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Matters reserved for the board - Coggle Diagram
Matters reserved for the board
Authority limits
Directors have a fiduciary duty to the shareholders
All directors should take great care that they are able to fulfil this duty for their own personal protection as well as for the shareholders and other stakeholders
Authority limits will depend on the size and nature of the company's operations and are likely to be a combination of monetary limits, length of contract and type of contract
Every organisation should have a robust system of financial controls in the business and for the directors and managers at all levels this should include appropriate authority limits
Code of Conduct
Sets out the standards of personal behaviour and conduct required of directors and senior executives
Qualification for office
Commitment to corporate value and culture
Carrying out the directors responsbilities
Standards of behaviour
Confidentiaility
Conflicts of interest
Taking independent advice
Induction and ongoing professional development
Hospitality and gifts
Serving on the board of another organisation
Breach of this code
Some companies may have a number of codes of conduct applicable to different levels or grades of employees, managers and directors with the company
Tenure policy for NEDs
From a legislative perspective, there is no maximum period of appointment for a director whether they are executive or non-executive appointments
The GC does not refer to a maximum period of tenure for NEDs, but does provide that any NED serving more than 9 years will be deemed to no longer be independent for the purposes of the GC
Code provision 19 recommends that the chair should not remain in post beyond 9 years from the date of their first appointment to the board
Some of the investor representative bodies have suggested that in order to be fully consistent with Governance Code Principle K which states that 'Consideration should be given to the length of service of the board as a whole and membership regularly refreshed', a shorter period is required to achieve that aim
A shorter overall appointment period would better reflect the rapid changes in technology experienced by many companies, the short duration of many CEO and CFO directors years of service and the need for refreshed boards
The desire and need to refresh boards with younger directors possibly more in tune with the latest trends and technologies does need to be balanced with the need for contiguity on boards and the experience gained through years of service
Expense policy
An expense policy will not just apply to the directors but should apply company wide.
The policy will typically set out the types of expense for which an expenses claim can be made and also those costs which it is not, in the normal course of events, appropriate for directors or employees to pay for personally and then reclaim
The policy should provide details of the evidence required and the payment cycle for expenes, together with the details of the process to claim expenses and the authorisation required
Independence standards for independent NEDs
To provide appropriate challenge and counterbalance to the executive directors it is important for those NEDs identified as being independent to retain their independence
While a director may continue to query and question the executives proposals they will lose credibility for other stakeholders if they lose their independence, especially if this is due to other business connections or direct remuneration
Committee terms of reference
Where a board creates any board committee there should be clear written terms of reference setting out the composition of the committee, the duties of the committee, any delegated responsibilities, budgetary constraints and reporting requirements
The board will be generally authorised to constitute such committees as it deems fit in accordance with its Articles
Listed companies are recommended to constitute four standing committees
Audit
Remuneration
Nomination
Disclosure
Other committees might include specialist areas such as risk committee, health and safety committee, investment committee or a sustainability comittee
Whether any additional committees are constituted will depend upon the size and nature of the company's operations
Although the specific duties and remit of the committees will be worded individually for each committee overall the general content of a committee terms of reference will have the following elements
Membership
Secretary
Quorum
Frequency of meetings
Notice of meeting
Minutes of meetings
AGM
Duties
Reporting responsibilities
Authority
Listed companies generally will make their committee terms of reference available on their website
Share dealing policy
Following the implementation of the MAR, Annex 1 of Listing Rules 9 known as the Model Code was withdrawn as it was not compatible with MAR
Under MAR there is no obligation on listed companies to have a share dealing code as the responsibilities fall largely on the Persons Discharging Managerial Responsibilities (PDMRs)
A number of market participants agreed that it would be of great benefit for listed and quoted companies for there to be a single, industry led dealing code rather than each company drafting their own code broadly similar but with subtle differences
Co-ordinated by ICSa a model code was drawn up for use by all market participants
Individual companies remain responsible for their own compliance with MAR obligations and establishing the necessary systems and procedures
The specimen dealing code is split into two sections, the first dealing with a company's internal processes to review requests from employees for clearance to deal in the company's own shares, the second part provides guidance to the company's PDMR covering both clearance to deal with processes that will in certain circumstances be more restrictive than the general clearance processes for employees, as well as guidance on the need to formally notify both the company and the FCA on details of the trade.
Although the notification obligations are obligations of the PDMRs themselves, these are often delegated to the company secretary although it cannot be a complete delegation as the PDMR does need to provide the CS with the necessary information
Whistle blowing policy
The reporting by employees of suspected misconduct, illegal acts or failure to act within their company
The aim is to encourage employees who has serious concerns about any aspect of a companys operations to come forward and voice those concerns
For listed companies, the GC Provision 6 states that: There should be a means for the workforce to raise concerns in confidence and if they wish anonomously. The board should routinely review this and the reports arising from its operation. It should ensure that arrangements are in place for the proportionate and independent investigation of such matters and for follow up action
For companies in the financial services industry and regulated by the FCA, the Senior Managers and Certification Regime requires companies to take the follow steps
Appoint a senior manager as whistle blowers champion
Establish internal whistle blowing arrangements able to handle all types of disclosure from all types of person
Tell UK based employees about the FCA and PRA whistle blowing services
Ensure settlement agreements include an explanation that workers have a legal right to blow the whistle
Present a report on whistle blowing to the board at least annually
Inform the FCA if it loses an Employment Tribunal whistle blowing case
Require its appointed representatives and tied agents to tell their UK based employees about the FCA whistle blowing service
A whistle blowing policy will obviously be tailored to the specific circumstances of the company but should cover the following areas
That the company takes malpractice seriously providing example types of concerns to be raised and how to distinguish them from a normal grievance
That employees have the option to raise concerns outside of line management
That employees are able to access confidential advice from an independent body
That the organisation will respect the confidentiality of a member of staff raising a concern
That concerns can be raised anonymously although that might hamper any investigation or feedback to the complainant
That complaints may be made to a prescribed body or person rather than to the company
That whistle blowers are protected under legislation and may not suffer any harm as a result of making a complaint
Whistle blowing policies ought to be tailored to the particular employers business and sector
Some companies in order to provide as much confidentiality as possible use the services of an external party administratior to facilitate and log whistle blowing utilising telephone hotlines, dedicated email and online submissions
Companies that meet the disclosure obligations under the Modern Slavery Act should ensure that any whistle blowing policy and process also enables disclosure of anti slavery and human trafficking within the supply chain
Risk management policy
An important tool to support the company's corporate strategy
The identification, classification and mitigation of both strategic and systematic risks should be a central part of every company's management processes.
Listed companies are required to detail in their annual reports the principal risks and uncertainties facing the company and the steps taken to mitigate those risks
It is also good practice for the boards of listed companies to define their risk appetite, this is the nature and extent of the principal risks the company is willing to take in order to achieve its long term strategic objectives
An enterprise wide approach to risk management enables an organisation to consider the potential impact of all types of risks on all processes, activities, stakeholders, products and services. Implementing a comprehensive approach will result in an organisation unlocking the benefits of well understood and managed risks
A risk management policy should contain the following elements
Risk identification
Internal
External
Systemic
Strategic
Assess the impact of the risk event occuring
Avoid risks that are too great by not doing that activity
Rate risks by impact x probability
Develop risk mitigation strategies
By understanding the risk develop strategies to reduce either the impact or probability of the risk - or both
Implement risk mitigation
Implement the risk reduction mitigation
Shift the risk through insurance, joint ventures, ring fencing
Review effect of mitigation
The resulting risks are acceptable
The end review is also the start of the next cycle of identifying risks and running through the cycle again