Board accountability is a key element of strong corporate governance

The professionalism within many boardrooms of Northern Ireland businesses has improved considerably over recent years. Nevertheless, the role of Boards of Directors continues to be scrutinised on a regular basis and, for some, the implementation of strong corporate governance arrangements is a never-ending pursuit.

An effective Board is more than a sum of its individual members. Whilst each board member has seven general statutory duties set out in the Companies Act, the responsibilities of the Board to set strategy, and to direct and control the activities of the company for the benefit of stakeholders, is much more onerous.

It is no surprise that the Boards of successful companies will tend to have good governance arrangements, and in particular they demonstrate strong corporate cultures in which Board accountability is a central feature.

In general terms, Board accountability is about taking responsibility for all of a company’s activities and presenting a fair, balanced and understandable assessment of an organisation’s position and prospects to stakeholders. 

Board accountability is well structured in listed companies, which must comply with the guidance for board accountability under the Corporate Governance Code. Whilst not mandatory, the Code should also be a useful resource for small and medium organisations to help managing risk and to change behaviors.  It is also increasingly important for the public sector and not-for-profit organisations that strive to reduce risk and increase transparency.

As set out previously in this column, the first step towards accountability is to fully understand and determine the nature and extent of the risks within the organisation, and to establish clear channels for decision making and communication.

Transparency is key to accountability. Open, clear and honest reporting will help an entity build relationships with stakeholders including customers, employees and investors, and the annual financial statements allow the board to communicate the results for the year and also to document their assessment of performance. 

Medium and large companies are required to provide a strategic report, in which directors present a fair, balanced and understandable review of positive and negative aspects of the development, performance, position and future prospects of the entity openly and without bias.  The strategic report should be consistent with the size and complexity of the business. It should contain key performance indicators (‘KPIs’) to aid an understanding of the company’s business for the period, and must also include the principal risks and uncertainties facing the company.

Regrettably, this reporting obligation is often regarded by boards as a necessary task rather than a desirable one, with only minimum levels of disclosure provided.  The report, should however be comprehensive and clear, although striking a balance to protect company information that may be commercially sensitive.

Accountability needs to be embedded in an entity’s culture and be subject to review as an organisation grows, as the risk profile of the company changes and as key personnel change.  A strong ethos of accountability, and applying principles for best practice, will undoubtedly serve to protect a director’s and a company’s reputation. With boards facing increased scrutiny from stakeholders, the time taken to improve board accountability processes ought to be a worthwhile investment.