Board effectiveness reviews: A burden or an opportunity?

In December 2014 and January 2015 Grant Thornton UK undertook a survey of the financial services sector’s views and attitudes towards reviews of their boards and governance effectiveness.

The survey looked at how financial services go about these reviews, what areas they focus on and what value they gain from the process.

It found that 64 per cent of respondents review board effectiveness each year, with 66 per cent using external facilitators for the review in the past four years. The most common method used to assess board effectiveness was “board discussion and debate” (63 per cent), followed by a questionnaire (50 per cent) and interviews of directors (40 per cent).

It was perceived by most respondents (79 per cent) that board reviews could add value and 76 per cent noted that the review had “prompted change in operation of the board or the business as a whole”.

The report discusses the basics of board effectiveness and provides a positive checklist for every director. It states that there are two key rules of board effectiveness:

  1. Get the basics right through critical focus and ruthlessness in fixing problems.
  2. Optimising board composition (size, skills, experience, expertise).

The report contends that while this review process may have begun as a result of regulatory pressure (following the UK Cadbury report in 1992 which set out recommendations on the arrangement of company boards and accounting systems to mitigate corporate governance risks and failures), that boards are now aware of real, practical benefits. It is felt that a genuine interest and commitment to the process can result in higher levels of performance across the business.

For more information, see Board effectiveness reviews in the financial services sector: A regulatory burden or an opportunity?