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Sep
10
Tue
2019
9:00 am How to become a Non-Executive Di... @ The Waterfront
How to become a Non-Executive Di... @ The Waterfront
Sep 10 @ 9:00 am – 4:30 pm
Are you thinking of becoming a Non-Executive Director as part of a Portfolio Career or to develop your boardroom skills prior to taking up an executive director role? <img data-attachment-id='211' data-permalink='https://nedworks.net/how-to-become-a-non-executive-director-bristol-21-january-2013/boardroomlr/' data-orig-file='https://i1.wp.com/nedworks.net/wp-content/uploads/2013/01/boardroomlr-e1403708151819.png?fit=600%2C486&ssl=1' data-orig-size='600,486' data-comments-opened='0' data-image-meta='{'aperture':'0','credit':'','camera':'','caption':'','created_timestamp':'0','copyright':'','focal_length':'0','iso':'0','shutter_speed':'0','title':''}'[...]
Oct
8
Tue
2019
9:00 am The Effective Non-Executive Dire... @ Institute of Directors
The Effective Non-Executive Dire... @ Institute of Directors
Oct 8 @ 9:00 am – 4:30 pm
The effective Non-Executive Director course helps you to be an effective non-executive director. It instils a real sense of what is expected of NEDs, and how you can meet the challenge. <img data-attachment-id='113603' data-permalink='https://nedworks.net/10-things-non-executive-directors-can-do-to-satisfy-their-legal-responsibilities/ned3-2/' data-orig-file='https://i1.wp.com/nedworks.net/wp-content/uploads/2015/04/NED31.png?fit=1500%2C883&ssl=1' data-orig-size='1500,883' data-comments-opened='0'[...]
Oct
22
Tue
2019
9:00 am How to become a Non-Executive Di... @ Institute of Directors
How to become a Non-Executive Di... @ Institute of Directors
Oct 22 @ 9:00 am – 4:30 pm
How to become a Non-Executive Director – London 22 October 2019 @ Institute of Directors
Find out how you can obtain a Non-Executive Director position by booking a place on this interactive 1-day course. <img data-attachment-id='113603' data-permalink='https://nedworks.net/10-things-non-executive-directors-can-do-to-satisfy-their-legal-responsibilities/ned3-2/' data-orig-file='https://i1.wp.com/nedworks.net/wp-content/uploads/2015/04/NED31.png?fit=1500%2C883&ssl=1' data-orig-size='1500,883' data-comments-opened='0' data-image-meta='{'aperture':'0','credit':'','camera':'','caption':'','created_timestamp':'0','copyright':'','focal_length':'0','iso':'0','shutter_speed':'0','title':'','orientation':'0'}' data-image-title='NED3' data-image-description=' ‘ data-medium-file=’https://i1.wp.com/nedworks.net/wp-content/uploads/2015/04/NED31.png?fit=300%2C177&ssl=1′ data-large-file=’https://i1.wp.com/nedworks.net/wp-content/uploads/2015/04/NED31.png?fit=695%2C409&ssl=1′ class=’alignright size-medium wp-image-113603′ src=’https://i0.wp.com/www.nedworks.net/wp-content/uploads/2015/04/NED31-300×177.png?resize=300%2C177&ssl=1′[...]
Nov
6
Wed
2019
9:00 am The Effective Non-Executive Dire... @ Institute of Directors
The Effective Non-Executive Dire... @ Institute of Directors
Nov 6 @ 9:00 am – 4:30 pm
The effective Non-Executive Director course helps you to be an effective non-executive director. It instils a real sense of what is expected of NEDs, and how you can meet the challenge. <img data-attachment-id='113603' data-permalink='https://nedworks.net/10-things-non-executive-directors-can-do-to-satisfy-their-legal-responsibilities/ned3-2/' data-orig-file='https://i1.wp.com/nedworks.net/wp-content/uploads/2015/04/NED31.png?fit=1500%2C883&ssl=1' data-orig-size='1500,883' data-comments-opened='0'[...]

British Triathlon – Independent Non-Executive Director – Finance

Independent Non-Executive Director – Finance – British Triathlon British Triathlon is seeking to recruit to its Board, an Independent Non-Executive Director with responsibility for Finance. Like all NGB’s, British Triathlon has its financial challenges with the ever present need to diversify its income streams and reduce its reliance on funding income. With a clear governance […]

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Team Fostering – Non-Executive Director

Non-Executive Director – Team Fostering Closing Date: 21st January 2019 at 5pm Team Fostering is a not-for-profit fostering agency, with an annual turnover of £9m, based in the North East, Yorkshire and the East Midlands. We have been successfully supporting children and young people living in foster care to achieve positive outcomes since 2001. We […]

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[…]

2018: A year in governance

Senior officials at the Financial Reporting Council (FRC) may believe Scrooge has stepped off the pages of A Christmas Carol. In his recent oh-so-close-to-festivities report, Sir John Kingman said, “Bah, humbug!” to the UK’s governance watchdog and recommended the regulator for financial reporting, audit and actuaries be shut down.

It must be said however, Sir John was being less like Charles Dickens’ most famous miser, and more like a rational soul calling time on an institution that has long since lost its lustre with many close observers of corporate governance.

But the demise of the FRC is just one in many significant events that marked 2018 as a big year for governance: yet another corporate failure triggered the end of the FRC; audit quality and the audit market was placed under the microscope and found wanting; the UK got a new governance code designed for “long-term” value; executive pay continued to be a national debate; the murder of Saudi Arabian journalist Jamal Khashoggi indicated CEOs could be agents for change; and the a major report highlighted the role companies and investors have to play in speeding up the battle against climate change.

The year’s events left no room for complacency and mean non-executives have had little time to settle. And to add to it all they’ve had to ensure they are cyber literate and prepared for Brexit, whatever the final outcome of negotiations might be.

End of the FRC

Though the year closes with uncertainty over Brexit, there are now no unknowns about the future of the FRC. The body is destined to be wound up and replaced by a new organisation: The Audit, Reporting and Governance Authority. The move comes on the recommendation of the Kingman review appointed earlier in the year by government to look at whether the FRC was still relevant.

The review said it had done a good job on governance but in other areas was found wanting. It noted the FRC stood accused of moving too slowly, being too close to the organisations it regulates and being “too timid”. Things had to change.

Reforms are on the way elsewhere too after the Competion and Markets Authority (CMA) issued its own report on the audit market. Here the CMA advised audit and non audit services of the big firms be split into separating operating units to minimuse conflicts of interest. It also wants closer scrutiny of the audit committees and their auditor appointments.

Both sets of reforms stem directly from the collapse at the end of last year of Construction giant Carillion. A major contractor to government, the company’s collapse led to Parlimentary enquiries that ended in intense criticism of both the FRC and Carillion’s auditor KPMG.

Indeed the FRC has an unfinished inquiry probing the Carillion audit, though a report from MPs accused the firm of failing to exercise professional scepticism towards company’s accounting judgements. KPMG’s public image took a further beating a routine check prompted the regulator to conclude that audit quality at the firm had fallen.

Meanwhile the FRC also made headlines for producing a brand new governance code for the UK. There was criticism for failing to insist on companies including employees on their boards, but there was also praise for the way it integrated sustainability.

Indeed, in principleit places society at the heart of boardroom thinking. It’s opening principles now insist: “A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.”

Germany too got in on the act, launching its own new code. The code there, however, chiefly attacked the issue of executive pay, granting boards permission to introduce majore claw-back provisions on the pay of failing execs. Dr Rolf Nonnenmacher, chairman of Germany’s Governance Commission, said: “With the present draft we are providing a strong, modern, clearly worded, compact and relevant code for discussion, which reflects the status quo of international corporate governance discussion.”

Pay and behaviour

Debate over executive pay in the UK did not let up through the year and will, perhaps, intensify in 2019. Investors have issued warnings and threats. There were small measures in the governance code but otherwise concern remains broadly where it was.

Of course, the UK’s current bout of soul searching over remuneration results largely from the huge £100m bonus received by Jeff Fairburn, chief executive of housebuilder Persimmon.

The ensuing public outcry prompted the resignation of the company and remuneration committee chairs in December last year. Fairburn even agreed a reduced bonus. But the sheer scale of the payout remained an obstacle. The end for Fairburn came in November when he walked away from a BBC interview when asked about his pay. Footage went viral on the internet and soon after Fairburn was asked to turn is his shovel for the sake of the company.

Other individuals caused waves with their own behaviour, or their alleged behaviour. After much public concern about the succession of Sir Martin Sorrell at WPP, the CEO stepped down in April amid a board investigation into allegations about his personal conduct.

He was not alone in having behaviour questioned. Elon Musk, CEO of Tesla, was forced to give up the company chairmanship after regulators in the US investigated a tweet he sent claiming to have a buyer to take Tesla private. Musk caused further concern when he appeared on a YouTube show apparently smoking cannabis. Shareholders were not best pleased, though newspapers had a field day.

Elsewhere Ted Baker founder Ray Kelvin demonstrated the power of the #MeToo movement and made the news when it emerged that employees had jointly signed a letter complaining about his habit of “hugging” colleagues and workers. Kelvin was eventually compelled to take a leave of absence.

Cyber

Facebook, Uber, Google+ and British Airways saw some of the biggest cybersecurity breaches of the year, proving once again that customer data is not as safe as we might like to think. The issue is now well and truly on the boardroom agenda with company leaders everywhere dreading the midnight call that announces criminals have breached fire walls to steal customer data.

The issue is perhaps best exemplified by new measures from regulators which in July saw the Bank of England demand explanations from financial firms on how they plan for a cyber attack.

The issue is unlikely to go away any time soon. Investors are concerned. Writing for Board Agenda, Fiona Reynolds of UN Principles for Responsible Investment, says: “Boards need to work closely with senior management to escalate the message across the organisation that security is everyone’s problem.

“Keeping data secure is not about buying the latest security software; it is about everyone in the company taking responsibility for keeping data secure, whether it’s deleting emails with attachments from unknown sources to protecting the data on laptops that employees take home with them.”

Though IT issues do not end there. The resigning in September of TSB bank’s chief executive Paul Pester over an IT meltdown in the Spring underlined the accountable leaders have for tech, even if they are not experts.

Climate

In the age of the internet, artificial intelligence and robotics, cyber security is now an ever- present boardroom concern. Climate change is a global concern and also very much a feature of boardroom discussion; or should be. The issue has resulted in much speculation about the role of companies in battling global warming and how they integrate “sustainability”.

When the Intergovernmental Panel on Climate Change (IPCC) issued its report in October it included dire warnings about the need to accelerate climate change policies at government and company level. But there were concerns.

The report focused on limiting the rise in global temperatures to 1.5°C above pre-industrial levels, but said: “Meeting this challenge would require a rapid escalation in the current scale and pace of change, particularly in the coming decades.”

It added a warning. In a passage about the ability of business to invest in the right technologies, the report said persuading businesses to invest properly is a problem if their main concern remains pleasing shareholders.

It explained that a lack of clarity about the position of regulatory regimes and the quality of low emission innovations, as well as uncertainty over future revenues because of the price of fossil fuels, amount to an obstacle.

“This inhibits low-emission investments by corporations functioning under a ‘shareholder value business regime’”, the report says.

Board Agenda has conducted its own research, in association with Mazars and INSEAD, to reveal how boards have integrated sustainability thinking into their discussions and policies. The good news is that company leaders recognise its importance. The bad news is that they appear less convinced about the information and policies they require to tackle the issue.

Murder

Perhaps the most horrifying event this year to touch on governance concerns was the murder of Jamal Khashoggi.

Chief executives of many global companies believed they should take action with dozens withdrawing from an investment conference in Riyadh, the so-called “Davos in the Desert”.

Indeed the boycott appeared to underline the growing phenomenon of “CEO activists”, especially in the area of human rights.

Ana Zbona, a project leader with the Business and Human Rights Resource Centre, told Board Agenda: “There has been growing recognition on behalf of business to see that they have a role to play in speaking out.”

And that was only a fraction of governance developments in 2018. Next year promises equally busy. Have a restful Christmas.

Central

The year placed governance on the front of newspapers and at the heart of major debates. If anything, however, it reemphasised the importance of companies in tackling societal issues whether it be human rights, data privacy, climate change or scoial inequality. Any board member in denial about that would be well adivised to seek alternative employment.

The post 2018: A year in governance appeared first on Board Agenda.

[…]

News story: Christmas contact hours

We will be offering a reduced service over the Christmas and New Year period. […]

Press release: Property developers banned after abusing £12m of investments

Six directors have been banned for a total of 54 years after they misled more than 300 people to invest £12 million into residential property developments. […]

News story: Asset recovery correspondence

We have been made aware that some creditors have received letters from a claims management company which falsely claim the endorsement of the Official Receiver. […]

A healthy balance for parent banks

A wide range of post-crisis regulatory reforms has created a more complex governance framework for banks when it comes to managing their local subsidiaries.

In the past decade, regulators have implemented measures at both a global and local level, aimed at protecting depositors and taxpayers, and ensuring local subsidiaries are adequately capitalised to avoid contagion in the event of another banking crisis.

As a result, banks now have home and host country regulation to contend with. For example in the UK, the Financial Conduct Authority has forced lenders to separate their retail operations by erecting a ring-fenced institution with its own board and management team.

Meanwhile, in the US, Europe’s systemically important banks have been forced to create intermediate holding companies—independently capitalised subsidiaries that are subject to rigorous stress tests from their local regulator, the US Federal Reserve.

While regulation has become more local, big banks continue to operate as global entities as they serve the increasingly international needs of all their clients. It is still down to the group board to ensure they have effective oversight and risk management to ensure their far-flung subsidiaries have the right level of local expertise while continuing to manage capital, resources and products on a global basis.

Tensions

With the general direction of travel by regulators towards increasing levels of subsidiary independence, this has inevitably led to the proliferation of subsidiary boards and management structures that in some cases rival their parent companies for heft and complexity. Taken to its logical conclusion, this could hamper the ability of the parent to exercise effective control over the activities and strategic direction of their own subsidiaries.

On the other hand, holding too much control at central group level can create a one-size-fits-all approach without taking into account the unique specificities of each subsidiary, and create a culture of complacency where the board of a subsidiary does not take sufficient responsibility for its own actions.

Given these often competing developments—more local regulation on the one hand, and more globally connected banks on the other—there is an inherent tension between the home jurisdiction of the parent and the host jurisdiction where its subsidiaries are located.

“Home regulators typically want banking groups to be able to exercise more parent control over subsidiaries while host regulators typically want to deal with sufficiently independent subsidiaries, able to constructively challenge decisions that may be in the interest of the wider group but not necessarily of the specific subsidiary,” says Cliff Ekwem, a senior analyst at governance advisory firm Nestor Advisors.

Therefore, banks face a complicated and costly mixture of global and legal entity management and controls that consume significant board and senior management time as they figure out the best structure and composition for the boards of their subsidiaries.

According to the Basel Committee banks must have a group governance policy with clearly defined responsibilities at both a parent company and subsidiary level. Meanwhile, the European Banking Authority, the regulator for the region’s lenders, established guidelines for internal governance in 2011 that require boards of a banking subsidiary to adhere to the “same internal governance values and policies as its parent company.”

The board must ensure that risk systems are robust and uniform, and have clear oversight of issues such as auditing, technology, selection, culture, whistleblowing and fraud. Despite the stricter regulatory environment and clear guidelines, serious breaches and lapses still occur. The uncovering of money laundering and fraud this year at Danske Bank’s Estonia branch highlighted how much work needs to be done at board level to ensure oversight of compliance of bank subsidiaries in different countries.

Downstream governance

From the outset, parent companies must rely on extensive control mechanisms to ensure that the group has an effective subsidiary governance programme in place to assure itself that all companies within the group have the same values, ethics, controls and processes in place as at the parent board level, known as “downstream governance”.

Downstream governance is assured through the subsidiary board, whose task it is to enable, complement and lead. At the same time, the local board should act in an independent and objective manner from the parent board and focus on safeguarding the corporate interests of the subsidiary.

“The composition of subsidiary boards should reflect an adequate balance of promoting downstream guidance and acting independently from the parent. Finding the right board composition for each subsidiary will depend on its intended function and strategic importance,” says Lisa Andersson, head of research at Aktis, a leading provider of bank governance data.

Research by Aktis (Fig. 1)on Europe’s 14 biggest banks, as defined by the Financial Stability Board as globally systemically important (G-SIBs), revealed that subsidiary boards typically comprise six key profiles: subsidiary non-executive directors, subsidiary executives, parent/other subsidiary executives, joint company non-executive directors, joint company executives and employee representations.

Fig 1.

According to Aktis, the largest proportion of directors are classified as subsidiary NEDs, who are typically seen to bring the independent viewpoint needed to differentiate the parent board from the subsidiary board. The second biggest group of directors were NEDs, who held executive positions elsewhere in the group (P/O subs exec). As these directors serve as executives elsewhere in the group, they will typically be seen to provide “downstream governance” to the subsidiary board.

Subsidiary executives, who typically oversee the day-to-day operations of the subsidiary, represent 14% of directors. Finally, the presence of joint NEDs and execs who serve on both the subsidiary board and the parent/management board may indicate a subsidiary of strategic importance to the group.

Independence

Analysis of subsidiary chairs by Aktis revealed that almost half are subsidiary NEDs, while more than a third are executives of the parent or other subsidiaries. When it comes to the independence of the chair, there is a big discrepancy between the subsidiary, where 22% were considered independent, and the parent, where almost two-thirds were considered to be independent.

“The data indicates that parent companies opt for a chair with some connection to the parent entity, which is not unusual given the parent company is typically the ultimate owner of the subsidiary,” says Andersson.

This theme plays out across individual board members. According to Aktis (Fig.2), 68% of directors on parent boards are classified as independent, compared with only 29% at the subsidiary level, well below the traditional 50% minimum independence threshold sought in many jurisdictions.

There is no real general best practice when it comes to the composition of subsidiary boards but the most important element is finding the right balance between parent control and subsidiary independence. “For example,” says Ekwem, “group executives and group non-executive directors bring more parent control; subsidiary executives typically bring a more local perspective and intimate understanding of subsidiary operations; group outsiders such as subsidiary-level independent directors usually bring an external, out-of-the-box perspective, which may also be targeted to the specific country in which the subsidiary operates.”

Then there is the added complication that not all bank subsidiaries are created equally and banks give greater priority to some over others. For higher priority subsidiaries parents may endeavour to put similar governance practices in place as the parent company, with outside directors, scheduled board meetings, formal committees and even annual board evaluations.

For these subsidiaries, the parent company may want to have common directors on both the parent and subsidiary board or have joint meetings between the parent and subsidiary board/committees to ensure a clear line of sight and accountability between both entities.

Fig 2.

By contrast for lower priority subsidiaries it may be the case that their boards are made up entirely of insiders, with no formal committees.
The higher priority the subsidiary, the more material it is likely to be to the parent in the event of a breach of risk management or other controls.

Priorities

In seeking to understand what defines a high or low-priority bank subsidiary, Aktis defined it using two indicators—consolidated versus unconsolidated total assets; and the size of subsidiaries’ assets relative to group assets.

Depending on how assets are distributed, banks are categorised as “concentrated” where they have more than 55% of their assets in the parent entity; “balanced” when they have between 25% to 55%; or “dispersed” where less than 20% of assets are held within the parent company. The more dispersed the asset classification, the higher priority the subsidiaries are.

According to the Aktis, half of European G-SIBs fell into this category, requiring more executives on the ground to manage the day-to-day operations of the company. “The data showed that companies defined as being dispersed have the highest proportionality of subsidiary executives, joint NEDs and joint executives,” says Andersson. By contrast, centralised structures place less emphasis on the subsidiary, and the composition of the board is drawn from an internal pool of candidates where independence is not necessarily important.

Fig 3.

But as the Danske scandal illustrated, “low priority” can also equate to “high risk” from a compliance and control perspective. In a report published in September 2018, Danske Bank admitted that the Estonian control functions did not have a “satisfactory degree of independence from the Estonian organisation” and that the branch operated “too independently from the rest of the Group with its own culture and systems, without adequate control and management focus from the Group.”

Since the scandal, Danske says it has strengthened governance and oversight with the introduction of a new pan-Baltic management. It has also improved its systems and instigated firm-wide anti-money laundering training. But, perhaps more importantly, it has implemented risk management and compliance in performance agreements of all members of the executive board and senior managers.

Creating local board structures at subsidiary level is not necessarily the only tool that group boards have at their disposal. Group boards can ensure that the group management team develops strong functional lines with a real group-wide remit, particularly for key control functions such as internal audit, risk and compliance.

Nestor’s Ekwem says: “This way, the control functions can act as the eyes and ears of the parent, guide the development of group-wide control processes/policies and ensure that the most important, risky, compliance-sensitive issues are brought to the attention of the group board via the group audit committees and risk committees.”

According to Aktis, audit and risk committees (Fig. 3) are the most important in relation to banking subsidiaries. Seventy-six percent of banks surveyed had both an audit and risk committee at subsidiary level, while 66% had a remuneration committee at local level and 51% had no nomination committee.

A possible explanation for this is that the appointment and recruitment process would be handled by the parent company rather than the subsidiary. The research revealed a high concentration of subsidiary NEDs on the audit and risk committees, reflecting the need for independence on these committees.

Balance

With so many conflicting priorities and in some cases divergence between host and home regulation, the solution recommended by Aktis is to introduce a group governance policy (GGP). But GGPs are not always formalised, and very little exists in the way of formal documentation. According to Aktis, Spain’s Banco Santander is the only big European bank that discloses a GGP to the general public.

Banks must spend time reflecting on the equation of how to balance parent control and subsidiary independence, and ensuring that their agreed solution is clearly documented in a policy, or set of group policies, that all internal stakeholders understand.

Ekwem concludes: “Several ‘best practice’ banks have actually reflected on and developed their own solutions for these matters in recent years; many, however, appear not to have written down this agreed solution in a clear group governance policy.”

This article was produced in association with Aktis and Nestor Advisors, which are supporters of Board Agenda.

Aktis, Nestor Advisors

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Architecture and Design Scotland – Board Members

Board Members – Architecture and Design Scotland Reference: 1588 Remuneration: £168.30 Location: Edinburgh, City of Closing date: 25 January 2019 at midnight How would you like to help shape Scotland’s built environment? Architecture and Design Scotland: Appointment of 4 Board Members Scottish Ministers are looking to appoint 4 new members to the Board of Architecture and […]

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Citizens Advice Wigan Borough – Trustee

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Funding London – Non-Executive Directors

Non-Executive Directors – Funding London Salary: Unremunerated Grade: Board member Contract type: Fixed Term Reference: FL2019 Interview date: Friday 22 February 2019 Application closing date: Sunday 10 February 2019 at 23:59 GMT The Mayor is inviting applications for two Non-Executive Director’s (NED’s) for the Funding London Board to grow and support businesses in London. Funding […]

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