Just because Codes of Governance state that external governance reviews should happen, maybe that isn’t a strong enough reason for a Board to commit the time, energy and cash to make it happen. Over the years, we’ve been told by clients that it can be a daunting prospect – inviting a stranger in to scrutinise the work of the Board and potentially criticise their work. We thought it might be useful to outline the benefits we’ve seen over the past 20 years, from the many governance reviews we’ve carried out.
According to the UK Corporate Governance Code, “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”. The Charity Governance Code recommends “The board reviews its own performance and that of individual trustees, including the chair. This happens every year, with an external evaluation every three years. Such evaluation typically considers the board’s balance of skills, experience and knowledge, its diversity in the widest sense, how the board works together and other factors relevant to its effectiveness”.
Benefits of an external Governance review
- Provided you trust the individual or team tasked with the review, you should feel assured that they’re ‘on your side’ and will only offer challenge with positive intent. Like a trusted close friend that you know will be honest about which outfit suits you best, an effective governance professional will shine a light on further improvements that can be made. The emphasis will be on positive steps forward for enhanced success, rather than highlighting any ‘failures’.
- You can’t see what you can’t see. As the Johari window tells us, we all have blind spots, and if we really want to learn, develop and improve, we need an impartial observer to point them out.
- An effective external review will produce a brief, focussed report, and a draft Governance Action Plan (usually a single page) which will be presented to the Board and agreed with them as the next steps in the governance development journey. It may also produce a draft Governance Manual, with all of the Board level policies and guidance documents needed to steer the agreed processes.
As the National Audit Office says “An effective evaluation can help even highly successful boards to enhance their performance and improve their organisation”.
Some useful reading –
- The Oxford Handbook of Corporate Governance
- Corporate Governance: Principles, Policies, and Practices
- Corporate Governance and Accountability
- Corporate Governance: Law, Regulation and Theory
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