As part of the current review of the Combined Code and its associated guidance, the Financial Reporting Council asked the Institute of Chartered Secretaries and Administrators to update the good practice suggestions from the Higgs Report and consider whether additional guidance should be given on board effectiveness. ICSA has now has published a preliminary consultation document, "Improving Board Effectiveness" in which it seeks comments on the areas to be covered by the updated guidance.
ICSA proposes that the guidance should cover five aspects:
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The role and responsibilities of the board and its members. ICSA proposes to give more emphasis to the role of the chairman and to include guidance re-evaluating the role, responsibilities and contribution of all board members, including executive directors. It also proposes more emphasis on the need for the board to determine the culture, vision and values appropriate to the company and guidance on how to identify factors which allow for a culture of constructive challenge and the avoidance of thinking as a group.
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Skill levels in the boardroom. ICSA proposes guidance on how to meet the increased emphasis given to development activities and performance evaluation in the Code.
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Board decision making. The Higgs guidance on nomination and remuneration committees will be updated. For audit committees, there will be a cross reference to the FRC guidance on audit committees, pending the review of the Turnbull guidance on internal control and work by the Auditing Practices Board on non-audit services and auditor rotation.
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The individual in the boardroom. ICSA proposes to update the current Schedule B of the Code on the liability of non-executive directors.
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Accountability. ICSA notes the encouragement being given to chairmen to report personally in their annual statements. It proposes guidance to reflect the increased emphasis given to disclosure obligations in the Code and on the benefits of using disclosure as a sign that a company is well run.
ICSA's consultation can be found here. The consultation period ends on 16 April 2010. A second consultation will follow in June and ICSA intends to publish final updated guidance in October 2010.
