Monday, September 07, 2009

No limits? Board renewal and good governance

Writing governance codes must seem like painting the Forth Bridge. It only seems like yesterday that the Combined Code was revised – now we have a new revision. In fact this summer saw the Financial Reporting Council issue a Progress Report and Second Consultation on its Review of the Effectiveness of the Combined Code.

I will not try to summarise the ideas kicked around in the Second Consultation. (KPMG’s Audit Committee Institute have published a useful guide in its Quarterly.) A couple of ideas did catch my eye.

In the section on Board Balance and Composition, one of the specific issues for further consideration is the question of:

whether the so-called “nine year rule” has resulted in a loss of continuity and valuable experience.

While the Combined Code applies to listed companies, it sets the pace for governance beyond – not least the public and third sectors.

The nine year rule is definitely an issue in the housing sector. A nine year rule has been recommended by the National Housing Federation for several years. It remains controversial. Several housing associations dodge the issue by starting the clock for the nine years when the rule was introduced rather than when the board member was appointed. Imagine the uproar if banks were so blatant in ducking best practice on board renewal! (I know that many long-standing board members bring commitment, experience and continuity but perhaps those board members could bring even more to other organisations as well as allow fresh blood.)

Sadly, there is barely an issue in the college sector where I have done work on governance since the mid-1990s. The Learning and Skills Council raise the issue in its guidance but in the absence of any code of governance for the sector, the recommendation lacks profile.

I hope that the Financial Reporting Council will keep the nine year rule although it needs to be framed appropriately and applied flexibly so that board renewal - with effective succession strategies – supports “continuity and valuable experience”.

Whatever happens, I’ll be stepping down as a board member in the not-to-distant future when my time is up.

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