1. Board evaluation and culture CRSA Forum 6 October 2015 Julia Casson Director, Board Insight Limited juliacasson@boardinsight.co.uk

2. My background Board Insight Ltd – practical governance consultancy focussing on board evaluation and director development Previously 20 years as a Company Secretary in major plcs Policy adviser to ICSA and Chair of its EU committee

3. Setting the context The VW bombshell What did or didn’t the board know and do? What will be the impact of the scandal? – Reputation of VW, the car market especially diesel, German business – Fines – US and elsewhere – Environmental policy

4. 7 reasons VW ‘worse than Enron’*? ‘Endangered the health of millions’ VW lobbied for governments to promote diesel Fines likely to be greater than for Enron VW could get wiped out – was healthy before ‘Devastating blow to [Germany’s] global image’ ‘Hundreds of thousands of jobs at risk‘ ‘Delegitimises efforts to develop scalable environmental solutions’ *David Bach, Yale School of Management, FT 28/9/15

5. Could board evaluation have helped? What is the purpose of board evaluation? What does a good board evaluation look like?

6. Why is board evaluation important? – It helps boards check their people and processes are working optimally… – …and that they provide good support to management – It helps a board to continuously improve… – …and so secure competitive advantage – It gives assurance to stakeholders, especially if externally facilitated

7. Scope of board evaluation What the UK Governance Code asks for Should look at both people and processes Some boards prefer to play down one of these But they are interlinked and need to be looked at together A good culture doesn’t ensue from good people with poor processes, and vice versa

8. What are the benefits of board evaluation? – Ensure board has shared view of its role and remit – And on roles of the Chairman, CEO, SID, NEDs, EDs – Ensure strategy/oversight/values balance is right – Ensure board is spending its time wisely – Check it has the right balance of skills and experience to take the strategy forward – Check it has diversity of thinking – Identify skills and experience gaps – Strengthen succession planning

9. More benefits – Check board relationships are functional – Identify and address process weaknesses – Ensure directors are properly briefed – Clarify development needs – Check the decision-making process is fit for purpose – Ensure the board is operating in accordance with best practice – Develop an Action Plan to address any action needed on these points

10. More meaningful board evaluation Chairman should ensure board is in agreement on the need for it Discuss and agree scope and confidentiality parameters in advance Make evaluation a continuous process -not just an annual or triennial push Consider board’s impact on internal and external stakeholders How well is it communicating its strategy, expectations of management and values?

11. Building and overseeing an ethical culture Board is guardian of values and standards Values must be easy to understand Should give clear signal on acceptable, specific behaviours Which should be embedded, monitored and enforced How is this best achieved?

12. IBE on ethical culture IBE good practice guide ‘Performance Management for an ethical culture’ Practical ways to use HR processes to embed values and behaviours Boards should be ensuring such processes are introduced in the business And exercising oversight over them Board evaluation should address this

13. Finally… Corporate culture and ethics – good or bad - flow from the board Who is on the board, how they behave and how they communicate what they expect of colleagues in the business Board evaluation is a way to sense check this and keep it under constant review