Board Evaluation: Back At The Fork In The Road?

The Covid-19 pandemic has had severe and long-lasting impacts across many parts of the global economy. Some regulatory initiatives intended to improve corporate governance are also finding the back burner.

In UK audit, for example, the bold recommendations of three major reviews remain a work in progress. Meanwhile the collapse of Germany’s Wirecard amid clear shortcomings demonstrates that audit quality remains a major international issue.

Board Evaluation had also caught the regulators’ attention. Triggered at least in part by the collapse of Carillion in early 2018, the UK government’s department for Business, Energy and Industrial Strategy (BEIS) commissioned the Institute of Corporate Secretaries and Administrators (ICSA) to prepare a consultation document in May 2019 on the way forward for Board Evaluation.

Fidelio conducts Board Evaluations internationally. We have a clear commitment to enabling Boards to add greater value for both stakeholders and shareholders, and were therefore active in the consultation process. The BEIS report was due to be published in March 2020.  Clearly the pandemic intervened but despite the absence of a final report, Fidelio has seen the interest in Board Evaluation increase from both quoted and privately held companies.

On a recent webinar Alok Sharma, Secretary of State for BEIS, indicated that after months of pandemic firefighting the department is returning to business as usual. When the consultation is revisited, there is an important issue to be addressed, which Fidelio flagged a year ago.

In many ways Chairs are moving ahead in adopting a forward looking, effectiveness-based approach to Board Evaluation that is aligned to value and takes full account of shareholders and stakeholders. It would be good to also see government and regulatory endorsement that will encourage Boards to provide clear and bold leadership rather than box ticking and risk aversion.

The Fork in the Road

A year ago Fidelio flagged this fork in the road for Board Evaluation. Indeed the consultation raised the essential question for external reviews of the Board – is this a form of audit, or a tool for performance improvement with a focus on value.

— Audit?
A tool to audit the Board against prescribed criteria, so that the Evaluation becomes in effect a compliance certificate. This approach may give clarity and simplicity but could have negative consequences and encourage excessive caution at a time when Boards need to be contributing to innovation.  It’s also likely to give rise to a “tick-box” approach and narrow definitions of responsibilities, as in financial audit.

— Performance Improvement / Increasing Effectiveness / Adding Value ?
A means of increasing Board effectiveness, less tightly defined, but with greater focus on the desired outcome of a more effective Board better able to deliver value for stakeholders and shareholders. An independent perspective that focuses on the salient issues and provides practical recommendations will arguably enable the Board to provide the leadership required in these extraordinary disrupted times.

At Fidelio we have a clear commitment to increasing effectiveness and continue to advocate this way forward for Board Evaluation. To read our original Table Talk on Audit vs. Effectiveness, please click here.

To learn more about how Fidelio supports Boards and Executive Committees through Evaluation, Development and Search, please contact Gillian Karran-Cumberlege at gkarrancumberlege@fideliopartners.com.

For details of Fidelio’s ESG Leadership GRID, contact Alistair Stranack at astranack@fideliopartners.com.

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