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NOMINATIONS COMMITTEE DECISION PAPER
Board Effectiveness Review
Author: Alwen Lyons Sponsor: Tim Parker Meeting date: 12 April 2016
Executive Summary
Context
The last Board Effectiveness Review (BER) was carried out by the previous Chairman,
Alice Perkins, in March 2015. The report generated by this review is attached at
Appendix 1, for your information. This was the second internal review carried out
since the establishment of the Board in 2011.
It was stated in the 2014/15 Report & Accounts that ‘an externally facilitated Board
effectiveness review will be carried out in 2016’. This would be the first externally
facilitated review since separation form Royal Mail Group (RMG).
Questions addressed in this report
What is the rationale for carrying out an external BER?
What procurement options are available for the Review?
What should the BER Terms of Reference include?
What are the next steps and how will the process be managed?
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Conclusion
1. It is recommended that an external BER be undertaken in late 2016, reporting in
time for inclusion in the Report and Accounts for 2016/17.
2. The Nominations Committee is asked to decide which of the two procurement
options it would prefer.
3. Based on the criteria set out in the report, and the themes highlighted in Appendix
3, the Committee is asked to delegate the drawing up of the BER Terms of
Reference to the Company Secretary for approval by the Senior Independent
Director.
4. Depending on the procurement process chosen, the Committee is asked to
delegate the management of the procurement process to the Company Secretary,
with approval for the choice of bidders and evaluation matrix delegated to the
Senior Independent Director.
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The Report
What is the rationale for carrying out an External Board Effectiveness Review?
1. The Post Office is not a FTSE 350 Company and is therefore not caught by The UK
Corporate Governance Code 2014, which states that ‘an externally facilitated BER
should take place at least every three years’. However an external BER is good
practice, and the rationale for stating in the 2015/16 Report & Accounts that the
Company would undertake an external BER in 2016 was to ensure an independent
view of the Board’s performance.
2. There are four main reasons for undertaking board evaluations:
« the need to address specific issues;
« the need to benchmark performance against other companies;
« the need to ensure that the Board is doing the best it can; and
« the need to be seen to be reviewing performance.
3. The BER should identify strengths and weaknesses and enable the Board to make
changes that positively impact performance. It will give an external perspective
and may be challenging as well as reassuring to the Board and Directors.
4. The changes in Post Office Board Directors over the last year mean that a BER
carried out as late as possible in 2016 would probably be most beneficial.
What procurement options are available for the Review?
5. Because of the value of the contract there are two options for the procurement of
this service.
i. OPTION 1: A competitive exercise asking 3 firms to bid for the work and
assessing each bid against an agreed evaluation matrix. (Example shown at
Appendix 2). The choice of the firms would need to be seen as fair and
equitable. This option is sometimes used for consultancy procurement and
although contains a small risk of procurement challenge this is less likely
because of the value of the contract.
ii. OPTION 2: The use of the Government Consultancy One framework
agreement. Which is in place to enable government departments and Public
Sector bodies to procure work through pre-agreed contracts and rate-cards.
Consultancy One divides different types of work into Lots and each Lot has
a pre-approved list of firms amongst whom assignments can be tendered.
Everyone in a specified Lot, which can be between 10 and 20 firms has to
be offered the chance to bid. The Lots are made up of a mix of firms often
including some of the Big Four but also including medium sized firms. The
rates available are often very competitive and there is no procurement risk
as a full OJEU compliant process has already been followed.
The procurement process for both options would take about two months to complete.
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What should the BER Terms of Reference include?
6. The objective of the BER is to understand how the Board works, how it could be
improved, and how this benchmarks with other boards. The review would include
independent input from each Board member, the Company Secretary, (and the
Group Executive if required).
7. The review would specifically analyse; the Board dynamics; how the Board uses its
time; the effectiveness of Board meetings (organisation & papers); and the
relationship with the Company.
8. The review should also include an appraisal of the Chairman led by the Senior
Independent Director.
9. A proposed list of themes is show as Appendix 3.
What are the next steps and how will the process be managed?
10.The Nominations Committee decide on its preferred procurement option 12/4
Board is informed of the process under AOB at the Board meeting on 24/5
Terms of reference are drawn up, and approved by the SID 31/5
Bidders are selected, and approved by the SID 31/6
Bids received and evaluated. Successful bidder chosen 31/8
Board updated on the progress 29/9
Dates set for the interviews 10/10
BER undertaken to be completed by 30/11
Report back to the January Board 31/1
11.The Company Secretary would manage the process on behalf of the Nominations
Committee and keep the Committee updated if any issues arise.
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Appendix 1: Evaluation of the Effectiveness of the Post Office Board —
March 2015.
1. Process
Following the first full Board evaluation carried out in summer 2013, the current Board
evaluation was carried out by the Chairman based on interviews with all Board
Directors and the Company Secretary in January and February 2015. It takes account
of feedback from some members of the ExCo.
The key findings are set out below. The Chairman is separately giving feedback to the
individual Directors on a personal basis.
2. Context
Prior to the beginning of this evaluation, the Chairman had announced her intention to
stand down at the end of July after 4 years in the role. The SID had also let it be
known that he did not intend to extend his term beyond his 4 year term which would
end in the autumn.
A new CFO had joined the Board in January.
Discussion about the future composition of the Board should be seen in the light of
these changes.
3. Overall Effectiveness
In general, the consensus was that the Board was continuing to grow in terms of its
effectiveness and was doing “pretty well” at addressing the right issues in the right
way in the best interests of the business and its shareholder.
The change of CFO provided a very positive opportunity to improve matters further
and to rebalance the respective contributions of the non-executive and executive
Directors. The Board should take conscious advantage of this.
The introduction of the new-style CEO report at the beginning of each meeting,
providing an overview of the business and progress in implementing its strategy, was
regarded as a significant improvement in terms of giving the non-executives an
understanding of how things stood, and focussing the rest of the meeting. The non-
executives attached great importance to the CEO owning the content of that report
and opening the meeting by drawing out the key issues from her personal perspective
so that they could support her and her team more effectively.
Several Directors said that it was important for the Board to focus its time and
attention primarily on the issues which are key to the future success of the business in
particular revenue growth (eg mails, financial services and digital). The Forward Look
for future Board agendas could be used more effectively to ensure this happens.
Several Directors commented on the danger of the Board getting drawn into too much
detail and becoming too “executive”. This had often happened where the executive's
contribution on an issue had not been strong and it was thought that the style and
contribution of the new CFO could help the Board control that tendency where it was
inappropriate. It was also suggested that where individual Directors were particularly
interested in the detail of a particular issue, they should be encouraged to take this
off-line.
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There is a specific question about how “intrusive” the non-executives should be in
relation to regulatory/compliance matters in relation to financial services on which
there are different views round the Board table. The Board should discuss this.
A couple of Directors wondered whether the Board had become more risk averse and
whether this was detracting from the need to drive growth. On the other hand, it was
suggested that a more explicit articulation of key risks facing the business eg ona
quarterly basis, might be helpful.
Overall, the executives value the Board’s contributions especially on the commercial
agenda. The NEDs were all thought to be well engaged in the business, knowing the
key people and talking to them outside meetings when appropriate. The level of
challenge is thought to be right but it was suggested that the Board could be more
forthcoming with praise where it was due.
Many people commented on the dynamic around the Board table which they thought
was very good. There were no “egos” on display; differences were aired frankly and it
was felt that the non-executives did not pull their punches. The best discussions were
those where the papers were clear; had been properly digested by everyone; taken as
read; and the non-executives’ questions and concerns were aired at the outset so that
the discussion covered these thoroughly. The Chairman was recognised as someone
who encouraged debate but it was suggested that she could sometimes bring
discussions to a conclusion more briskly.
One Director commented that it was important that there was no loss of energy in the
Board in the period before the current Chairman and SID stood down.
4. Organisation of the Board
Recently, Board agendas had become very packed and energy levels had flagged in
the afternoons. The inclusion of a speaker during the lunchtime session had put
further pressure on the use of time. Several people requested a clear break of at least
30 minutes for lunch. One Director suggested that meetings should be limited to 4
hours and another that the Board could sometimes meet the evening before the
formal meeting to discuss issues which did not need to be decided formally, thus
taking some pressure off the agendas.
It was generally thought that the Board papers had deteriorated in quality - they were
far too long and insufficiently clear. One Director commented that the volume of
papers for each meeting was about 4 times the volume of papers for other Board
meetings attended. It was unclear who owned the quality of what came to the Board.
Further work is needed here.
It was also suggested that the Board might meet in different Post Office venues as it
had in the past, where there was business activity with which it could usefully engage.
5. Composition of the Board
With the forthcoming change of Chairman and SID, it is agreed that maintaining
continuity amongst the remaining non-executives is important for the business. The
new SID will need to complement the experience of the new Chairman so that
between the two of them, they cover both the commercial and the government
waterfronts. Given the range of business issues with which the Board needed to
engage, there might be a case for adding an additional non-executive in the longer
run. It would be helpful to recruit to the Board people who had IT and digital skills as
well as knowledge of mails, and to broaden the diversity of the group.
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6. Sub-Committees
The Remuneration and Nominations Committees were working well, addressing the
right issues at the right time and reaching clear decisions when required.
The Audit and Risk Committee had taken longer than had been hoped to get to grips
with some important key issues, such as risk, but progress had been made. The new
CFO would put his stamp on this, and other changes in personnel would help here.
There is an issue, raised below, about the extent to which the ARC should engage in
the financial services side of the business.
Members of the ARC are clear that meetings need to take place face to face rather
than on the telephone and this has been addressed in the planning of future
meetings.
The Pensions Sub-Committee had broken the back of its original agenda and in the
future, should not need to meet more than a couple of times a year. But it was agreed
that it should remain in existence and should be accorded appropriate executive
support.
The two non-executive Directors on the Financial Services Sub-Committee both take
the view that it should be wound up once the POMS Board is fully up and running
under the Chairmanship of Steve Ashton. They believe that the Sub-Committee falls
into the trap of becoming inappropriately executive; that the current arrangements
allow for a lack of clarity about the role of the ARC in respect of FS matters and that
the Sub-Committee is not a good use of non-executive time.
Instead they suggest that post Hawk:-
The POMS Board should take responsibility for all “in scope” insurance matters with
updates provided to the ARC on an agreed basis to ensure that the ARC continues to
have a company-wide oversight of this area of business;
The ARC should take responsibility for non-POMS related FS matters in a discrete
section of its meetings to which at least one Bol representative should be invited
alongside Nick Kennet and his team. Tim Franklin has offered to meet Nick Kennet
ahead of each ARC meeting to ensure the right level of non-executive scrutiny and
avoid detailed presentations or discussions.
This issue needs to be discussed and a way forward agreed with all concerned.
7. Issues
The focus of the Board’s time and use of the Forward Look in planning this.
Board members to flag when they think the non-executives are in danger of
becoming too executive.
The Chairman to be quicker on drawing discussions to a close.
The length of meetings and use of afternoons/evenings before the formal
Board meetings.
The quality of Board papers and who is responsible for assuring this.
The Board’s role on financial services regulation/compliance.
The future of the Financial Services Sub-Committee post Hawk.
In the longer term, after the appointment of the new Chairman, the size of
the Board and possible widening of skills and experience represented.
Alice Perkins
Chairman
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Appendix 2: Example Evaluation Matrix
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Project Name
Board Evaluation Review
Supplier Name
Date of completion
Evaluation criteria Score Weighting I Weighted I Comments
Score
Suitability of Approach 2 ie)
and Methodology
Previous experience of 2 0
undertaking similar
assignments
Quality and 2 0
appropriateness of
proposed team
Appropriateness of 15 ie)
suggested timelines.
Approach to knowledge 1.5 0
transfer.
Quality of submission 1 ie)
and enthusiasm to win
the work
Total Score 0
Legends
Scoring Weighting
1:Very Poor 1:Less
important
2:Poor 1.5:Important
3:Good 2:Crucial
4:Very Good
5:Excellent
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Appendix 3
Proposed Themes for the BER for inclusion in the TOR.
The BER will typically ask the individual Board members, the Company Secretary, (and selected
Executives, if required), for input on the following topics:
e Board composition, skills and diversity.
+ Board induction, development and training.
* Board succession planning
« Board behaviour, relationships and challenge.
* Board leadership, individual contribution and effectiveness.
« Board meetings, their conduct, focus and priorities.
« Board support, papers and information quality and provision.
+ Board Committee effectiveness and how Committees keep the Board updated
« Board contribution to company strategy
* Board contribution to company performance.
e Board understanding of the company's business, regulatory environment and competition.
« Board understanding of risk management and mitigation.
* Board stakeholder and shareholder engagement.
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