PRI and ICGN present board effectiveness session

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February 06 2014, London

There is a great need to ensure the right skill sets are present to enable boards to effectively protect and create long-term shareholder value, according to the Principles for Responsible Investment (PRI) and the International Corporate Governance Network (ICGN). Both partnered to host an event on Monday 3 February focused on board nominations and governance, held at Bloomberg’s London office.

Addressing the audience of more than 120 senior investment professionals, Lord Paul Myners, Partner and Chairman, Cervian Capital and former Financial Services Secretary, HM Treasury, opened the event reminding investors “the only ones with the ability to influence good practice are you”.

Myners went on to discuss the lack of attention to the “neglected” nomination committee, and the importance of governance within an effective structure, stating “I have not seen one company fail that has had good governance”. Furthermore, he highlighted that the board effectiveness review “is not working effectively” and “annual reports are not delivering” on that aspect. Additionally, Myners urged investors to “press the Financial Reporting Council (FRC) to audit the quality of board evaluations and report on best standards”.

Facilitated by Peter Montagnon, Associate Director, Institute of Business Ethics, a panel of speakers debated the current board and governance environment across a number of geographic regions, discussing the need for a mix of relevant skills, competence, gender and diversity of perspectives within boards, debating on both the weaknesses and strengths of different approaches. According to Myners “the massive underinvestment in governance needs to be addressed”.

It was widely recognised by all that an environment promoting increased disclosure should be encouraged. Responding to this, Susan Swabey, Company Secretary at global medical technology firm Smith and Nephew, said one of the biggest issues with the disclosure of board effectiveness is “the hesitation to air dirty laundry in public, particularly when the company is trying to resolve an issue”.

Following this, PRI Managing Director, Fiona Reynolds addressed the audience, and reiterated the need for truly independent reviews and increased transparency on director nominations. Reynolds said “there seems to be a lot of scope for improvement on how directors are nominated and elected to a board”.

Working group discussions focused on the United Kingdom, US, Canada, Sweden, France, Italy and Australia, identifying key themes relating to each geography. These included board diversity in addition to the clearer communication of board review outcomes. Participants provided input on key areas for improvement and good practice indicators that could be used to benchmark company performance.

The PRI Steering Committee working on this project comprises of 9 institutional investors representing approximately USD1 trillion in AUM. The committee will now incorporate the feedback received into the scope of the project. Research providers will be asked to respond to a request for the company benchmark in March, with the Steering Committee aiming at launching a collaborative engagement by June 2014.

For further information, please contact:
Athanasia Karananou

Manager of Investor Engagements, Corporate Governance, PRI
+44 (0) 20 3714 3181