Boards Responding to Governance Code, Says IoD Study

Posted By: Admin, 16 Jul, 2011 - 09:03 am

Boards are increasing their effectiveness thanks largely to improved evaluation procedures since the introduction of the UK Corporate Governance Code (formerly the Combined Code), according to the chairman of the Institute of Directors (IoD), Dr Neville Bain.

An IoD study, released last month, found that although the code's influence on underperforming organisations over the past year is yet to be determined, generally, boards are in a healthy condition, and the companies driving the economy from recovery into growth are proactive and able to communicate with entrepreneurial talent in the commercial marketplace.

Additionally, the report revealed the healthiest boards take time to review progress, and are aware of their weaknesses and try to address them in accordance with the code's 'comply or explain' principles.

'In general, we are delighted to report that boards are performing well,' Dr Bain (pictured) said recently.

'While this may not be a position the media would like to report, our experience is that directors are diligent in discharging their duties, aware of issues that affect the board's performance, and have found their evaluations to be valuable, welcoming the opportunity to enhance their effectiveness.'

Dr Bain's comments are refreshing because good news concerning the actions and behaviour of FTSE directors has become something of a rarity, particularly over the past year. If the IoD's findings are accurate, they suggest we have more to celebrate and be proud of than we give ourselves credit for.

The ability to conduct business successfully and evaluate your board's performance is integral, if good governance is the objective. The research indicates that directors are not only spending the required time in the boardroom, but also focusing on the right things, namely; strategy, vision, purpose and value.

Considering the code includes a provision requiring: "Evaluation of the board of FTSE 350 companies should be externally facilitated at least every three years", it's great to know these powerful boards, headed by talented directors, are operating correctly and driving British enterprise.

Nevertheless, the lack of information relating to underperforming companies is concerning as it's easier to demonstrate organisational failure than causal links between an effective government structure and a successful business.

We should be using our evaluation methods to predict and identify when there's trouble on the horizon, rather than attempting to deal with it after the event.

By and large, the IoD's findings are a step in the right direction to encourage boards to appraise themselves regularly, refresh the talent on the board and create the dynamic, strategic decision-making structures that are needed in the current economic environment.

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