The One-Tier Board (IVOR nr. 85) 2012/2.4.1:2.4.1 Introduction on composition of the board

The One-Tier Board (IVOR nr. 85) 2012/2.4.1

2.4.1 Introduction on composition of the board

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In many countries a board and its members generally fulfil all functions necessary for a successful enterprise. A company should have a purpose, a strategy, policies, a process for risk management, a system for orderly succession, evaluation procedures and rules for communication with shareholders and other stakeholders, such as employees, customers, suppliers and society. In general all these elements must be developed, implemented and monitored.

Together, the members of boards fulfil all these roles. The question is what practice has been developed to do so in the most efficient way and how do companies avoid dangers or inefficiencies such as an "imperial CEO", "group think", loafing in acceptable sub-optimal work, lack of teamwork, festering disputes and lack of communication?

Each country has developed different best practices for the composition, roles, duties and liabilities of board members. The description of UK boards follows hereunder:

first, for the composition of UK boards — this section 2.4; second, the division of the roles of UK board members — section 2.5; third, the description of duties section 2.6; and finally, liabilities of board members in the UK — section 2.7.

This section (2.4) describes the best practices in the UK for the composition of the board. First it describes the UK choice of a unitary one-tier board (2.4.2); followed, second, by the composition of average boards, the evolution of boards over the last 30 years (2.4.3); and a description of the composition of an average board, consisting of all the executive directors (usually 2 to 4), a separate chairman and a majority of non-executive directors (NEDs), including a senior independent director (SID) (2.4.4); and subsequently by the dilemma for executive directors of having a dual role (being part of the executive team and giving an individual view on strategy) (2.4.5); the important changes in board composition brought about by the codes (2.4.6); balance and independence (2.4.7); the importance of not being too large (2.4.8); and a description of the balance created by having a majority of NEDs on the board and on committees (2.4.9); and by a separate non-CEO chairman (2.4.10); formal lists of responsibilities of NEDs (2.4.11). These aspects are followed by a summary concerning the composition of UK boards (2.4.12).

This section 2.4 on the composition of the board is followed by section on the role of each type of director (section 2.5), including the three most salient points of UK best practice, (i) the active role of NEDs in developing strategy, (ii) the important roles of the chairman and (iii) the best practices to ensure optimal performance of these roles.

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