New guidance on what makes an effective board

Tuesday, March 22, 2011 | Posted by: Fiona Cullinan
Categories: FRC, Governance | Tags: Board, governance, FRC, women, gender, diversity, succession planning, UK Corporate Governance Code, guidance, NED, chairman, Higgs, composition

The long-awaited replacement of the Higgs Guidance was released this month. So what do you need to know?

The Financial Reporting Council (FRC) has now published its Guidance on Board Effectiveness (PDF), giving practical advice to boards of listed companies on how to lead their companies most effectively and apply the principles of the UK Corporate Governance Code.

It reflects the changes that were made to the Code in 2010, such as the greater emphasis placed on the role of the chairman and the importance of getting the right balance of experience and diversity on the board – including gender – to enable informed challenge and decision-making.

The new guidance replaces ‘Good Practice Suggestions from the Higgs Report’ (known as the Higgs Guidance), which has been withdrawn. It relates to the sections A and B of the Code, which deal with leadership and effectiveness, and address issues such as:

• the roles of the chairman, senior independent director, other directors and the company secretary
• decision-making policies and processes
• board composition
• succession planning (read our five-part advice series on succession planning)
• evaluating the performance of the board and directors
• audit, risk and remuneration
• relations with shareholders

FRC chairman Baroness Hogg said the guidance was not prescriptive but was aimed at helping boards carry out their role effectively. Simon Lowe, chairman of the Grant Thornton Governance Institute, added:

“The guidance represents a major step forward in recognising what it takes to build and maintain a high-quality board who can lead a company successfully through the difficult times, as well as good. While much of its content may seem common sense to many companies, it represents leading thinking in several areas, for example decision-making and best practice for all who recognise the need to challenge the status quo.”

For further information on the new guidance, contact Simon Lowe on simon.j.lowe@uk.gt.com or read more about UK Corporate Governance .

You might also find these posts useful:

* The governance landscape is changing – are you ready? – a look at the FTSE 350 and the Code.
* UK boards need more women directors – but how?
* Eight key changes in UK Corporate Governance Code