appropriate board behaviour can be defined as functioning in accord with the
board's roles and responsibilities. Thus, board members should know the
difference between governance and management.
Appropriate behaviour also has key characteristics, the first of which is
respect—for the organization, the management the employees, and other
members of the board. Respect is basic, but it doesn't always exist.
Respect leads to two additional behavioural characteristics that are needed:
openness in the board discussions and confidentiality.
Conflicts of interest also fall in the category of behaviour. “There's no evil in
conflict of interest; the evil lies in the hiding of it”. All boards need to have a
policy about conflict of interest. Usually this policy requires all members to
disclose potential conflicts and to abstain from voting on such matters.
Another behavioural element is distinguishing between the important and the
unimportant. The board has limited time. If it spends hours and hours on
trivial matters, it won't be able to address significant and strategic matters.
25. Conflicts of interests may arise where an individual’s personal or
family interests and/or loyalties conflict with those of the firm.
Such conflicts may create problems they can:
• inhibit free discussion;
• result in decisions or actions that are not in the interests
of the firm; and
• risk the impression that the firm has acted improperly.
26. Policy
The development of a conflicts of interest policy
protects both the organisation and the individuals
involved from any appearance of impropriety.
Board members should declare their interests, and any
gifts or hospitality received in connection with their role
in firm.
A declaration of interests form should be provided for
this purpose, listing the types of interest you should
declare.
To be effective, the declaration of interests needs to be
updated at least annually, and also when any changes
occur
27. Our Aim: To protect the reputation of Gibraltar by ensuring that
the boards of licensees act in compliance with modern
standards of corporate governance, so significantly reducing the
risks of failure and client loss
28. Why the regulatory focus on corporate
governance?
Virtually every failure in the current crisis has
stemmed from poor corporate governance/Board
oversight
Lehman Brothers Holdings Inc
Northern Rock
RBS
MF Global
29. The basis for our perspective
The FSC has not reinvented the wheel but rather uses
established and accepted principles such as:
A review of corporate governance in UK banks and other
financial industry entities - (The Walker Review) (2009)
FRC Guidance On Board Effectiveness (2011)
FRC UK Corporate Governance Code (2012)
30. Not one size fits all
Not all firms alike in size or complexity
Some elements like board committees may not be
appropriate for small private companies however all firms
should consider those elements applicable to them and
apply them
Important to establish principles rather than proscriptive
rules
Principles to be on a “comply or explain” basis
Underlying everything is the principle that the FSC holds
the whole board accountable not just the executive
members.
31. The problems with regulatory assessment of
good corporate governance
It is subjective involving both quantitative and qualitative information
Board policies and procedures can be assessed;
Board papers and board minutes can be reviewed;
Frequency of board meetings can be checked;
BUT
Board behaviour cannot be objectively measured;
THEREFORE
The role of the NED is vital to ensure the board operates effectively
Therefore the FSC encourages the appointment of NED’s and especially
independent NEDs.
