Boards’ effectiveness essential to long-term economic success

The Investment Association and EY have published “ Board Effectiveness: Continuing the Journey”.

The reportis a result of numerous meetings of investors and board directors brought together to share examples of leading practice and new ideas for improving and demonstrating board effectiveness.

Andrew Hobbs, EY Partner, corporate governance and public policy, said: “This report is designed to share best practice and highlights the need for management, directors and investors to work together to create businesses that are sustainable for the long term.”

Although the report highlights that there is no ‘silver bullet’ to improving effectiveness, as all boards and companies are different, the report does outline some key findings.

One of these findings concerned the benefits of having regular discussions about the CEO’s tenure. The report emphasised it is necessary to have conversations when things are going well and not just when there are problems.

Additionally, the findings suggest it is important to set expectations around length of tenure at the time of appointment.

The report also noted the need to create a strong pipeline of diverse future boardroom talent by developing employees further down the organisation to ensure they are ‘board-ready’ and for both chairs and NEDs to balance their portfolio of roles.

It is essential to involve investors when defining the attributes to be sought in new board appointments as well as the importance of having a robust board evaluation strategy.

Helena Morrissey, Chair of The Investment Association, said: “Investors have a pivotal role in working with companies to improve board effectiveness.

“Effective boards are essential to the long-term success and sustainability of companies and ultimately of the economy as a whole. This report provides practical discussion points to companies and investors to help them enhance their capacity to ensure that boards are effective and always open to improvement.”

Hobbs added: “Uncertainty is a new normal for businesses as they operate in an increasingly global and competitive environment. They are also facing closer shareholder, political and regulatory scrutiny. Given this context it has never been more important to discuss board effectiveness.

“However, making a board more effective is a journey without a destination. Issues such as board succession, CEO tenure and diversity require constant focus and attention rather than being set tasks with an end date.