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Beyond the box-ticking: what really makes a board function well?

At the end of April, EOS at Federated Hermes published a white paper 'Guiding Principles for an Effective Board – Insights from Engagement'. These five principles focus on the human, relational and behavioural aspects of boards, rather than the usual standardised data sets, which don’t tell the full story.

In this episode of Amplified, Matthew Lester, an independent non-executive director on the board of Capita, and chair of the Kier Group, talks to the co-authors of the report, Jaime Gornsztejn and Sonya Likhtman, engagers at EOS at Federated Hermes. Matthew Lester is a senior adviser to EOS.

Getting to grips with a board’s culture

Gornsztejn outlines the purpose of the paper, which was to go beyond the generic disclosure of director age and tenure, board size and other easily quantified aspects of a board, to look at the activities and mind sets that feed into a board’s culture.

“We are interested in real good governance, not box-ticking,” Gornsztejn says. “Governance is much more nuanced and complex than what can be publicly disclosed, so if we want to really understand a board’s dynamics, culture, and approach, we need to look deeper. Engagement between directors and investors is the way to do that.”

Likhtman walks us through the five principles, which cover aspects such as genuine independence, diversity and inclusion; the role of the chair; how the board allocates its time; the board’s relationship with the CEO; and a commitment to continuous improvement.

“One practical way to demonstrate this commitment is through conducting a board evaluation,” she says. “These provide a valuable opportunity to pause, reflect and reassess priorities, which can be game changing for some boards.”

Active engagement

Gornsztejn adds that it’s not possible to determine how well a board is functioning just by reviewing public disclosures and assigning a governance score. “True stewardship is achieved through active engagement ... That means open and candid discussions and trusting relationships. Really, engagement is beneficial for both parties because it provides an opportunity for constructive challenge, idea generation and collaboration.”

Lester agrees, noting that: “We are in no doubt that independent directors can really assist companies to be truly sustainable sources of value creation. However, that can only be done where the structures and behaviours discussed in the paper are in place. All those involved in the stewardship of a company should have a clear picture of what good looks like and enquire if this status is being effectively and efficiently achieved.”

To find out more, tune in to Amplified. And to read the full paper, visit our dedicated web page, where you can download a copy.

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