Higgs Report

Posted on April 12, 2010 by Ceri John

“Higgs report on non-executive directors”

In April 2002 Derek Higgs was appointed by the Secretary of State for Trade and Industry and headed the following review; ‘Review of the Role and Effectiveness of Non-Executive Directors’.

Although published in January 2003. We have taken parts of the review so you can assess and compare the performance and effectiveness of your board of directors and chairman.

Performance evaluation of the board

How well has the board performed against any performance objectives that have been set?
What has been the board’s contribution to the testing and development of strategy?
What has been the board’s contribution to ensuring robust and effective risk management?
Is the composition of the board and its committees appropriate, with the right mix of knowledge and skills to maximise performance in the light of future strategy? Are inside and outside the board relationships working effectively?
How has the board responded to any problems or crises that have emerged and could or should these have been foreseen?
Are the matters specifically reserved for the board the right ones?
How well does the board communicate with the management team, company employees and others? How effectively does it use mechanisms such as the AGM and the annual report?
Is the board as a whole up to date with latest developments in the regulatory environment and the market?
How effective are the board’s committees? Specific questions on the performance of each committee should be included such as, for example, their role, their composition and their interaction with the board.

The following processes should also be evaluated as they help underpin the board’s effectiveness:

Is appropriate, timely information of the right length and quality provided to the board and is management responsive to requests for clarification or amplification? Does the board provide helpful feedback to management on its requirements?
Are sufficient board and committee meetings of appropriate length held to enable proper consideration of issues? Is time used effectively?
Are board procedures conducive to effective performance and flexible enough to deal with all eventualities?

In addition, there are some specific issues relating to the chairman which should be included as part of an evaluation of the board’s performance e.g.:

Is the chairman demonstrating effective leadership of the board?
Are relationships and communications with shareholders well managed?
Are relationships and communications within the board constructive?
Are the processes for setting the agenda working? Do they enable board members to raise issues and concerns?
Is the company secretary being used appropriately and to maximum value?

GUIDANCE ON THE ROLE OF THE CHAIRMAN

The chairman is pivotal in creating the conditions for overall board and individual director effectiveness, both inside and outside the boardroom. Specifically, it is the responsibility of the chairman to:
run the board and set its agenda. The agenda should take full account of the issues and the concerns of all board members. Agendas should be forward looking and concentrate on strategic matters rather than formulaic approvals of proposals which can be the subject of appropriate delegated powers to management;
ensure that the members of the board receive accurate, timely and clear information, in particular about the company’s performance, to enable the board to take sound decisions, monitor effectively and provide advice to promote the success of the company;
ensure effective communication with shareholders and ensure that the members of the board develop an understanding of the views of the major investors;
manage the board to ensure that sufficient time is allowed for discussion of complex or contentious issues, where appropriate arranging for informal meetings beforehand to enable thorough preparation for the board discussion. It is particularly important that non-executive directors have sufficient time to consider critical issues and are not faced with unrealistic deadlines for decision-making;
take the lead in providing a properly constructed induction programme for new directors that is comprehensive, formal and tailored, facilitated by the company secretary;
take the lead in identifying and meeting the development needs of individual directors, with the company secretary having a key role in facilitating provision. It is the responsibility of the chairman to address the development needs of the board as a whole with a view to enhancing its overall effectiveness as a team;
ensure that the performance of individuals and of the board as a whole and its committees is evaluated at least once a year; and
encourage active engagement by all the members of the board.

The signs of an effective chairman:

upholds the highest standards of integrity and probity;
sets the agenda, style and tone of board discussions to promote effective decision-making and constructive debate;
promotes effective relationships and open communication, both inside and outside the boardroom, between non-executive directors and executive team;
builds an effective and complementary board, initiating change and planning succession in board appointments, subject to board and shareholders’ approval;
promotes the highest standards of corporate governance and seeks compliance with the provisions of the Code wherever possible;
ensures clear structure for and the effective running of board committees;
ensures effective implementation of board decisions;
establishes a close relationship of trust with the chief executive, providing support and advice while respecting executive responsibility; and
provides coherent leadership of the company, including representing the company and understanding the views

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