Tuesday, 22 March 2011

Financial Reporting Council guidance on board effectiveness

In early March the FRC published a guidance note on board effectiveness, designed to help companies implement the Code of Corporate Governance. It might have been an important document but  in the event I fought equally against unworthy giggles and yelps of outrage and time and again I failed.  It all starts badly with "The board's role is to provide entrepreneurial leadership... etc". Now FTSE 350 companies, at whom this is aimed, have many qualities but their sheer size and organisational complexity means that very, very few of their directors are entrepreneurs. Moreover there is a fundamental misunderstanding if the FRC believes that entrepreneurial behaviour emanates from a committee.

But stick with it, although the document reads like a list of thoughts for the day there are some useful thoughts, albeit they would have benefited from some focus. But then I came upon..."The CFO has particular responsibility to deliver high quality information to the board on the financial position of the company". Well, that's a revelation! Who would have thought that's what a Finance Director is meant to do? Such banalities really do not help the reader and nor do they encourage the reader to continue.

Still, I read on, although I was continually irritated by a peppering of references to "high-quality information" and "high-quality decisions", as if anyone tries to produce anything different. If nonsense was expunged the document would be half as long and definitely worth a read together with the newspaper in the morning. There is useful stuff here.

Early, for example, on the scene is set with a comment that  "An effective board should not becessarily be a comfortable place. Challenge, as well as teamwork, is an essential feature." Yes, absolutely right. This could have done with some expansion and there is some later on but these are important points to make you think. The balance between challenging your colleagues and working as an effective team is a tough one. More guidance on how you achieve that balance might have been useful.

I'd be interested in any reader responses to my disappointment with this guidance note.

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