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17 July 2014

Seamus Gillen opens the debate over plans for a new code of conduct at Equiniti’s Share Registration Conference.

“We need to restore the reputation of the board evaluation sector. It is damaged at the moment, and we need proper oversight and accountability,” Seamus Gillen told a packed audience at Equiniti’s recent Share Registration Conference.

Seamus was speaking on ‘The Future Direction of Board Evaluation’ and the topic could not have been more relevant, as the ICSA was within weeks of launching a consultation into a draft Code of Practice for Independent External Board Evaluations, conceived by Advanced Boardroom Excellence at the behest of Sir David Walker.

The code is a response to perceived shortcomings in the external board evaluation sector, which have resulted, in some cases, in confusion over costs, significant variation in the quality of providers, a lack of boardroom experience among some providers, conflicts of interest and loss of independence.

“There is not a compelling board evaluation offering out there in the market and what that has led to is a loss of confidence in the sector and a loss of reputation in the sector,” Seamus told the conference.

He recounted several recent cases to illustrate these shortcomings including one FTSE 100 company being given three initial prices for an evaluation ranging from £30,000 to £170,000.

Seamus said: “Where do company secretaries or chairmen go when they don’t know what the end or the beginning of the limits of this exercise are?”

However, the room was in agreement that the principle of board evaluations was very important, regardless of any current difficulties in implementation. When done well, they offer a huge opportunity to improve performance, to help a board ‘secure assurance that it is delivering assurance of the company’s operations’, and to disclose how they are discharging their obligations.

The new proposed code, which goes out to consultation this month, would probably be the first of its kind in the world and would potentially be self-regulated. It comes under six headings:

■ Professionalism of approach

■ Competencies and capabilities

■ Expectations of the client by the consultants

■Clarifying the terms of the engagement

■ Efficient process

■ Independent oversight of the code

“These are some of the provisions in the code, which are up for grabs, as to how we shake out a young industry. A young industry, but one that is engaged in such a strategically important activity that we need to make it grow up very quickly,” said Seamus, adding that the consultation would help decide on the more contentious points.

He said he expected “feathers to fly” over a point in the draft which stresses consultants shouldn’t have more than two consecutive assignments with the same plc, but acknowledged the counter-argument that it is hard to develop a relationship with a plc if a consultant must stop working with them after a possible three year period. Other potential points for debate include: consultants not pursuing any other work within an organisation that may affect the board evaluation, all providers requiring professional indemnity insurance and executive search firms not being involved in board evaluation to avoid conflicts of interest.

Turning to the future of board evaluation Seamus predicted a similar scenario to the corporate reporting market with up to eight really good providers with transparent fees but retaining enough flexibility to accommodate boards at different stages of their own development.

If you would like more information please contact Doug.Armour@ davidvenus.com

Ezine issue: July 2014