UKGI
PORTFOLIO
OPERATING
PRINCIPLES
WITH GUIDANCE
MAY 2021 v2.0
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Contents
Introduction 5
How to use the Portfolio Operating Principles 5
UKGI Reporting 7
UKGI Non-Executive Director Responsibilities 8
Activities Outside of UKGI’s Target Operating Model 10
Glossary Of Terms 11
Portfolio Operating Principles with Accompanying Guidance 12
Principle A: Establish and maintain appropriate and effective corporate governance
foundations which govern the department-asset relationship 12
Principle B: Promote effective objectives, business planning and performance against
business plan 20
Principle C: Promote strong corporate capability 27
Principle D: Promote effective leadership (high quality boards and senior management)
34
Principle E: Promote effective relationships between the department and the asset 43
Principle F: Supporting and supplementing the activities above by providing an
experienced shareholder NED on the asset board 48
UKGI Internal Assurance Processes 51
List of compliance documentation and guidance for UKGI Assets by principle 52
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Introduction
How to use the Portfolio Operating
Principles
UK Government Investments (UKGI) performs the shareholder function for a broad and diverse
portfolio of organisations, acting on behalf of Departments. The portfolio ranges from Non-
Ministerial Departments through to private limited companies. In representing government's
shareholder interest, UKGI proactively challenges and supports the organisational performance
of our Assets.
These Portfolio Operating Principles set out UKGI’s Target Shareholder Model. This represents
the model which UKGI should seek to operate for each Asset, and against which potential new
Assets will be considered when added to the portfolio. UKGI should evaluate its work for each
Asset against this model. Activities conducted by UKGI for Assets outside of this model must
be properly understood, documented, and considered on an ongoing basis by UKGI, as these
may require additional layers of internal assurance or different types of resource. UKGI
acknowledges that its activities for certain Assets will sit outside the Target Operating Model,
and these instances must be well documented and understood by UKGI.
Shareholder teams must familiarise themselves with their responsibilities, and those of
other stakeholders (including their respective Departments and HM Treasury), as well as
the functions and duties of the Asset. For each Asset, UKGI teams must carry out the
functions established for them within the Asset’s Constitutional Documentation, before seeking
to implement any of the responsibilities set out in this document.
These Portfolio Operating Principles set out the governance Principles and Activities that
frame our Target Operating Model with any Asset in UKGI’s portfolio. It breaks down the six
core Principles into 40 individual Activities that our shareholder teams are expected to
undertake, and against which they should report. The six Portfolio Operating Principles are:
e Principle A: Establish and maintain appropriate and effective corporate governance
foundations which govern the Department-Asset relationship
e Principle B: Promote effective objectives, business planning and performance against
business plan
e Principle C: Promote strong corporate capability
e Principle D: Promote effective leadership (high quality boards and senior
management)
e Principle E: Promote effective relationships between the Department and the Asset
«Principle F: Support and supplement the activities above by providing an
experienced Shareholder NED on the Asset Board.
Reporting against the Activities which sit beneath these Principles should be done periodically,
to UKGI Portfolio Reviews and the UKGI Board, using the UKGI Traffic Light assessment. The
purpose of reporting against these Activities is to highlight the areas where UKGI is carrying out
a shareholder role as a variation against our Target Operating Model, and so to support our
assurance processes and overall portfolio management to be as effective as possible. In order
to facilitate this, shareholder teams should provide explanations in areas of divergence through
the relevant Portfolio Review and Board Reporting processes.
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Supporting the UKGI Portfolio Operating Principles is the UKGI Portfolio Operating Principles
Guidance. This provides guidance to shareholder teams regarding each of the principles of this
document. In areas of significant complexity further Guidance Notes are also available, all of
which can be found here.
Many of the activities of this document draw on practices used in the private sector. However,
Government-owned organisations are also subject to the requirements of any founding
legislation and areas of HMG guidance. UKGI maintains a list of wholly or largely applicable
controls and guidance from HMG for our Assets, this can be found here. UKGI teams should
consult this, in conjunction with the Asset’s Constitutional Documentation for specific issues
relating to UKGI’s role.
UKGI also provides a governance function for certain listed assets. In these instances, UKGI
also applies the Stewardship Code as appropriate.
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UKGI Reporting
UKGI teams should develop a regular reporting rhythm into the relevant sponsoring
Department for each Asset. In order to do this UKGI teams should develop and maintain strong
functioning relationships with any policy counterparts within their responsible Departments, as
well as HM Treasury and Cabinet Office as necessary. UKGI should not be hesitant to flag
concerns they have regarding the functioning of their working level relationship with
Departmental counterparts, both internally within UKGI, and to the Department in question.
These relationships are so key as to be reviewed periodically as part of the UKGI Portfolio
Review process.
As well as maintaining strong functional working relationships with Departments, UKGI should
also be able to provide its own qualitative reports into the Department at an appropriate
level. UKGI should be able to report its thoughts, concerns and priorities honestly, and without
the need to filter these through the Department, Asset, or other stakeholders, (though
consultation with other stakeholders, and the Asset itself, is often encouraged for the benefit of
strong working relationships). To this end, UKGI shareholder teams should establish regular
reports (quarterly or biannual, for most UKGI assets) to senior Departmental personnel.
Reports should give a qualitative UKGI view of the Asset, and any concerns UKGI has across
all areas devolved to us. Reporting into the Department should be done at appropriately senior
levels. For most UKGI Assets this will be done either at the Director General or Permanent
Secretary level, UKGI should agree this with the Department.
UKGI’s value as a shareholder comes most readily from our ability to provide meaningful
advice to Departments concerning our Assets, and our greatest risk comes from not having
our input, challenge, and advice being sufficiently delivered and acted upon.
Within these Portfolio Operating Principles, a number of activities relate to reporting to the
Department. UKGI should also be aware of reporting requirements to other parties if these are
set out within their Constitutional Documentation. Such parties may include a regulator, HM
Treasury, Parliament, or stakeholder groups.
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UKGI Non-Executive Director
Responsibilities
The UKGI Target Shareholder Model, as set out by these Portfolio Operating Principles,
includes a UKGI Non-Executive Director on the Board of the Asset. UKGI sees this as an
essential lever through which it can perform its shareholder role and be at the heart of its
Assets’ governance.
UKGI NEDs are expected to draw upon the expertise of both the UKGI team responsible for an
Asset, and the wider UKGI portfolio, through learning and knowledge sharing. Nevertheless,
the UKGI NED has responsibilities to the Asset which are distinct and sit with the individual.
These cannot be devolved to UKGI or others.
Unless stated otherwise by Constitutional Documentation, the duties of the UKGI NED on an
Asset’s Board must be the same as those of all the other Directors, including any other
Directors appointed by Ministers. Those include to act in a way they consider, in good faith,
most likely to promote the success of the Asset for the benefit of its shareholders. These
responsibilities have different parameters to those of UKGI as an organisation, performing the
shareholder role. The personal responsibilities of Directors of companies incorporated under
the Companies Act 2006 (or predecessor legislation) are set out in section 171 to 177 of the
Companies Act 2006'. The responsibilities of the Board cannot be delegated, and include (but
are not restricted to) the following:
e Duty to promote the success of the company
e Duty to exercise reasonable care, skill and diligence
e Duty to exercise independent judgment
Duty to act within powers
Duty to avoid conflicts of interest
e Duty to declare interests in proposed transactions
e Duty to declare interests in existing transactions
e Duty not to accept benefits from third parties.
UKGI understands that the UKGI NED will seek support in carrying out their responsibilities
from their shareholder teams, and UKGI encourages this insofar as UKGI team members can
provide expertise and insight. However, responsibility for Director duties cannot be borne by
anybody other than those on the Board of the Asset, including the UKGI NED.
Despite the need for UKGI NEDs to have the same responsibilities as all other Directors, UKGI
accepts that their functional relationship will differ from Independent NEDs. UKGI NEDs by
virtue of their HMG-facing roles, have a special ability to facilitate relationships and
understanding between Departments and their Assets. UKGI NEDs will act as interlocutor
between Departments and Assets as necessary, to give HMG better insight as to the quality of
the Board in the performance of its governance function, as well as to promote HMG
perspectives and information flow at the Asset Board. This role is critical in helping to deliver all
of the objectives of UKGI and HMG. Examples of how the UKGI NED can assist in this regard
can be found throughout the Portfolio Operating Principles Guidance.
1 UKGI acknowledges that many of its assets are not constituted as “Companies” and are therefore not
legally subject to the Companies Act 2006. Nevertheless, in terms of Director's responsibilities, UKGI
applies the principles of the Companies Act as far as possible.
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UKGI NEDs should consult with UKGI Legal in instances in which they wish to clarify their
responsibilities as a NED. UKGI NEDs should also liaise with UKGI Legal to ensure that they
have the appropriate appointment letters and indemnities in relation to their appointments and
resignations from Asset Boards. UKGI NEDs should attend the appropriate UKGI training
regarding Directors’ duties before taking a position on an Asset Board. UKGI NEDs should also
read two internal documents that focus on the role and responsibilities of directors and board
members: the UKGI NED Induction Pack and the UKGI NED Guide: Assets with a Public
Purpose.
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Activities Outside of UKGI’s Target
Operating Model
For some of its Assets, UKGI performs a number of activities in variation to its Target Operating
Model. It is imperative that all such activities are recorded in the Asset’s Framework Document
or the relevant Departmental MoU and are well-understood by both UKGI and the Department.
UKGI has template wording for Framework Documents and Departmental Memoranda of
Understanding.
There are certain activities which should only be undertaken with the explicit understanding
of the Asset’s responsible Director and the UKGI Head of Portfolio, these include:
e Setting Government policy
e Assuring satisfaction of policy objectives
e Mediating between departments on policy conflicts
e “Holding the Board to account” as principal?
e Assuring or approving business cases
e Assuring or approving procurement activity
e Determining funding allocation or funding strategy.
UKGI does not prohibit itself from undertaking any of the activities set out above with regards to
its Assets. However, these must be properly understood and documented, and will be subject
to periodic review by the UKGI Board and internal review processes.
2 UKGI does not act as a proxy for Ministers with regards to holding the Board to account. Whilst the
UKGI NED performs a crucial role as interlocutor between HMG and the Board, as well as a vital link
for the shareholder team in performing its functions, only Ministers have the power to hold Boards to
account. For more detail on the role of the UKGI NED in this area, see “UKG! Non-Executive Director
Responsibilities”.
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Glossary of Terms
Activii An activi
Operating
Asset The entity in relation to which UKGI performs the shareholder
role
Board The Board of the Asset
Business Plan An annual or multi-annual plan that sets out the Asset’s
strategy and forms the basis to which budgets set and
performance is evaluated
Constitutional Documentation All documentation concerning the incorporation and
establishment of the Asset, including founding Legislation,
Royal Charters, Memoranda of Understanding, Framework
Documents, or treaties
Core Internal Governance High level governance documentation for the Asset such as
Documentation Board and Committee Terms of Reference, Articles of
Association, high level delegated authorities etc.
Department The Department within HM Government with the overall policy
responsibility for the Asset
EDRM Executive Director Relationship Manager — responsible for
managing the relationship between UKGI and the Department
FWD Framework Document — for the Asset
Guidance Provision Guidance to an Activity for UKGI as set out in the Portfolio
Operating Principles Guidance
HMG HM Government
HMT HM Treasury
KPI Key Performance Indicators — underpinning a business plan
MoU Memorandum of Understanding — between UKGI and the
Department
NED Non-Executive Director (or Non-Executive Board Member
where the Asset is not a limited company)
OCPA Office of Commissioner for Public Appointments
SID Senior Independent Director
ToR Terms of Reference
UKGI UK Government Investments
UKGI Board The Board of UKGI
UKGI Legal The UKGI Legal Team — reporting to the UKGI General
Counsel
UKGI NED The UKGI Shareholder NED
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Portfolio Operating Principles with
Accompanying Guidance
Principle A: Establish and maintain appropriate and effective
corporate governance foundations which govern the department-
asset relationship
UKGI should work with the Department and Asset to establish and maintain appropriate
corporate governance documents and systems, through up to date and fit for purpose
governance documents, including Framework Documents, Articles of Association where
relevant, Board Terms of Reference, chair letter etc.
Core Areas for Consideration
UKGI-Department Memoranda of Understanding
Framework Documents
Asset Governance Documentation and Legislation
Delegations of Authorities
Chair's Letters
Shareholder Activities with Guidance
1. UKGI must agree a Memorandum of Understanding between the sponsoring
Department and UKGI. As the profile of work UKGI undertakes for specific
Departments may alter over time, UKGI should seek to review MOUs at regular
intervals.
1.1. UKGI should establish a Memorandum of Understanding with Departments for
whom UKGI performs both advisory and shareholder work. Where UKGI commences
either a shareholder role or corporate finance work for a Department with whom UKGI
does not have an MoU, UKGI Legal and UKGI Head of Portfolio should be informed.
1.2, UKGI should work closely with appropriate personnel within the Department
when working to establish or refresh an MoU. The responsible UKGI EDRM will usually
lead discussions on behalf of UKGI, supported by the UKGI Head of Portfolio. UKGI
Legal should be engaged at the earliest possible opportunity, including being asked to
approve the initial draft being circulated to the Department. Any significant deviations
proposed by the Department to IVioU template wording, particularly regarding the
description of the shareholder role, should be discussed with UKGI Legal and the UKGI
Head of Portfolio at the earliest possible opportunity.
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2. UKGI should work with the Department and the Asset to establish a Framework
Document which clearly allows for the Department (and UKGI where delegated) to
exercise meaningful oversight of the Asset’s strategy and performance, pay
arrangements and/or major financial transactions. UKGI should encourage a review
and updating of the Framework Document as necessary, at least every three years.
2.1. Responsibility for maintaining and updating Framework Documents lies with the
Department. The Department should ensure that the Asset’s Framework Document
consists of all key criteria as set out in Managing Public Money (see annex 7.2). The
Framework Document and associated documentation should set out clearly the Asset’s
relationship with the sponsor Department, and with any other Departments, local
government or devolved administrations with interest(s) in the Asset’s business,
including the role of UKGI, and where applicable, any subsidiaries of the Asset. The
Treasury Office of Accounts should be the ultimate custodian of the Framework
Document.
2.2. In performing the shareholder role, UKGI is very likely to be heavily involved, if not to
lead, in the drafting of a Framework Document. UKGI should seek to reflect the
agreed delegations of authorities in accordance with UKGI’s Memorandum of
Understanding with the Department (see Activity 1) as well as any relevant legislation
(see Activity 3) and applicable government controls (see Activity 4). UKGI should seek
to be extensively involved in the drafting of the Framework Document. UKGI should
follow the drafting guidance issued by UKGI Legal, concerning certain UKGI in-house
developed provisions (not included in MPM) which must be included in the Framework
Document. UKGI should lead work, as appropriate, with all relevant other stakeholders,
including the Asset, in order to gather their feedback and drafting suggestions. Drafting
will require material consideration and negotiation with other key stakeholders. The
Framework Document should be presented to the Board of the Asset to comment.
2.3. It is imperative that UKGI Legal has the opportunity to review every Framework
Document before it is agreed with all parties. UKGI should engage UKGI Legal at the
earliest opportunity during the Framework Document drafting/review process, to ensure
that they can assist most readily. UKGI Legal will usually review at the outset of the
drafting process and towards the finalisation of the document. As well as checking
template provisions have been included, it will also review to assure consistency from a
corporate governance perspective and to check that all additions from parties are
appropriate given the Asset’s constitutional and legal framework.
2.4. The Framework Document is often the most important foundational guide to the
respective powers of the Asset and its stakeholders. Its purpose is best set out in
Managing Public Money which can be found here. UKGI has a responsibility on behalf
of the shareholder to ensure that the Framework Document properly reflects the
working relationships and exercise of powers concerning the Asset. To this end the
Framework Document should be reviewed on at least a three-yearly basis. UKGI
should, as part of its shareholder function and responsibility to establish and maintain
appropriate and effective corporate governance foundations for the Asset, take a view
as to the utility of the current Framework Document. UKGI should highlight, as a matter
of urgency, any ways in which the Framework Document is not reflective of the
functioning relationships of one or more parties, or ways in which the Framework
Document ought to be updated. It is inevitable that responsibilities will evolve between
UKGI, the Department, the Asset, and other stakeholders. In instances in which
material responsibilities are consciously changed, or delegated authorities transferred,
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UKGI should ensure that these are properly understood and documented for any
interim period before this can be reflected in an update of the Framework Document.
For example, a signed letter recognising such a transfer of powers from a senior
person within the Department (such as the Permanent Secretary or a relevant Director
General) should be provided. These should be reviewed by UKGI Legal.
3. UKGI should fulfil its role within any constraints, and in accordance with the
shareholder requirements, of any legislation or legally binding documentation
relating to the Asset.
3.1. In instances in which Assets are founded, governed, or referenced in legislation, UKGI
should be aware of all responsibilities and duties set out therein. Such responsibilities
and duties must be reflected in delegated authorities, or codified, as necessary,
within either the Memorandum of Understanding, or the Asset’s Framework Document.
3.2. UKGI’s shareholder role must be undertaken within the constraints of relevant
legislation. In certain cases, legislation may set out, for example, ministerial powers,
such as the power to appoint Non-Executives; reporting requirements, such as
transparency requirements for the Business Plan or annual report; or third-party
responsibilities, such as requirements to consult with regulators. Insofar as these legal
requirements affect the undertaking of the shareholder role, UKGI must operate within
these parameters. UKGI must also be cognisant of any additional shareholder
responsibilities arising from such legislation. Specific shareholder responsibilities set
out in legislation must be properly delegated, referenced and codified within delegated
authorities, as set out in Guidance Provision 3.1.
3.3. Assets may be governed by legally binding documentation in addition to founding
legislation. For example, Assets which are limited companies will have Articles of
Association which set out the governing principles and parameters in which they can
operate. UKGI shareholder teams must understand the legal obligations on the Asset
that flow from such documentation, particularly with respect to how this affects the
performance of the UKGI shareholder role. In accordance with Activity 2, UKGI should
work to highlight any obligations that affect the performance of the shareholder role
flowing from such documentation in the Framework Document, (for example
shareholder consent matters and mechanics for Board appointments). In instances in
which provisions of a Framework Document appear to conflict with any legally binding
documentation, the view of UKGI Legal should be sought.
4. UKGI should be aware of the requirements of relevant government controls and
guidelines relating to the Asset.
4.1. UKGI should be aware of government controls that apply to the Asset, including any
new controls as they are published. UKGI should consult the list of general internal
governmental controls and compliance requirements kept by UKGI. This can be
found here. Asset Framework Documents normally also contain a list of policies that
are applicable to the Asset which can be a useful reference point, although this position
will evolve over time.
4.2. Assets may be exempted from government controls for various reasons. Such
exemptions often apply to the approval of senior pay. In such instances, UKGI should
secure or confirm that there are written exemptions from a responsible authority, such
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4.3.
as the Permanent Secretary of the Asset’s responsible Department, or the Department
issuing the controls, such as HM Treasury.
In instances in which there is a lack of clarity relating to whether or how such controls
should be applied to the Asset, UKGI should consult the UKGI Head of Portfolio for
advice.
5. UKGI should work with the Asset and the Department to record clearly and
accessibly all delegated authorities relating to the Asset.
5.1.
5.2.
5.3.
The principal source of delegated authorities concerning UKGI and other HUG
stakeholders is the Framework Document. In keeping with Guidance Provision 2.3,
UKGI should be confident that the divisions of responsibilities and authorities within the
Framework Document are a proper representation of the functioning relationship of
stakeholders to the Asset.
UKGI should properly understand the internal delegated authorities at senior levels
within the Asset. Assets should document their internal delegated authorities in order to
allow for a functional understanding of the roles of Asset personnel and governance
instruments. The easiest and most readily accessible way of documenting delegated
authorities is through a chart of authorities. A chart of authorities should set out the
various instruments and powers within the organisation, including financial delegations
at various levels, and the authorities required to carry them out (these are often
presented as a RACI matrix). UKGI is not responsible for drafting and documenting
internal delegated authorities within the Asset. Nevertheless, UKGI should strongly
encourage the Asset to do so, and should challenge the utility of any chart of
authorities, particularly through their periodic review at Board level. In accordance with
Guidance Provision 5.1, relevant UKGI and Departmental authorities should be
properly documented within any chart of authorities.
UKGI should encourage senior personnel within the Asset to familiarise themselves
with both the internal delegated authorities, and the delegated authorities of
Government and other stakeholders.
6. UKGI should seek to ensure the Department issues a Chair’s letter on an annual
basis, and contribute, where appropriate, to its content.
6.1.
6.2.
The annual Chair's letter represents a key means by which the Department and UKGI,
can convey priorities for the year to the Chair of the Asset. The letter should be
issued by either the Department, or UKGI, both of whom should work together on the
drafting of the letter. UKGI should attach, as an annex, its “Governance expectations of
the Chair”. This should set out the basic expectations of a Chair, (covering how the
Chair is expected to conduct the Board, and the periodic requirements of the position,
including annual performance assessments of NEDs and annual effectiveness
reviews). The Chair's letter itself therefore should set out the Department and UKGI’s
strategic priorities for the Asset for the coming year, and how the Chair is expected to
undertake these. These shall form a part of the Chair’s annual performance appraisal,
as set out in Activity 27.
A Guidance Note on “How to Work with Asset Chairs”, which contains guidance on
Chair's letters, can be found here. Examples of Chair's letters can be found here.
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7. UKGI should encourage the Asset to issue Appointment Letters to all NEDs. UKGI
should provide feedback on the terms and conditions as necessary.
7.1, Upon appointment, non-executive directors (including the Chair, who should also
receive a “Chair's letter”, set out in Activity 6), should receive a letter of appointment
from an appropriately senior person within the Department. This should be issued on
behalf of the Minister where it is a Ministerial appointment. This letter should convey
the Department's decision to appoint the individual, and welcome them to the Asset. In
addition to this, the individual should be provided with a document, setting out the
terms and conditions of their appointment to the position. UKGI should not issue either
of these letters, except in exceptional circumstances. UKGI Legal, and where
appropriate the legal team within the Department, should review the terms and
conditions, and UKGI should relay any comments or edits to the Asset before they are
issued.
7.2. Upon reappointment, Non-executive directors (including the Chair, who should also
receive a “Chair's letter” set out in activity 6) should receive a confirmatory letter of
reappointment from an appropriately senior person within the Department. This should
be issued on behalf of the Minister where it is a Ministerial appointment. In addition to
this, the individual should be sent a similar letter, either setting out any updated terms
and conditions to their previous term of office, or confirming that their reappointment
shall be on the same terms as previously. UKGI should not issue either of these letters,
except in exceptional circumstances. UKGI Legal, and where appropriate the legal
team within the Department, should review the terms and conditions both to review
proposed amendments and to review the relevance and appropriateness of any
reissued terms. UKGI should relay any comments or edits to the Asset before they are
issued or reissued.
8. UKGI should assess the sufficiency and quality of the Asset’s core governance
documentation. The Asset should have all appropriate governance documentation in
order to function effectively. All documentation should be reviewed and updated as
appropriate by the Asset’s Board at least once a year.
8.1. UKGI should have sight of the Core Internal Governance Documentation of the Asset,
and comment upon its adequacy, in order to effectively perform its shareholder function.
The ownership of internal governance documentation sits with the Asset itself, and in
most cases, with the Asset Board. It is incumbent upon the Board to review its core
governance documentation, at a minimum its Board Terms of Reference and its
Committee Terms of Reference (some template examples can be found here), (though
this may also include Articles of Association, or group governance documentation, see
Guidance Provision 8.3) on an annual basis, as part of its rolling review of effectiveness.
Reviews of internal controls and policies are covered in Activities 19 and 20
respectively. UKGI can most meaningfully reflect upon the sufficiency and quality of the
Asset’s governance documentation through the UKGI NED, pursuant to activity 39.
3 There is no standard NED appointment letter although there are terms and conditions which UKGI do
expect to be included, these should be discussed with UKGI Legal. From a good corporate
governance perspective, it is usual that the Asset issues the terms and conditions of appointment.
However, this is not always possible for UKGI Assets. For example, the legislation applicable to the
Asset may require a Minister to set and issue the terms and conditions of appointment. UKGI Legal
should be consulted where this is unclear.
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UKGI should (through the UKGI NED as appropriate) encourage the Board to place a
review of its internal governance documentation on its annual rolling calendar.
8.2. When reviewing the Asset’s core internal governance documentation, the Board, and
UKGI, should consider its relevance and its utility:
8.2.1. Asset governance documentation should be relevant. It must be compatible with
the governance arrangements understood by HMG, pursuant to Activities 1-5
above. UKGI must flag instances in which this is not the case. Such instances may
include a presumption to powers otherwise retained by HMG, such as the power to
appoint or decide remuneration for senior executives or non-executives. Similarly,
delegated authorities to the Board or its committees, as understood by HMG, must
be properly recorded within governance documentation, so as to allow senior
personnel within the Asset to have sight of the powers which HMG understands
them to exercise. UKGI should raise concerns and propose drafting amendments
to core internal governance documentation to the Asset Secretariat and the Chair.
This is most easily done via the UKGI NED at the Board. Any concerns or queries
UKGI has relating to the relevance of core governance documentation and its fit
within the Asset’s structure of delegated authorities should be raised with UKGI
Legal for advice.
8.2.2. Asset governance documentation should be useful. It must be easily accessible,
usable, and in line with corporate governance best practice as far as possible.
UKGI should encourage this. UKGI may wish to promote external standards for
terms of reference,‘ and incorporate private sector best practice developments in
Board and committee functioning. In encouraging annual reviews of core
governance documentation, as set out in Guidance Provision 8.1, UKGI can help
increase internal visibility of corporate governance arrangements within the Asset.
Any concerns or queries UKGI has relating to the drafting of core governance
documentation and emerging corporate governance best practice should be raised
with UKGI Head of Portfolio for advice.
8.3. Where the Asset operates within a group structure as a parent with one or more
subsidiaries, the Asset Board must review the core governance documentation of the
subsidiaries, at a minimum their Articles of Association (or equivalent), their Board
Terms of Reference, and their Committee Terms of Reference, on a sufficiently regular
basis. UKGI must have sight of the internal governance documentation of the Asset,
and comment upon its adequacy, in order to effectively perform its shareholder function.
UKGI can most meaningfully reflect upon the sufficiency and quality of the Asset’s
governance documentation through the UKGI NED, pursuant to Activity 39. Subsidiary
governance documentation should be reviewed to assess the extent to which it reflects
the functioning group structure and understood delegations of authorities. UKGI should
review such documentation in line with any delegated authorities set out in relevant
legislation (see Activity 3) or the Framework Document (see Activity 2).
9. UKGI should assess the sufficiency and quality of the Terms of Reference of the
Asset’s non-executives. Non-executives should have all appropriate governance
documentation in order to function effectively.
9.1. UKGI must have sight of the terms of reference for non-executives, including the
Chair (for further information on the Chair, see Guidance Provision 9.3). As set out in
4 Such as the Chartered Institute of Internal Auditors “IViodeI Audit Committee Charter”.
5 Such as the UK Corporate Governance Code 2018 from the Financial Reporting Council
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Activity 7, UKGI, in consultation with UKGI Legal, must be able to comment upon
director terms of reference when they are issued or updated. UKGI must be comfortable
that the terms and conditions are fit for purpose. UKGI should consult the UKGI Public
Appointments Reference Guide to determine whether the terms of reference are
consistent with all requisite approvals received before the terms of reference are issued.
Any queries should be addressed to the UKGI Appointments and Remuneration team.
9.2. Where there is a UKGI non-executive on the Board, as set out in activity 39, the UKGI
non-executive must be issued terms of reference by the Asset, similarly to all other non-
executives, as set out in Guidance Provision 9.1. UKGI non-executives must have the
same duties and responsibilities as all other non-executives, as far as possible.
Provisions which may differ for the UKGI non-executive from other non-executives,
should be limited to remuneration, terms of termination and notice periods (these should
be tied to the NED being a UKGI employee), and term lengths as necessary (UKGI
NEDs may be issued indefinite term lengths)®. In keeping with the requirements of
Section 172 of the Companies Act 2006 (from which UKGI applies best practice,
including in instances where the Companies Act 2006 does not apply to an Asset), all
NEDs have a duty to act in a way that would be most likely to promote the success of
the Asset for the benefit of its shareholders. A UKGI NED must not be given
responsibilities distinct to those of other NEDs as outlined in their terms of reference.
9.3. UKGI should issue the Chair with the UKGI’s “Governance Expectations of the Chair”
on an annual basis, as set out in Guidance Provision 6.1. UKGI should encourage the
specific responsibilities of the Chair are correspondingly set out in the Chair's terms of
reference, in accordance with Constitutional Documentation.
9.4. UKGI does not encourage Assets to have Deputy Chairs. Where Deputy Chairs exist,
often as a result of multi-stakeholder relationships which have established them, the
Deputy Chair must also be issued terms of reference by the Asset. UKGI, in
consultation with UKGI Legal, must be able to comment upon Deputy Chair terms of
reference when they are issued or updated. UKGI should consult the UKGI Public
Appointments Reference Guide to determine whether the terms of reference are
consistent with all requisite approvals received before the terms of reference are issued.
UKGI should pay particular attention to whether the Deputy Chair has the requisite
ministerial understanding and approval to be able to assume the position of the Chair
should the Chair be unable to do so, either temporarily or permanently. Any queries
should be raised with the UKGI Appointments Lead.
9.5. UKGI encourages Assets to appoint a Senior Independent Director (SID), (see activity
26, and the Senior Independent Director Guidance Note). Upon appointment, the SID
should be issued with terms of reference for the position. Alternatively, owing to the
limited responsibilities of the SID additional to their duties as a non-executive director,
the Asset may deem it sufficient to issue a confirmatory letter to the SID, outlining their
responsibilities. UKGI, in consultation with UKGI Legal, must be able to comment upon
SID terms of reference or confirmatory letter when they are issued or updated. UKGI
should pay particular attention to the role of the SID with regards to the annual appraisal
6 Whilst UKGI NEDs may be issued indefinite term lengths, subject to any constraints in the governance
documentation of the Asset, UKGI should take stock at appropriate intervals as to whether the
incumbent UKGI NED should continue in post or be replaced. It may be appropriate, such as after six
years in post, for the UKGI NED on the Board to rotate. This is a matter for UKGI ExCo to consider,
informed by the UKGI shareholder team. As with all NEDs, the UKGI NED should be subject to an
annual performance appraisal performed by the Chair, as per Activity 29.
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of the Chair. UKGI should encourage this to be consistent with UKGI’s Chair appraisal
policy, and Activities 26 and 27.
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Principle B: Promote effective objectives, business planning and
performance against business plan
UKGI should assess and challenge from an owner's perspective the Asset’s Business Plan,
the clarity of the objectives, the quality of the Business Plan and the financial, and where
relevant commercial, strength underpinning it, and its effectiveness as a tool for the Asset
UKGI should monitor and challenge the Asset and its Board as to the performance against its
Business Plan or equivalent document, in terms of how the Asset is performing as an
organisation (as opposed to monitoring the success of the policy delivery itself)
UKGI should challenge the Asset’s Business Cases, and other HMG approvals outside the
Asset’s executive delegations, through the UKGI NED on the Asset Board only (this will be
limited to the degree of challenge that any non-executive Board member can provide. UKGI is
not responsible for formally reviewing such business cases, providing advice to the department
and ministers, or obtaining HMG approval for Business Cases, unless explicitly agreed
otherwise)
Core Areas for Consideration
e¢ Objective Setting
e Business Planning
e Financial and Overall Performance and Reporting
Shareholder Activities with Guidance
10. UKGI should promote clear objectives from the Department to the Asset, to support
clarity of the Asset’s purpose between the Department, the Asset, and where
appropriate, HMT, in accordance with the relationship set out in the Framework
Document.
10.1. The Asset can only function effectively with a clear policy direction from the
Department, underpinning the Asset’s purpose. This policy should be translated by
the Department into clear objectives for the Asset, which shall dictate its strategy,
operations, and business plan. UKGI should be confident that this is the case. Through
regular meetings with the Asset (such as via shareholder meetings, as per Activity 36)
and its Board, as well as via regular contact with the Department, UKGI should monitor
the extent to which the Asset and the Department have an effective relationship from a
governance perspective, and the Department can set meaningful objectives for the
Asset. Where UKGI believes that there is not a functional alignment, and this cannot
be resolved at an operational level, UKGI should report this to an appropriately senior
level, as per Activity 38.
10.2. UKGI should not review or assure the Asset’s objectives from a policy perspective.
UKGI should encourage the Asset to have robust internal procedures through which
it can consider and discuss its objectives on a multi-year basis with the Department.
The Asset can most meaningfully do so via the Accounting Officer and the Board.
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UKGI should engage with the Department and other stakeholders to be confident that
objectives have been set in an appropriate manner. UKGI should be confident that all
processes and internal procedures conform to those set out in the Asset’s Framework
Document, as per Activity 2.
10.3. UKGI should be confident that the Asset, through its own internal governance
framework as set out in Guidance Provision 10.1, works with the Department to
establish clear objectives to frame its strategy, on an annual or multi-year basis, in
accordance with the Asset’s business planning cycle (see Activity 12). Beneath this,
UKGI should encourage the Asset to establish robust and meaningful Key
Performance Indicators against which the Asset can monitor its performance. KPIs
should be useful metrics, preferably quantitative in order to allow for objective
assessment, and relevant to the Asset’s operations. Guidance from the FRC on
performance metrics can be found here. KPIs should stretch the Asset, and yet be
realistic and achievable. It is the responsibility of the Asset to discuss and develop
relevant KPls in coordination with the Department. The Asset’s Board should lead on
internally challenging and assuring KPIs within the Asset, and should be able to
provide feedback on their appropriateness to the Department in a functional manner,
as per Guidance Provision 10.1. UKGI should be confident that the Asset has
sufficiently challenged its KPls, and that both the Department and the Asset deem
them appropriate. It is not for UKGI itself to determine the strength of the KPls, though
it may, via the UKGI NED most readily, provide feedback into the process in which
they are determined based on internal expertise and experience.
11. UKGI should work with the Department and the Asset to promote the need for the
Asset to have a Business Plan.
11.1. A business plan, linked to the long-term strategy of the Asset, as set out in Guidance
Provision 10.1, is essential to direct and monitor the performance of the Asset, and
ultimately support clear accountability. UKGI therefore must encourage the Asset to
establish an effective business plan, and to agree it with the Department in
accordance with the Framework Document or equivalent document. UKGI should
encourage the Asset to consider what sort of business plan would best suit the Asset,
such as over what timeframe the plan is refreshed, what the KPIs ought to be and how
they link to the strategy and other objectives, as well as whether and how the business
plan should undergo consultation with stakeholders. We would expect that any multi-
year business plan would be broken down into annual budgets. UKGI should
encourage the Asset to discuss these matters with the Department and key
stakeholders (such as the relevant regulator if there is one).
11.2. UKGI should encourage the Asset to consider regularly whether its business planning
cycle best suits the Asset's activities. The Asset should make amendments to the
process where suitable and possible (noting that certain aspects of the business
planning cycle may be established in the Asset’s constitutional documentation,
including founding legislation).
11.3. UKGI should encourage the Asset to establish an effective business plan, in line with
the Asset’s purpose, as set out in Activity 10. Key aspects to consider include:
- Is the business plan achievable? Is it high risk?
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- Does the business plan align financially with the Asset’s operations? Can the
business plan be operationalised with appropriate performance metrics?
- Does the business plan have Board and Executive support?
- Does the business plan align with the Department’s strategy and budget envelope?
- Can project performance be properly scrutinised against KPIs within the business
plan?
- Does the business plan credibly forecast any expected investment, spend, or
return?
- Does the Asset have the appropriate delegations to enact the business plan?
11.4. The business plan should be both achievable and sufficiently challenging so as to
incentivise executive performance. The business plan should encourage mission
delivery and scrutiny in line with policy objectives. UKGI should be satisfied that this is
the case. In so doing, UKGI should consider both historical performance data, as
well as the robustness of projections, against which the business plan can be
interrogated. Some appropriate ways to review this include trend analysis looking at
performance over time, benchmarking data on Asset performance against potential
comparators in both the public and private sector, analysis of margin evolution, and
performance data for returns on investment and returns on capital employed. Whilst
such examples may be most relevant for public corporations as opposed to other
central government Assets, in all cases UKGI should be satisfied that there is
extensive evidence that the business plan is sufficiently challenging and appropriate
for the Asset. Challenge can be most meaningfully made by the UKGI NED via the
Asset Board, however the shareholder team should also be prepared to
interrogate the business plan on such grounds as part of working level
interactions with the Asset, and be confident so as to be able to advise the
Department on the strength of the business plan.
12. UKGI should promote a workable and reasonable business planning cycle for the
Asset. This cycle should include interaction between UKGI, the Department, and
HMT.
12.1. The Asset should consider the timeframe during which it needs to prepare its
business plan for each year. The Asset should begin to draft its business plan in
good time ahead of the start of the financial year. With regards to an annual business
plan, for most Assets (for whom the reporting year follows a financial year of April -
March) this means starting preparations in the preceding October. Whenever the
Asset begins work preparing an annual, or multi-annual, business plan, UKGI should
be confident that the Asset has built a robust and workable timetable for its
formulation, challenge, consultation (where necessary), and approval. UKGI should
pay particular attention to the approvals process for the business plan. UKGI should
be confident that the Asset Board owns the business plan, and be prepared to have
meetings outside of the normal board meeting schedule. The Board should therefore
approve the business plan in the first instance. Ideally this will be before year end so
that ministerial approval can also be secured ahead of the new financial year.
Thereafter, the Asset (via UKGI as necessary) may be required to submit the business
plan to the Department for Ministerial clearance. Where this is done, UKGI should
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12.2.
12.3.
12.4.
accompany the submission with a written explanation of the processes of internal
assurance up to that point, (see Guidance Provision 10.1). UKGI should not provide
written assurance of a business plan itself, but be confident in the governance
processes through which it has been considered and its view on the strength of the
business plan, before being presented to Ministers. Subsequently, as set out in
Activities 13 and 13.1, the business plan should be continually monitored over the
course of the year (or other cycle) both internally, by the Asset Board, and externally,
such as by UKGI, the Department, and a regulator. Regular shareholder meetings, as
set out in Activity 36, provide a good opportunity to do so periodically.
UKGI should encourage the Asset to engage with the Department, HMT where
appropriate, and UKGI at all relevant stages of the business planning cycle. As
set out in Activity 10, in the majority of cases business plans should stem from a policy
direction from the Department, underpinning the Asset’s purpose. To that end, the
Asset should engage regularly with the Department whilst formulating the business
plan in order that it operates in conjunction with the Department's policy objectives.
UKGI should be confident that the business plan is set within the Asset’s financial
delegations (these should be set out within the Asset’s Framework Document, as per
Activity 2). UKGI should challenge the Asset to undertake all business planning
activities, and engagements with the Department, HMT and others as required, in a
reasonable and workable timeframe so as to allow sufficient external, and internal
scrutiny.
UKGI should understand the Asset’s business and forecasting cycles, both in-year
and multi-year, and develop a timeline of shareholder challenge around this. UKGI
should be well aware of how and when budgets are created, how frequently forecasts
are made and reforecasts considered, as well as in what format all such management
information is recorded and presented (see Guidance Provision 14.1). UKGI should
understand what key sources of management information best suit the Asset as a
means of tracking and managing performance within the performance cycle. These
may include management accounts, KPls, and business reports, among further HMG-
specific information, examples of which can be found in Guidance Provision 13.3.
UKGI should encourage the Asset to consider which stakeholders should be
involved in the business planning cycle. In some instances, the Asset may be
required to consult stakeholders for comment, such as the regulator, or even required
to publish a business plan for public consultation. UKGI should consider whether any
additional stakeholders, such as industry groups or other Government Assets or
Departments should be consulted whilst formulating the business plan. It is likely that
stakeholders may be consulted as part of a multi-year strategy consultation. However,
stakeholders are less likely to be involved in an annual business plan and the setting
of KPIs, as set out in Guidance Provision 10.2. Where the Asset operates in a group
structure, UKGI should encourage the Asset to engage with its subsidiaries in good
time when setting its business plan. It is likely that many of the objectives of the
business plan will be enacted by the subsidiary organisations.
13. UKGI should monitor and challenge the Asset and its Board as to the performance,
including financial performance, against its Business Plan from a shareholder
perspective.
13.1.
UKGI should continually challenge the performance of the Asset against budgets,
business plans, and KPIs, as well as any risks to delivery and any mitigating actions
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13.2.
13.3.
13.4,
taken by management to address these risks. In addition to being content that the
Board is undertaking its duties in challenging the Asset’s performance, UKGI should
provide additional challenge from a shareholder's perspective. As part of regular
shareholder meetings (see Activity 36), and as part of ongoing relations with the
Asset’s Executive team and working level meetings (see Activity 15), UKGI should
regularly interrogate actions being taken/considered by management against its
business plan and ongoing corporate objectives.
As set out in Guidance Provision 10.2, the business plan should be founded in robust
and meaningful KPls. The Asset should provide regular management information
which tracks the performance of the Asset against these KPls and other metrics (see
Activity 37). Shareholder meetings should be held sufficiently regularly, as per Activity
36, to allow the proper flow of Management Information, and to allow UKGI to
meaningfully challenge and discuss Asset performance.
UKGI teams should familiarise themselves with budgeting in the public sector,
particularly for ALBs, as set out in HMT’s Consolidated Budgeting Guidance. UKGI will
benefit from building a strong working relationship with the Departmental Finance
team, who can provide additional financial insight from an HMG perspective as
appropriate. As per Activity 37, the Asset should provide regular and sufficiently
detailed financial information to UKGI, its parent Department as well as its Board, in
order to allow ongoing assessment of its financial performance. UKGI recognises that
financial information and performance monitoring will differ depending on the
Asset type. The two principal Asset types for UKGI, separated by their applicable
HMT budgeting rules, are central government organisations and public corporations
(other Asset types, such as trading funds, will require similar financial monitoring).
UKGI teams should consider and challenge information provided by the Asset, as
appropriate to its type as set out below:
13.3.1. For central government Assets, UKGI should challenge the Asset’s
performance in line with its spending controls as per its financial delegations and, if
appropriate, Supplementary Estimates. This should include looking at each control
total, for instance Admin, Resource DEL, Capital DEL and Annually Managed
Expenditure. UKGI should challenge the Asset’s assumptions as per their financial
forecasts set out in the business plan on an annual and a multi-year basis as
appropriate. Guidance on spending controls, published by the ICAEW, can be
found here. In addition, UKGI and the Board should regularly analyse and
interrogate the Asset’s balance sheet as against budget and financial targets.
13.3.2. For public corporations, or central government Assets which have relevant
commercial or investment activities, financial reporting should be interrogated in
a manner similar to that of a company operating as a going concern. UKGI should
challenge the Asset according to cashflow; income statement; balance sheet, as
against budget and financial targets; strength and level of detail of forecasting;
minimum cash requirements and fluctuations etc. In addition to this, UKGI should
challenge the Asset as per its ongoing assumptions which may include, returns on
investments; appropriateness of financial targets; impacts upon liquidity should
risks materialise (including upside and downside forecasts); and the robustness of
financial models.
. UKGI should monitor and challenge both the long-term and the short-term financial
health of the Asset, taking into account the following considerations as appropriate:
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13.4.1. Long term performance may be assessed by reviewing how the Asset is
performing in line with established long-term or lifetime forecasts and financial
models. These forecasts may encompass an overall spending envelope
established and anticipated for the Asset, or part of its operations, such as an
overall project or programme budget. UKGI should challenge, via the Board and
the UKGI team as appropriate, the extent to which the Asset is performing in line
with these projections in an ongoing basis. Both regular reporting, as well as
annual and multi-annual business plans, should be assessed and challenged
against long-term projections of financial performance and spend.
13.4.2. Short term performance should be assessed against the agreed business plan
within the year, this includes both income (where relevant) and expenditure in line
with in-year forecasts. Ongoing financial risks, such as cashflow, should also be
regularly interrogated. Performance of projects should be carefully scrutinised
against appropriate KPls, both in-year and on a portfolio and multiyear basis where
appropriate. Reviews of short term performance should be done at both regular
shareholder meetings (see Activity 36) and Asset Board meetings, and UKGI
should be confident that this is the case. UKGI should pay particular attention to
risks and implications which are more specific to government and may be less
familiar to Boards, and seek advice as appropriate from the Departmental Finance
team. These risks include the likelihood that the Asset may need to go back to
HMT or the Department for additional funding, such as via the supplementary
estimates; as well as how any deviation from the business plan, such as deferred
or incomplete work, may impact financial performance and spend in future years.
13.5. In addition to regular shareholder meetings, as per Activity 36, the UKGI NED should
challenge Asset performance at the Board. UKGI should be confident that the Board
is challenging Asset performance on a regular basis. Where UKGI does not feel that
this is happening, it should inform the Department, by way of a regular update, as per
Activity 38.
14. UKGI should promote a regular assessment by the Asset of its own performance and
performance reporting to UKGI and the Department.
14.1. UKGI should promote a regular flow of management information, including financial
information, from the Asset to the Department, as per Activity 37. Such information
may include data regarding the performance of functional areas or business lines of
the Asset, project and operational performance against agreed KPls, employee
statistics, information on developing risks and their mitigations, and up-to-date
financial performance data. All such information should be presented in light of any
assumptions and established models which underpin the business plan, both in-year
and multi-year (see Guidance Provisions 11.4 and 12.3). Whilst performance against
KPls should form the basis of much management information provided, the Asset
should consider whether other useful metrics or written updates from key executives,
can help to demonstrate Asset performance. UKGI should encourage the Asset to
consider regularly how it presents information on performance against both its
business plan, and its overall strategy.
14.2. UKGI should encourage the Asset to include, within its regular management
information to UKGI and the Department, as per Guidance Provision 14.1, a balanced
view of areas of positive performance, as well as areas of poor performance,
with accompanying mitigation plans. Such information should be presented according
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14.3.
to short, medium, and long-term objectives as appropriate. Where UKGI passes on
any such information to the Department from the Asset, likely as part of regular
dashboard reporting, UKGI should highlight any areas of concern.
The Chair’s letter, in addition to the business plan, offers the most direct route for the
Department and UKGI to communicate their priorities to the Asset, as per Activity 6.
The letter will form the basis of much of the Asset’s target setting for the year, and
should thus inform its ongoing reporting. UKGI should challenge the extent to which
the Asset is meaningfully reporting upon the priorities as set out in the Chair's letter
both at regular shareholder meetings (see Activity 36) and, where relevant, as part of
the annual appraisal of the Chair (see Activity 27).
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Principle C: Promote strong corporate capability
Through the shareholder team, as well as through the UKGI representative on the Asset board,
UKGI should promote the strength of the Asset’s governance systems which support
organisational performance, by providing high level challenge to the Asset (and its Board) on:
a. governance framework compliance — defined as the Asset’s view on its compliance with its
governance framework (as set out in its Framework Document, delegated authorities, and
any other specified governance documents), and
b. the adequacy and strength of the Asset’s reporting on these issues.
Core Areas for Consideration
« Governance Framework Compliance
Shareholder Activities with Guidance
15. There should be an Accounting Officer (or other Senior Accountable Person) within
the Asset, appointed by the sponsoring Department. UKGI should have regular
contact with this person/persons.
15.1. In accordance with Managing Public Money (Chapter 3), all Assets must have an
Accounting Officer (subject to paragraph 15.6 in the case of public corporations where
there is a requirement for an Accountable Officer). The Accounting Officer is likely to
be the most senior executive within the Asset. UKGI should be satisfied that the
responsibilities of the Accounting Officer are set out in the Framework Document
(or appropriately signposted, see activity 2). These should include all responsibilities
set out in Managing Public Money (Chapter 3). UKGI should be content that they are
sufficient to allow the Accounting Officer to fulfil their role and “be able to assure
Parliament and the public of high standards of probity in the management of public
funds”.
15.2. UKGI should meet the Accounting Officer on a regular basis. UKGI should
encourage the Accounting Officer to attend the regular Quarterly Shareholder
Meetings, see provision 36. Should the Accounting Officer be unable to attend these
meetings, then the Accounting Officer should provide regular reports of key
developments and areas of significant shareholder concern to the meetings, to be
followed up and presented by a senior executive in their stead.
15.3. UKGI should encourage the Accounting Officer to meet with an appropriately senior
person within the Department (such as the Permanent Secretary or a relevant
Director General) on at least an annual basis. UKGI may benefit from briefing the
Department ahead of such meetings with its views and any concerns from a
shareholder perspective, and particular areas which to probe. UKGI may benefit from
attending these meetings. Where the Accounting Officer is also the Chief Executive,
the Asset Chair should also attend.
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15.4. Where Accounting Officer appointments are Ministerial appointments, UKGI should
be involved in the appointments process, with a representative on the interview panel
as appropriate. Most Accounting Officer recruitment processes will be led by the
Asset, specifically the Asset Nominations Committee and Asset Chair. Where the
process is led, by agreement with the Department and the Asset, by UKGI, UKGI
should follow the appointments processes and guidance as if the position was for a
non-executive, this is set out in Activity 22. Responsibilities for appointing the
Accounting Officer should be detailed within the Framework Document.
15.5. UKGI should have confidence in the ability of the Accounting Officer to perform their
duty effectively. This may be done via the Accounting Officer appointment process,
as per Guidance Provision 15.4, but also by encouraging the Accounting Officer to
understand the distinct responsibilities of the role. UKGI should encourage Accounting
Officers to undertake all reasonable learning and development in order to understand
both the Asset and the role itself. To this end, UKGI encourages incoming Accounting
Officers to undertake Public Accountability for New Accounting Officers training. The
Board should also undertake all relevant trainings to understand the role of the
Accounting Officer and work effectively with them, as per Guidance Provision 32.2.3.
15.6. Public Corporations should have an Accountable Person in place of an Accounting
Officer. UKGI should treat the Accountable Person as an Accounting Officer regarding
their duties, insofar as this is possible (recognising that the Accountable Person is not
required to act in accordance with Managing Public Money), and establish the same
working relationship with the Accountable Person as if an Accounting Officer.
16. UKGI should encourage the Department to issue an Accounting Officer letter to the
relevant person(s) within the Asset. This should be reviewed on an ongoing basis.
16.1. Upon appointment, pursuant to Guidance Provision 15.4, the Accounting Officer
should receive an initial letter from the Department’s Principal Accounting
Officer. This letter should set out the principal functions of the Accounting Officer with
respect to the Asset, and is a good place within which to introduce the Accounting
Officer to significant stakeholders, such as the Department, HMT, UKGI, and
regulators. UKGI should review this letter (and in certain circumstances may draft the
letter before providing it to the Principal Accounting Officer), in light of its fit with all
delegated authorities set out in the Framework Document, see Activity 2. UKGI should
raise to the Department any instances in which the Accounting Officer letter
contradicts agreed delegated authorities within the Framework Document.
16.2. The Department should issue an Accounting Officer letter (or an Accountable Officer
letter where appropriate) on an annual basis. This should coincide with the Asset’s
financial reporting year. The letter should set out the financial delegations and
delegated authorities of the Accounting Officer within the Asset. UKGI should
encourage the Department to issue this, and raise concerns to the Department (at a
senior level such as the Permanent Secretary as necessary) in instances in which this
has not been done.
16.3. UKGI should be aware that HM Treasury, via the Department’s Principal Accounting
Officer (in most cases the Permanent Secretary) shall periodically issue Dear
Accounting Officer Ictiers. These are used to provide specific advice on issues of
accountability, regularity and propriety and annual accounting exercises,
supplementary to guidance published in Managing Public Money.
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17. UKGI should challenge the adequacy and strength of the Asset’s reporting on its
own governance framework.
17.1. In accordance with Activity 8, UKGI should review the internal governance of the Asset
via its documentation. UKGI should also report any significant concerns it has with
regards to Board functioning and relationships with or among Senior Executives by
way of its regular reporting cycle, as per Activity 38. The Asset is, however,
responsible for overseeing its own internal governance, in accordance with its
governance framework. The Asset should provide a governance statement in its
Annual Report and Accounts (see Activity 18), in accordance with the UK Corporate
Governance Code (which UKGI Assets follow in accordance with best practice). This
statement should provide a comprehensive report into the effectiveness of its
governance arrangements, including referencing any governance reviews or Board
effectiveness reviews that it has undertaken (see Activity 28). UKGI should challenge
the extent to which the information the Asset provides is sufficient, so as to give a
meaningful and extensive overview of how the Asset is governed.
17.2. UKGI should challenge the Asset’s internal governance as part of regular reviews of
Asset strength, such as via shareholder meetings, as per Activity 36. UKGI should be
able to call upon the Asset to provide additional reports into its governance, such as
the results of internal audits into governance, or workstreams to develop and amend
internal governance within the Asset.
17.3. Where the Asset operates in a group structure, UKGI should challenge the extent
to which the Asset reports the adequacy and functioning of subsidiary governance and
the group structure, either via the Asset Board, or as part of the Asset’s Annual
Report, as set out in Guidance Provision 36.6.
18. UKGI should provide feedback on the drafting of relevant parts of the Asset’s annual
report where appropriate, particularly into the governance statement.
18.1. Respon: ity for drafting the annual report lies with the Asset. Assets have ultimate
responsibility for ensuring that annual reports comply with The Government Financial
Reporting Manual (FReM). UKGI, however, should assist the Asset to plan for the
publication of its annual report. The Asset should have an annual report timetable to
plan for its drafting, generally before the end of the financial year. In instances in which
annual reports require ministerial or departmental sign off, a plan and timetable for
obtaining such clearances, and requisite feedback, should be established. UKGI
should assist the Asset in such timetabling. UKGI should receive a copy of the draft
annual report for review ahead of its publication, and should be given sufficient time to
review and comment upon it, providing input into its drafting as appropriate, and
significant issues should be raised with the Department. Ideally UKGI, in conjunction
with the Department as required, should have around six weeks to do this ahead of
any internal Asset sign-off. This should be reflected in the timetabling of the process,
and the timetable should also provide for any Departmental approvals. UKGI should
be cognisant of any requirements for the Asset’s annual report to be published before
a certain date, or laid before Parliament. It is likely that in these instances the Asset’s
annual report publication will be coordinated with the Department.
18.2. UKGI should pay particular attention to The Accountability Report in the annual report
and its subset, the Corporate Governance Report. This should contain a
comprehensive account of the governance framework of the Asset, including an
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explanation of the working relationship between the Asset and government, distilling
the roles of UKGI and the Department as necessary. Where the Asset is part of a
group, the group relationship should be clearly explained, often with the use of an
organisational chart. UKGI should be confident that the annual report reflects the
governance arrangements of the Asset, and provide feedback on the drafting as
necessary.
18.3. If the Asset is required to, or chooses to (as is UKGI best practice), report against the
UK Corporate Governance Code, or any other industry code, then a comprehensive
statement of compliance should be included within the annual report. To the greatest
degree possible a report upon the Asset’s compliance should be consistent with the
guidelines set out in the code. It is accepted that provisions of the UK Corporate
Governance Code do not suitably apply to many of UKGI's Assets. Similarly, many
Assets choose to report on the Code, which are not otherwise compelled to. UKGI
encourages Assets to do this, in order to follow the highest standards of corporate
governance. To this end, the Asset may choose to include a statement within its
annual report on how it has sought to comply with the Code. This statement should
give sufficient visibility to significant areas of non-compliance and provide ample
explanations for these. If an Asset is required by the FRC to report against the UK
Corporate Governance Code, then it must do so in line with the Code guidelines, and
provide an explanation of non-compliance in all instances. In all cases, UKGI should
be satisfied that the annual report sufficiently explains the governance of the Asset,
and reports it transparently, significant issues should be raised with the Department.
19. UKGI should promote an effective internal controls governance framework, providing
feedback as necessary on the process by which these have been internally assured.
19.1. Responsibility for robust internal controls lies with the Asset. Internal controls can best
be thought of according to the three lines of defence model. This is defined by the
Chartered Institute of Internal Auditors (see here) as below, along with UKGI's role:
19.1.1. The first line of defence — functions that own and manage risk and controls —
UKGI should consider whether the Asset is effective on the ground at managing
risks. UKGI can probe these by way of regular shareholder meetings pursuant to
Activity 36. UKGI is limited in the extent to which it can have sight of the first line of
defence. However, UKGI can consider corporate culture as a good indicator, as
per Activity 21. In addition to this, UKGI should encourage the Asset’s Executive
Team to consider the strength of this function.
19.1.2. The second line of defence — functions that oversee or specialise in risk
management and compliance — UKGI should consider whether the Asset has the
correct people, structures, and policies within its internal risk and controls function.
UKGI can probe these by way of regular shareholder meetings pursuant to Activity
36. UKGI should promote effective internal controls policies, as per Activity 20. In
addition to this, UKGI should encourage the Asset Board and Audit Committee to
review the Asset's internal strength in these regards.
19.
.3. The third line of defence — functions that provide independent assurance,
above all internal audit - UKGI should consider what checks and balances are
there in place within the Asset to assure the internal risk and controls framework,
and how the Asset evidences this to the Board and stakeholders, including UKGI.
(See Guidance Provision 19.2 for further details.)
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19.1.4. Additional UKGI guidance on what to consider across the three lines of defence,
including what internal policies and structures should be in place, can be found
here.
19.2. UKGI should challenge and promote an effective internal controls ecosystem. This
includes promoting effective internal policies, as per Activity 20, and effective
corporate culture, as per Activity 21. Above these however, UKGI should consider the
strengths of the Asset’s own checks and balances for their internal controls, the third
line of defence, principally the internal audit function.
19.3. UKGI should focus primarily on the third line of defence when considering internal
controls within the Asset. UKGI’s role in the third line of defence, as set out in
Guidance Provision 19.1.3, should be led by the UKGI NED (where UKGI does not
have a UKGI NED on the Board of the Asset, UKGI’s role here may be limited). The
UKGI NED should meet with the Head of Internal Audit, or equivalent, including if this
has been externalised, on an annual basis, to consider the strength of the internal
audit function. This can either be done as a part of the functioning of the Audit
Committee, or on a separate basis as necessary. The UKGI NED, should also meet
with the Chair of the Audit Committee on an annual basis. UKGI should assess the
extent to which there is a robust reporting line from Internal Audit to the Audit
Committee, and upwards to the Board, within these conversations. Overall, UKGI
should consider the following areas relating to the internal audit function, as part of
third line of defence:
19.3.1. Reporting — Are the findings of internal audit being reported to the Audit
Committee and then to the Board adequately? Does the Board properly consider
the findings of internal audit? Is anybody within the Asset amending the findings of
internal audit?
19.3.2. Operational autonomy — Is internal audit independent of those people/areas
which it has responsibility to interrogate? Is internal audit free to challenge all
areas of the organisation as directed by the Board?
19.3.3. Scope — Is internal audit reviewing those areas of risk and compliance which are
of key interest to the Asset and the Board? Is internal audit's scope, in UKGI's
opinion, adequately challenging the Asset?
19.3.4. Resourcing — Is the internal audit function properly resourced to carry out its
function effectively? Is adequate Audit Committee and Board time given to matters
of internal audit? Where necessary, does internal audit have functioning
relationships with subsidiaries and regulators?
19.3.5. Actions — Are the actions recommended by internal audit followed up on and
implemented by the Asset?
19.4. UKGI should encourage Asset audit functions to continually review their own
effectiveness. Audit functions should feel comfortable that they are being properly
engaged, and are recommendations are being followed up by the Board and the
Executive, this includes the Audit Committee. The UK Corporate Governance Code,
section 4, sets out principles of transparency, reporting, and risk management which
audit and risk functions are expected to exhibit. UKGI should encourage the Audit
Committee to review the effectiveness of the audit and risk functions in line with these
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principles. The easiest means by which the audit and risk function can be reviewed is
as part of an annual review of Audit Committee effectiveness. This is often completed
as part of a review of Board effectiveness, as set out in activity 28. This review should
be completed mindfully of the principles of the UK Corporate Governance Code, and
effective internal audit and controls, as set out in Guidance Provision 19.2. There are
several toolkits which can be used to assist a review of the internal audit function, one
such useful toolkit to assess Audit Committee effectiveness is the National Audit
Office’s Audit and Risk Assurance Committee Effectiveness Checklist. UKGI should
encourage Assets to use this, or similar checklists, to assess Audit Committee
effectiveness.
20. UKGI should promote appropriate internal policies to underpin the Asset’s
governance framework and encourage the Asset to review its own compliance with
such policies. Policies should allow an appropriate reporting upwards within the
organisation to the Board and above into the Department and UKGI.
20.1.
20.2.
20.3.
Responsibility for internal policies and compliance lies with the Asset, (usually
under the Chief Compliance Officer or similar) and the Board. The Board should
review its core internal policies on a sufficiently regular basis. The core internal
policies should include policies such as: human resources (or other organisational
health policies), procurement, health, safety, and environment, cyber risk,
whistleblowing, anti-corruption, anti-slavery, and anti-money laundering, etc. Our
Assets should also be mindful of any sector or Asset specific policies and controls
which may apply to them such as: nuclear safety, environmental standards, and
banking or financial controls. It is the responsibility of the Board to draft and continually
review policies relevant to them. UKGI, through the UKGI NED, should encourage this
to be done, and flag to the Department any instances in which the Asset is not doing
so. UKGI does not provide an assurance function on behalf of our Assets’ internal
policies. Instead, UKGI should interrogate Assets to understand how they have
become comfortable themselves as to the appropriateness and effectiveness of their
own internal policies and compliance with them.
All core internal policies should be reviewed and updated as appropriate by the
Asset at least once a year, and by the Board or Audit Committee as appropriate, (see
the National Audit Office’s Audit and Risk Assurance Committee Effectiveness
Checklist, items 24-28). All documentation should be consistent with the Framework
Document, and UKGI should challenge the Asset to confirm this. Internal policies
should be updated in line with evolving corporate governance best practice, as set out
by guidance such as the UK Corporate Governance Code.
UKGI should challenge the Asset with regards to its view of the adequacy of its core
internal policies, on a regular basis. This is most readily done at regular shareholder
meetings in accordance with Activity 36. UKGI may encourage Assets to seek
external advice or assurance on internal policies and controls frameworks, or
encourage the Asset to seek guidance from other sources, such as specialists inside
or outside HMG or other assets within the UKGI portfolio.
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21. UKGI should promote effective organisational health systems and corporate culture
within the Asset.
21.1. UKGI should encourage the Asset, via regular discussions with Executives and via the
Asset Board as appropriate, to consider its organisational health and an effective
corporate culture. UKGI should promote systems to encourage this within the Asset,
sharing UKGI best practice where appropriate. The FRC guidance on Corporate
Culture and the Role of Boards provides a useful and extensive outline of key cultural
and HR considerations for Assets and their Boards, (such as diversity of thought within
the organisation, the openness of management, and the quality of succession
planning). UKGI should promote these, among other elements of corporate culture.
This can be done most readily at the Board via the UKGI NED, (see Activities 39 and
40), or at regular shareholder meetings (see Activity 36).
21.2. UKGI should encourage the Asset to develop appropriate metrics and reporting
arrangements to substantiate work regarding their organisational health and
corporate culture.
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Principle D: Promote effective leadership (high quality boards and
senior management)
UKGI should promote and advise the department on the effectiveness of the Asset’s
leadership, specifically through:
a. promoting high quality and diverse boards, challenging the board’s capability and
effectiveness, and monitoring the Asset’s succession planning
b. promoting the implementation of effective board composition, recruitment, remuneration
and appointment processes
c. acting as the shareholder non-executive director on the Asset’s Bboard
d. giving a view on the Asset’s board level executive capability in relation to its responsibilities,
and remuneration
Core Areas for Consideration
« Board Composition
e Appointments and Reappointments
« NED Remuneration
e Senior Independent Directors (SIDs)
e¢ Chair Appraisals
¢ Board and NED Performance Reviews
Shareholder Activities with Guidance
22. Where Non-Executive appointments are made by HMG, UKGI should lead (in
coordination with the Department) the recruitment and appointment processes.
22.1. The UKGI shareholder team should have a clear understanding of the Asset’s
appointment process for Non-Executives. In some cases, processes may differ for
Non-Executive Directors (or Board Members) and Chairs. UKGI should consult with
the UKGI Appointments and Remuneration team where the appointment processes
are unclear. UKGI should pay particular attention to whether the appointments are
regulated by the Commissioner for Public Appointments, and familiarise themselves
with the Cabinet Office’s Governance Code for Public Appointments, which sets out
the overall principles of all public appointments. The process should be agreed by
UKGI, the Asset, and the Department, and recorded in the Framework Document, as
per Activity 2.
22.2. UKGI shareholder teams should familiarise themselves with the processes for
appointments on their Asset, including who is responsible for leading such work, see
Guidance Provision 22.1. According to the UKGI Target Operating Model, UKGI
should lead on appointments for Non-Executives. UKGI should continually
consider the composition of the Asset Board, and be aware, in good time, of any
forthcoming Non-Executive appointments. Additionally, as per Activity 30, UKGI should
consider, in conjunction with the Asset Chair and the Department as appropriate,
whether incumbent Non-Executives should be reappointed at the conclusion of their
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term of office, or whether a replacement should be sought via a public appointment.
UKGI should draft a plan for the appointment process in the first instance, allowing up
to twelve months from the commencement of the recruitment process to the candidate
taking up their post on the Asset Board. UKGI should lead in drafting all submissions
to Ministers (or the Permanent Secretary), these may concern job descriptions,
remuneration, panel membership, the use of executive search firms, longlisting,
shortlisting, the outcomes of interviews, and final decisions. UKGI may wish to draft
these submissions with input from the Department, in particular, with the Department’s
partnerships or public appointments team.
22.3. Fuller guidance on the appointments process, key considerations, and UKGI’s role
can be found in the UKG! Public Appointments Reference Guide. UKGI should consult
the UKGI Appointments and Remuneration team for guidance for all Non-Executive
appointments for additional guidance.
23. UKGI should encourage the Asset Board to undertake effective succession planning
for Board and senior Executive positions.
23.1. UKGI should engage the Chair and significant stakeholders, such as the Department,
in planning for the succession of Non-Executives. This planning should take account of
the anticipated timeline of Non-Executive appointments, as well as Director's skills,
and the performance of Non-Executives as evaluated by the Chair (see Activity 29)
and UKGI.
23.1.1. UKGI shareholder teams should keep a timeline of Non-Executive terms to see,
at a glance, the anticipated turnover of Directors (this should also be held centrally
by the UKGI Appointments and Remuneration team). This turnover should be
regularised and spaced apart as far as possible, so as to prevent high Director
turnover where it can be avoided. In instances in which multiple Directors term
dates coincide, UKGI may wish to issue differing term lengths to incoming
Directors (as far as this is expedient) to avoid such coalescence and high turnover
in future.
23.
.2. UKGI should work with the Asset, and encourage the Asset Chair, to track the
skills and expertise of Non-Executives. These should be reported at a glance
within the Corporate Governance report of the annual report, see Guidance
Provision 18.1. UKGI, led by the Asset Chair, should evaluate the skills the Board
requires, including those that it will require following the conclusion of the terms of
any current NEDs, and plan for the recruitment of NEDs accordingly, in
accordance with activity 22.
23.2. The Board is responsible for scrutinising the Executive succession planning of the
Asset. The Chair will lead the regular scrutiny of succession planning with the support
of the CEO and HR Director. UKGI, led by the UKGI NED, should encourage the
Board to review Executive succession planning on a sufficiently regular basis. For
most Assets this may be done annually, however in new or distressed Assets it may
be necessary to review succession planning more regularly. The Board should review
the succession risks of each senior executive position, and develop actions as
necessary for the senior executive to bolster internal resilience for key positions, or put
in place contingencies for external recruitment. Where the Asset is part of a group,
succession planning for key executives within subsidiary companies should be
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considered by the Asset Board. UKGI should report the strength of executive
succession planning as part of its regular reporting cycle.
23.3. A Guidance Note on Executive succession planning, including the role UKGI can play
to assist Assets in this process, can be found here.
24. UKGI should encourage Assets to adopt and document a definition of Director
Independence.
24.1. UKGI should encourage the Asset Board to adopt and document a definition of
Director independence. It is likely that traditional definitions of independence, such
as the UK Corporate Governance Code 2018 definition, (see provision 10), will not be
appropriate without some amendments. Such definitions of independence, written for
Boards of listed entities, consider independence of appointment to be synonymous
with independence of operation. A NED will be considered independent by such a
definition if not directly appointed by a shareholder or if not a shareholder
representative. As per Activity 30, NEDs appointed to the Board of the Asset will
probably be HMG appointments, made by the responsible Minister, therefore not
satisfying traditional definitions of independence by appointment. Nevertheless, NEDs
will likely be operationally independent if they are not appointed to represent the
shareholder in an ex officio capacity (unlike the UKGI NED) or do not have, or have
not recently had, a significant relationship with the Asset or the shareholder. UKGI
therefore should allow the Asset to adopt a definition of independence which includes
all NEDs except the UKGI NED and the Chair (subject to caveats regarding any
personal relationships they have with the Department or Asset, as set out in the 2018
UK Corporate Governance Code provision 10).
24.2. UKGI should encourage Boards to adopt a definition of Director independence (as per
Guidance Provision 24.1) in order to both aid declarations and reporting, (such as
within the annual report, pursuant to activity 18), and to apply any legislative
requirements relating to Board composition and independence which may apply to
the asset, pursuant to activity 3.
24.3. Definitions of independence should be cognisant of the UKGI NED, who, by most
definitions (including that set out in Guidance Provision 24.1), is unlikely to be
considered independent upon appointment owing to their appointment directly by the
shareholder. However, this should not preclude UKGI NEDs from fulfilling their duties,
such as sitting on the Audit Committee (which UKGI NEDs are strongly encouraged to
do, see Activity 39), which would normally be reserved for independent non-
executives. UKGI should consider this therefore when reviewing composition
requirements of the Audit Committee within its terms of reference (pursuant to activity
8), so as not to preclude the UKGI NED from sitting on the committee, as the UKGI
NED should be encouraged to do.
25. UKGI should provide a view as to whether the Asset contains sufficiently
independent Directors to carry out its duties effectively to the Asset and the
Department.
25.1. UKGI should continually consider the strength and composition of the Asset Board.
Board effectiveness reviews, as set out in Activity 28, provide an expedient opportunity
to consider the size and composition of the Board, and UKGI’s overall role here can be
found in Activity 40. One core consideration of the Board’s composition, however,
relates to the Board’s independence. The Board should be constituted so as to be able
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to offer a voice independent of the Executives, of Government, and of any other
particular stakeholder group. UKGI should discuss with the Chair and Department and
propose, as necessary, amendments to the size of the Board to allow for the Board to
possess an independent voice and function effectively. A Board without sufficient
Independent Non-Executives will be unable to provide effective challenge, whereas
too large a Board will be unable to operate effectively. Information on trends regarding
Board size and independence within the private sector can be found here.
26. UKGI should encourage the Asset’s Independent Directors to appoint a Senior
Independent Director from amongst their number to provide a sounding board for the
Chair and to serve as an intermediary for other stakeholders and Directors where
appropriate.
26.1.
26.2.
UKGI should encourage the Non-Executive Directors, except the Chair, and including,
as appropriate the UKGI NED, to select the Senior Independent Director from
appropriate candidates. This should be independent of government advice. UKGI
should only intervene in this process where absolutely necessary and appropriate to
ensure the proper functioning of the Board.
A Guidance Note on Senior Independent Directors can be found here.
27. UKGI should oversee and collate an annual appraisal of the Chair.
27.1.
27.2.
27.3.
The Senior Independent Director, see Activity 26, (or an appropriate independent
Director), should lead the appraisal of the Chair’s performance on behalf of the
Board. This appraisal should be shared and discussed between the Senior
Independent Director and UKGI as appropriate. UKGI should assess the performance
of the Chair against the priorities set out in the Chair's letter, see Activity 6, gathering
feedback from the Department and other stakeholders as necessary. UKGI should
collate all information gathered as part of the Chair’s appraisal, from both the Senior
Independent Director and HMG sources, and provide it to the person responsible for
providing feedback to the Chair. The person providing the feedback to the Chair
should be agreed with the Department and the Board. It is likely that this will either be
a senior executive at UKGI, (such as the CEO or Head of Portfolio), or somebody from
the Department (such as the responsible Director General or the Permanent
Secretary), however in certain circumstances this may be delegated to UKGI.
Feedback should be given to the Chair in a face-to-face meeting. UKGI should keep
written records of the appraisal, using its conclusions as necessary for future
reference, such as with regards to the Chair’s reappointment, see Activity 30.
UKGI should act where appropriate on any concerns arising from the review. These
may include encouraging additional training to the Chair, proposing amendments to
the delegated authorities of the Chair or the Board, or, in cases of poor performance,
considering whether to reappoint the Chair or terminate the Chair's term early.
A Guidance Note on Chair Appraisals can be found here.
28. UKGI should encourage the Asset’s Board to conduct a formal and rigorous annual
evaluation of the performance of the Board and its committees. This should be
externally facilitated at least every three years. The results of the annual evaluation
and proposed actions should be shared with UKGI in an appropriate manner.
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28.1. The Board has the ultimate responsibility for commissioning, establishing, and
conducting Board effectiveness reviews, as well as following up on their
recommendations. UKGI, via the UKGI NED and relationships with the Chair as
appropriate, should encourage the Asset to undertake Board effectiveness reviews. In
accordance with the UK Corporate Governance Code provision 21, these should be
conducted annually, and should be externally facilitated every three years. Board
effectiveness reviews should be led by the Chair, with input from other NEDs as
appropriate, therefore UKGI can most meaningfully assist the Asset via input from the
UKGI NED.
28.2. UKGI should encourage the Asset to conduct a review, whether internal or external,
which covers all meaningful elements of the Board's functioning. Advice on the scope
of reviews, and key areas to cover, can be found in the Guidance on Board
Effectiveness from the FRC. UKGI, often through the UKGI NED, should also
encourage input into the process from the Board’s stakeholders, including HMG. An
important function of all Asset Boards is their ability to report and engage with
responsible Ministers and the Department. The Board may therefore wish to canvass
opinion from senior personnel from the Department as to the functioning of such
reporting lines. This may be done directly, such as via an interview with those leading
the review (externally or the Chair internally), or indirectly, via the UKGI NED who can
cavass such opinion ahead of providing feedback into the review.
28.3. All Board Effectiveness Reviews should be drafted into a written report which
should be shared with UKGI. UKGI should consider all actions arising from the
review, and encourage the Asset to establish an action plan to implement them insofar
as they accept them and are able to. If the review has been externally facilitated, the
consultant may work with the Asset to establish a plan to implement the arising
actions. In any case, UKGI should monitor the Asset’s implementation of the review
findings, and challenge the Asset as necessary regarding these, such as via regular
catch ups with the Chair, Company Secretary, and CEO, as well as via the UKGI NED.
28.4. In accordance with Guidance Provision 18.1, UKGI should encourage the Asset to
report, at an appropriately high level, in the annual report the processes and findings
of the Board Effectiveness Review. This should be a brief summary of the areas of
focus of the review, and actions the Board has agreed to undertake to address its
findings (insofar as they are appropriate for publication). Any external parties involved
in the review should be detailed in the annual report.
28.5. A Guidance Note on Board Effectiveness Reviews can be found here.
29. UKGI should encourage the Chair to conduct formal and rigorous annual appraisals
of the Non-Executive Directors. The Chair should share the results of these
appraisals with UKGI in an appropriate manner.
29.1. Responsibility for reviewing the performance of Non-Executive Directors sits with the
Asset Chair. The Chair should conduct these reviews at least annually. The Chair is
free to decide how to conduct these appraisals, however it is likely that the Chair will
combine their own experience from the Non-Executive’s input throughout the year, or
their tenure, with a one-to-one meeting with the individual. Appraisals should focus
upon the contributions and effectiveness of Directors, opportunities for development
(including training and skills), and succession plans. Meetings should be constructive,
and offer the Director an opportunity to feed back any observations regarding either
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29.2.
their own performance, or that of the Board, to the Chair. These appraisals should be
conducted on an annual basis. The Chair may wish to involve the SID in the appraisal
process should their assistance be of use. UKGI should remind the Chair of this
responsibility, and encourage the Chair to conduct these appraisals. This can be done
most readily via the UKGI NED.
The annual appraisal of Non-executives should be shared with UKGI in an
appropriate manner. In most instances this will be done via short written appraisals of
the NEDs, which can be sent to the UKGI shareholder team. UKGI should handle and
keep written records of these, and not distribute them to anybody who does not have
an immediate need to receive them. Alternatively, the Chair may feel more comfortable
discussing the Non-Executive appraisals with UKGI, likely via the UKGI NED. UKGI
should use this feedback to inform decisions regarding Non-Executive
reappointments, as set out in Activity 30. Where Departments request written
feedback on Non-Executive performance in order to consider a proposed re-
appointment, UKGI should request this from the Chair.
30. UKGI should lead on reappointing Non-Executives, including the Chair, where Non-
Executive appointments are made by HMG. Reappointments should be considered
on merit and the effective contribution of the Director.
30.1.
30.2.
30.3.
As set out in Activity 22, UKGI should understand and document the appointments
process for the Asset Board, and this should similarly be done for
reappointments. UKGI should consult with the UKGI Appointments and
Remuneration team ahead of all appointments processes. UKGI should pay particular
attention to whether the reappointments are regulated by the Commissioner for Public
Appointments, and familiarise themselves with the Cabinet Office’s Guidance on
Reappointments and Extensions, which sets out the overall principles of all public
reappointments. The process should be agreed by UKGI, the Asset, and the
Department, and recorded in the Framework Document, as per Activity 2.
UKGI should consider the strength of the Asset Board on a continual basis, as per
Activity 40. UKGI should discuss the individual contributions of Non-Executives
with the Asset Chair, and consider whether each Non-Executive should be
reappointed if eligible. In order to determine this, UKGI and the Asset Chair should
consider the skills that the Board requires, and whether these are met by incumbent
Non-Executives, or whether additional skills should be brought into the Board by way
of alternative appointments. In addition, UKGI and the Chair should consider whether
alternative appointments could bring increased diversity or greater access to
stakeholder voices into the Boardroom, before determining whether or not to reappoint
an incumbent.
According to the UKGI Target Operating Model, see Guidance Provision 30.1, UKGI
should lead on reappointments for Non-Executives. UKGI should continually
consider the composition of the Asset Board, and be aware, in good time, of any
forthcoming Non-Executive appointments or reappointments. UKGI should draft a plan
for agreed reappointment processes in the first instance, allowing up to twelve months
to consider and confirm a reappointment. UKGI should lead in drafting all submissions
to Ministers (or the Permanent Secretary), and these should demonstrate why the
incumbent is proposed for reappointment. It is likely that these submissions will require
supporting evidence regarding the contributions of the Director (or Board Member) and
why they are critical to the Board. Such supporting materials can be most readily
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supplied by way of a written report of the NED’s performance by the Chair, arising
from their annual appraisal as per Activity 29. This should be shared with the
Department in support to a submission in a sensitive manner. UKGI may wish to draft
these submissions with input from the Department, in particular, with the Department's
partnerships or public appointments team.
30.4. Reappointments of the Chair should be considered on merit, similar to all other Non-
Executives, as set out in Guidance Provision 30.2. UKGI should gather feedback on
the performance of the Chair from the Department (most likely at Permanent Secretary
or Director General level), observations from the UKGI NED, and the performance
appraisal of the Chair as set out in Activity 27.
31. UKGI should advise on setting remuneration for Non-Executive Directors, including
for the Chair.
31.1. UKGI should work with the Asset and Department as appropriate to determine suitable
remuneration for Non-Executives, including for the Chair. UKGI should be aware of all
approval processes for remuneration relating to the Asset, these are set out
broadly in the HMT Guidance for Approval of Senior Pay. These processes may
include internal Departmental approvals, approvals from HMT (primarily from the Chief
Secretary of the Treasury), and approvals at Ministerial level. Additionally, UKGI
should be aware of any exemptions from internal processes regarding remuneration
for each Asset. UKGI should consult with the UKGI Appointments and Remuneration
Manager where the appointment processes are unclear.
31.2. All submissions to Ministers (or the Permanent Secretary) should be sent by UKGI,
alongside a justification for the pay package being proposed. UKGI may wish to
support remuneration packages with accompanying benchmarks of pay in similar
organisations. Forthcoming Non-Executive appointments require an agreed pay
package before any position is advertised. UKGI should be aware of this, and factor
the agreement of a remuneration package into any appointments timeline, as per
Guidance Provision 22.2.
31.3. Fuller guidance on setting remuneration for Non-Executives, key considerations,
and UKGl’s role can be found in the Approval of Senior Remuneration: UKGI
Principles and Process Guidance. UKGI should consult the UKGI Appointments and
Remuneration manager for guidance for all Non-Executive appointments for additional
guidance.
32. UKGI should support the Chair of the Asset in developing and undertaking an
effective induction process for NEDs upon their appointment to the Asset Board.
32.1. Inductions for NEDs are the responsibility of the Asset, and should be led by the
Chair, supported by the Company Secretary. UKGI should work with our Asset
Boards, Departments, and public appointments teams (including the UKGI
Appointments and Remuneration Manager) on all appropriate NED recruitment
exercises (see Activity 22), and keep the Asset well informed of all processes
concerning any NED’s appointment to the Board. This will ensure that our Assets are
given sufficient time to prepare an induction process for a NED ahead of them joining
the Board.
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32.2. Induction processes will usually involve meetings with key personnel, th
distribution of constitutional and operational documentation, and training and
orienteering exercises for the NEDs. UKGI can assist with all of these elements, as
set out below.
32.2.1. UKGI should encourage our Assets to consider which key personnel the
incoming NED should meet within the organisation itself. At a minimum this should
include all other Non-Executives, the CEO, all direct reports to the CEO, the Head
of Internal Audit, Head of Compliance (where the position exists), the lead external
auditor, the General Counsel, and the Company Secretary. If a NED is appointed
because they bring specific expertise to the Board they may benefit from meeting
others with responsibilities in this area, such as an incoming Audit Committee
Chair meeting the head of Internal Audit. Additionally, UKGI can play a more direct
role in inducting an incoming NED to working in the government environment. An
incoming NED will likely benefit from meeting Departmental personnel, such as the
Director or Director General responsible for their Asset (or a Minister or Permanent
Secretary depending upon the position), as well as UKGI personnel, such as the
Shareholder Director or the wider UKGI Shareholder Team (or the UKGI CEO or
Portfolio Director depending upon the position). UKGI should explain the often-
complex relationships between the Department, UKGI, and the Asset.
32.2.2. UKGI should encourage our Assets, through the Company Secretary where
possible, to keep a record of all key constitutional and operational
documentation to be distributed to the NED. UKGI may wish to add further
documents to this if they believe that they hold any documents which can help the
NED’s understanding of current issues for the Asset, or the Asset’s governance.
UKGI will likely be able to assist in providing documentation outlining the Asset’s
relationship with the Department and UKGI, as well as other parts of HMG as
appropriate, further to the Framework Document.
32.2.3. UKGI should encourage our Assets to consider what training or orienteering
exercises would benefit the incoming NED. Our Assets should have a plan for
NED training dependent upon the knowledge and skills of the Board, and the
incoming NED should be brought into this process upon appointment. UKGI should
also consider any trainings or orienteering exercises which would help the
incoming NED to understand the relationship with government. UKGI encourages
incoming NEDs to undertake Accountability And Governance For Arm's Length
Bodies training. Departments are likely to have periodic events to welcome new
NEDs and induct them into government, and Cabinet Office has published the
Public Body NED Principles of which all NEDs should be made aware during their
induction.
32.2.4. Induction processes for the Chair will follow all of the processes set out
above. However, UKGI may find that it plays a more central role, often through the
UKGI Director, in establishing and introducing key personnel, in the absence of an
incumbent Chair. Incoming Chairs are more likely to meet Ministers (see Guidance
Provision 32.2.1). UKGI should help to facilitate this as appropriate.
33. UKGI should provide a view to the Department, and Ministers where appropriate, as
to the suitability of senior management within the Asset.
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33.1.
33.2.
33.3.
UKGI should build and maintain effective relationships with Senior Executive within the
Asset, as set out in Activity 35. In so doing UKGI should continually assess the
suitability, and capability of the Senior Executive team. It is not UKGI’s responsibility to
monitor individual effectiveness, nevertheless, UKGI should have overall confidence
in the senior team within the Asset to carry out the policy objectives of the
Department and to manage the Asset effectively. In instances in which UKGI is not
confident in the capability and capacity of the overall Senior Executive team, this
should be raised with the Department.
The Board has a responsibility to assess the strength of the overall Executive team
on a continual basis, and plan for its succession, see Activity 23. As such, the UKGI
NED will be involved in this process, and will be well-placed within the UKGI team to
consider Executive effectiveness. As a Non-Executive, the UKGI NED should raise
any concerns regarding individual Executive effectiveness with the Chair and the wider
Board. The UKGI NED is also well placed to act as a conduit between the Board,
UKGI, and the Department should any concerns arise at the Board regarding the
strength of the Executive team, and should do so as appropriate.
The Board effectiveness review, see Activity 28, offers an opportunity to canvass
Board opinion regarding the effectiveness of the Senior Executive team. UKGI, most
readily via the UKGI NED, can encourage this to be a significant topic covered by the
review. This allows NEDs to provide their opinion on the strength of the Senior
Executive team should they feel unable to do so in a wider Board setting.
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Principle E: Promote effective relationships between the
department and the asset
UKGI should support effective relationships between the department and Asset, including
through:
a. building effective relationships with the Asset’s board and senior management
b. promoting effective interfaces and communications between the department and Asset,
including through regular shareholder meetings
c. maintaining an effective regular meeting “rhythm” with the Asset chair, board and executive
to ensure appropriate flow of information (management information) between the Asset,
UKGI and the department, including effective reporting to the department
Core Areas for Consideration
e Shareholder Relationship
Shareholder Meetings
Asset Reporting to the HMG
Management Information
Shareholder activities in relation to other sponsor roles and remits
Shareholder Activities with Guidance
34. UKGI should agree, with the Department, and document UKGI’s specific priorities
each year regarding the Asset.
34.1. UKGI should meet with the Department on a regular basis, in order to maintain a
regular and effective reporting rhythm, as set out here. As part of this, UKGI should
discuss, on at least an annual basis, UKGI’s own priorities for the following year.
These should be agreed with the Department, and recorded as necessary (such as in
a letter to the Department). These priorities may include routine activities, such as
appointments, as well as specific developments arising. UKGI should only agree to
conduct activities for which it is comfortable, and for which it has the requisite
authority, as set out in its Constitutional Documentation, such as Departmental MoUs.
UKGI's priorities should be consistent with the Department's overall policies for the
Asset.
34.2. Consideration of the priorities of departmental sponsor teams alongside whom UKGI
teams work will help support effective ways of working. A table of suggested activities
across all the sponsor roles is available here. UKGI shareholder teams should use this
to review shareholder role responsibilities against responsibilities of other sponsor
teams to ensure all activities are covered. Please note this is not a definitive list, but
suggested areas to consider.
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35. UKGI should build effective relationships with Senior Executives and Non-Executives
within the Asset.
35.1
35.2.
35.3.
. UKGI should establish regular contact with the Senior Executives within the Asset.
This can be most meaningfully done during the Quarterly Shareholder Meetings, as
set out in Activity 36. Outside of this, UKGI should be sure to engage as regularly as
possible with the Asset’s Executives, often in conjunction with counterparts within the
Department, to establish and maintain an effective working relationship within the
Asset.
UKGI can most readily establish effective relationships with Non-Executives within
the Asset via the UKGI NED at the Board. Aside from this, as part of the induction
process for Non-Executives, as set out in Guidance Provision 32.2.1, UKGI may wish
to introduce incoming Non-Executives to the wider shareholder team. On an ongoing
basis, UKGI should maintain regular contact with the Chair, in order to foster a
productive working relationship.
Where shareholder teams do not feel confident that they have a constructive and
effective relationship with either the Senior Executives or Non-Executives within the
Asset, this should be flagged internally within UKGI. This can be done either to a
responsible Director, the Head of Portfolio, or during a regular internal reporting cycle,
such as a Portfolio Review. The maintenance of such relationships is key to UKGI’s
shareholder role, and ability to operate effectively with its stakeholder base.
36. UKGI should hold regular shareholder meetings with appropriate representatives of
the
36.1
36.2.
36.3.
Asset, including the Accounting Officer.
. Frequent shareholder meetings with representatives of the Asset are essential to
maintaining a functioning shareholder relationship. As such, UKGI should arrange to
meet senior executives within the Asset at least quarterly, by way of a shareholder
meeting. For some Assets meetings may be required monthly. Shareholder meetings
are the formal point of contact between the shareholder team and the Asset (though
our relationships should be such that we have regular contact as needed with relevant
senior personnel within the Asset).
UKGI should chair shareholder meetings and set their agenda. The meetings will
likely cover recurring reporting requirements but should allow for targeted agenda
items focussing upon areas of concern or interest of the shareholder team.
UKGI should use these meetings to challenge the Asset on the adequacy of their
governance arrangements and its performance in line with its strategy and
Business Plan.
36.3.1. Governance challenge should include a review of whether the Asset contains
adequate and suitable personnel at senior levels, and whether the cascading of
information within the Asset is sufficient to give the Board, UKGI, and the wider
government, sight of the Asset’s operations. The Asset should provide an update
on key governance workstreams and developments, and on material internal
governance activities. UKGI should also encourage the Asset to review its
compliance with the governance arrangements set out in the Asset’s Constitutional
Documentation.
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36.4.
36.5.
36.6.
36.3.2. Performance challenge should include a review in terms of financial,
operational, and delivery performance. This should be underpinned by regular
meetings in between where issues can be identified, discussed, and prioritised
from a shareholder perspective. Performance should be presented through
adequate and appropriate management information. UKGI should challenge the
Asset’s management information and discuss any issues that it raises during the
meetings. UKGI should provide a view to the Department on any issues raised by
the Asset's management information.
. As well as an opportunity to challenge, UKGI should encourage our Assets to use
shareholder meetings as an opportunity to raise concerns that they have to UKGI,
especially where they would benefit from UKGI assistance. UKGI provides the Asset
with their first point of contact within government in some cases, particularly in terms of
shareholder issues. To this end, UKGI should be open to using these meetings as an
opportunity for the Asset to seek assistance in unlocking processes or reaching
relevant personnel within government. UKGI should structure the agenda of
shareholder meetings accordingly to allow time for this.
Attendance at shareholder meetings should include senior executives from within the
Asset. UKGI should give the Asset sufficient sight of the meeting agenda to allow the
relevant executives for each agenda item to be present. The Accounting Officer (or
Senior Accountable Person) is encouraged to attend shareholder meetings at least
quarterly. UKGI should also encourage representatives from the Department to attend
(such as representatives from the policy team and departmental finance team), as well
as HM Treasury, as appropriate. UKGI should encourage input from all attendees, but
should ensure that all parties are aware that these meetings are owned by UKGI.
UKGI may wish to coordinate these meetings with the Department and their Quarterly
Policy Meetings both in terms of agenda items and logistics.
UKGI should have good visibility of the Asset’s top tier governance structures, such
as at Board and Senior Executive level, via the UKGI NED. Below this level, UKGI
should challenge the Asset with regards to its governance and functioning. UKGI can
meaningfully do this via its UKGI NED and the ongoing review of performance of the
Asset in the course of the duties of the Board. Should UKGI have substantive items of
concern or interest, such as the strength of a particular business line within the Asset,
UKGI should table this as an item for regular shareholder meetings. UKGI should also
challenge the extent to which areas of particular concern are reported by the Asset to
UKGI and the Department.
37. UKGI should encourage a robust reporting structure and flow of relevant
management information from the Asset to UKGI and the Department; this should
include financial reporting.
37.1
. UKGI should encourage the Asset to provide management information that is
appropriate and sufficiently regular for UKGI and the Department to understand the
performance of the Asset and any issues. Management information should come to
UKGI directly from the Asset and not come via the Department, (information is likely to
come to the Department and UKGI concurrently). UKGI should develop a regular
rhythm with the Asset for receiving management information. UKGI may wish to
regularise reports they receive from the Asset in accordance with their regular
shareholder meetings, as per Activity 36.
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37.2. UKGI should challenge the content and adequacy of the management information
presented by the Asset. The information provided by the asset should include all
information pertinent to the functioning of the Asset, which allows UKGI the visibility to
carry out its shareholder role effectively. UKGI should promote agreement between the
Department, the Asset and UKGI on the format, timing and contents of management
information provides by the Asset. Management information may be tied to the
objectives setting process. The Asset may require external assistance in order to
develop appropriate management information. UKGI should encourage this where
necessary. Management information should track the financial performance of the
Asset against previous projections, and any ongoing concerns regarding financial
pressures upon the Asset. Where the Asset operates in a group structure,
management information should contain detail where relevant as to the performance
of subsidiaries.
38. UKGI should provide regular reports to the Department regarding the Asset’s
business from a shareholder’s perspective, and forthcoming UKGI decisions and
submissions to Ministers.
38.1. As part of UKGI’s regular reporting rhythm within government, as set out here, UKGI
should provide regular reports to the Department on the strength of the Asset and
UKGI’s undertakings as shareholder. For most UKGI Assets, reports should be
submitted either quarterly or biannually, to senior Departmental personnel (usually at
Director General or Permanent Secretary level). These reports should give a rounded
picture of developments within the Asset from a UKGI perspective.
38.2. Reports should provide a qualitative view from UKGI (though consultation with the
Department and other relevant stakeholders is encouraged) with regards to the Asset.
UKGI should feel free to report whatever concerns arise with regards to the Asset. In
particular, however UKGI may wish to focus on the following:
38.2.1. Governance concerns and internal capacity and capability: In accordance
with many of the Activities set out under Principle D, UKGI should raise any
concerns pertaining to the internal governance of the Asset, particularly relating to
personnel either at Board or senior Executive level.
38.2.2. Financial performance and performance against delivery targets: In
accordance with Activity 13.1, UKGI should provide an ongoing update on the
financial performance of the Asset in line with its business plan and financial
projections, as well as wider delivery performance. UKGI should raise any material
financial risks, such as income shortfalls.
38.2.3. Strategic Risks: Whilst UKGI should not engage in risk assurance on behalf of
the Asset, UKGI should raise any concerns it has with regards to significant and
strategic risks faced by the Asset.
38.2.4. Group performance: Where the Asset operates within a group structure, UKGI
should report any significant concerns (as set out in 38.2.1, 38.2.2 and 38.2.2) with
regards to subsidiaries and wholly or partially owned businesses. Where the Asset
contracts a significant amount of its work to an external party (such as via a Parent
Body Organisation), performance should be picked up in such reporting.
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38.2.5. Upcoming submissions and decisions: Reports provide UKGI a good
opportunity to flag future decisions and submissions to the Department and
Ministers to avoid unnecessary delay.
38.3. Whilst Guidance Principle 38.2 sets out how UKGI should use its regular reports to
raise issues and concerns regarding the Asset, UKGI should similarly use these
reports as a good opportunity to note successes and achievements. These
successes may relate to developments within the Asset itself in which HMG had little
direct involvement, or actions directly taken by either the Department or UKGI.
Alongside flagging issues, UKGI should outline its successes in terms of specific
outcomes it has helped to deliver, and should avoid situations in which it only reports
to senior Departmental personnel on negative developments.
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Principle F: Supporting and supplementing the activities above by
providing an experienced shareholder NED on the asset board
UKGI should act as government shareholder representative on the Asset board, through:
a. providing an appropriately skilled board member to carry out the non-executive director role
effectively, drawing on the support and analysis from the UKG/ team
b. attending the Asset's board committees as appropriate, but usually Remuneration
Committee, Audit and Risk Committee, and Nominations Committee
c. acting as an interlocutor between the department and the Asset board
d. providing a view to the department on the strength of the Asset board
Core Areas for Consideration
¢ UKGI Non-Executive Directors
Shareholder Activities with Guidance
39. UKGI should nominate an appropriately skilled person to be appointed to the Board
as a Non-Executive Director, who should also sit on Board committees as
appropriate.
39.1. UKGI should agree with the Department and the Asset that a senior employee of
UKGI should sit on the Board as the UKGI NED. The role of the UKGI Ned should be
set out in the relevant Framework Document (as set out in Activity 2). Where this is a
new practice for the Asset, UKGI should consider reviewing and updating any relevant
Board governance documentation to allow for this. UKGI Legal should be consulted for
guidance in this regard.
39.2. UKGI should propose an appropriate person from within the organisation (usually
a Director or an Executive Director) to sit as the UKGI NED on the Asset Board. Unlike
other appointments to the Asset Board, where an open competition may be required,
it is for UKGI to select the NED it proposes to sit on the Board as the UKGI NED.
Where appointments to the Asset Board are made by HMG, as per Activity 22, UKGI
should send a request for the proposed individual to join the Asset Board to the
Department, in most cases to an appropriate Minister.
39.3. The UKGI NED should be issued with an appointment letter upon appointment, as
per Activity 7. Similarly, the UKGI NED should have Terms of Reference for their role
which are as consistent as possible with those of other Non-Executive Directors, in
order that the UKGI NED has no additional or fewer responsibilities than other NEDs.
This is set out in Guidance Provision 9.2. The UKGI NED is not how however a public
appointment, and is therefore not subject to rules governing the appointment process
(guidance for which can be found in the UKG! Public Appointments Reference Guide).
The position should be treated as if an ex officio appointment from UKGI. It may
however be subject to Ministerial approval. This should be documented in the Asset’s
Framework Document (as per Activity 2).
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39.4.
39.5.
39.6.
39.7.
The UKGI NED should sit on Board Committees in the same manner as other
NEDs. The UKGI NED should work with the Asset Chair to determine which
committees they should sit on. UKGI encourages the UKGI NED to sit, as a minimum
on the Audit (and Audit and Risk where combined), Remuneration, and Nomination
Committees. This should allow the UKGI NED to have sufficient overview of the
financial performance of the Asset, its underlying risks, and its considerations
regarding remuneration and performance of Executives and Non-Executives. The
UKGI NED should not be precluded from sitting on the Audit Committee on the basis
that they are not deemed independent (see UK Corporate Governance Code Provision
24), for further clarification see Guidance Provision 24.3. The UKGI NED should sit on
any other committees as per their availability, expertise, and considerations of the
Asset Chair. UKGI NEDs should not chair Board Committees except on an exceptional
basis, (such as where the standing committee chair is unable to attend); to do so
would undermine the independent challenge provided by Board Committees.
UKGI discourages members of the shareholder team, except for the designated UKGI
Director, from attending Board meetings or Committee meetings. Where this is
done it should be made clear that the UKGI person is attending in an “observer”
capacity, not as a participant. In all cases, UKGI Legal should be consulted. UKGI
Legal should consider whether the observer should sign a non-disclosure agreement
with the Asset, and whether the Asset should acknowledge the observer role. All
Board and Committee observers should follow the UKGI Observer Guidance which
can be found here.
The UKGI NED should receive an induction to the Asset Board as per Activity 32,
including requisite training for the position depending upon experience.
As per the guidance set out here, UKGI understands that the UKGI NED will draw
upon the assistance of the UKGI shareholder team. This assistance may include
advice on Board papers, or suggested items to raise given ongoing dealings with the
Asset. The UKGI shareholder team and the UKGI NED must understand that this
dedicated “NED” support is separate to the role that the UKGI team performs in its
capacity as shareholder. It is particularly important that the team notes when support
to the UKGI NED includes “Activities Outside of UKGI Scope”, as set out here, so that
the separation of roles can be continuously drawn.
40. UKGI should regularly provide a view to the Department on the composition and
performance of the Asset Board.
40.1.
40.2.
The UKGI shareholder team, led by the UKGI NED, should have regular
communication with the Asset Chair and the Asset Chief Executive (or equivalent).
The effectiveness of the Board should be a regular item during these discussions.
UKGI should work with the Asset Chair to assess the independence (see Guidance
Provision 25.1) and skills of the Board. UKGI should consider, via consultation with the
Asset Chair and the Department, whether the Board contains the correct skills to
undertake its responsibilities, and how these can be bolstered where necessary.
UKGI should regularly consider whether the Asset Board is effective and properly
composed to undertake its responsibilities (including sufficiently independent, as per
Action 25). This can be done most effectively via feedback from the UKGI NED. UKGI
should, via regular reports to the Department, as per Activity 38, provide a view as to
the composition of the Asset Board. As per Guidance Provision 38.2.5, UKGI should
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raise forthcoming decisions regarding appointments and reappointments in good time,
and provide advice as appropriate from UKGI’s perspective.
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UKGI Internal Assurance Processes
In addition to encouraging the above, UKGI provides support to shareholder teams through its
internal assurance processes. Shareholder teams should engage with the reporting procedures
below:
e Risk Registers — to be completed on a monthly basis
e Portfolio Reviews — to be conducted as frequently as required for the asset according to
UKGI policy
« UKGI Dashboard — to be completed using the UKGI reporting spreadsheet on a bi-monthly
basis
e Reporting to the UKGI Board as required
The above list is not intended to be exhaustive. Shareholder teams should monitor and keep a
record of any internal control guidance that each Asset is required to follow and ensure that this
is done.
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List of compliance documentation and
guidance for UKGI Assets by principle
This list will evolve over time and is not intended to be exhaustive. This list represents the
principal compliance and guidance documentation applicable to many of HMG’s Assets. UKGI
must comply with any requirements of Constitutional Documentation above any guidance listed
here or within the Portfolio Operating Principles.
UKGI maintains this list of documentation also found on the intranet here. However, any items
which are missing, or items listed which are no longer relevant, should be flagged to the UKGI
Corporate Governance team who can amend this list accordingly.
Establish and maintain appropriate and effective corporate
governance foundation which govern the Department-Asset
relationship
Corporate Governance in Central Government Departments: Code of Good Practice
The Parliamentary and Health Service Ombudsman’s Principles of Good Administration
The UK Corporate Governance Code 2018
FRC: Guidance on Board Effectiveness
The UK Stewardship Code
The Wates Corporate Governance Principles for Large Private Companies
Promote effective objectives, business planning and performance
against business plan
« The Green Book
« Managing Public Money
The Outsourcing Playbook
Regularity, Propriety and Value for Money
« HMT Consolidated Budgeting Guidance
Promote strong corporate capability
e Equality Act 2010: Guidance
Government Commercial Operating Standards
The Government Financial Reporting Manual
HM Treasury Guidance on Tackling Fraud
HMT Dear Accounting Officer Letters
Orange Book: Management of Risk: Principles and Concepts
Public Sector Internal Audit Standards
Slavery and human trafficking in supply chains: guidance for business
* Social Value Act
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Promote effective leadership (high quality boards and senior
management)
¢ Cabinet Office Controls
¢ Cabinet Office Model Code for Staff of Executive Non-Departmental Public Bodies
¢ Civil Service Pay Guidance 2019/20
¢ Code of Conduct for Board Members of Public Bodies
¢ Guidance for approval of senior pay
e Guidance for Ministerial Appointments to Public Bodies
¢ Guidance Note on public sector pay and terms 2016
« Governance Code on Public Appointments
Principles of Governance for all Public Body NEDs
Public sector pay and terms: Guidance Note
Promote effective relationships between the Department and the
Asset
Non-departmental public bodies: characteristics and governance
Partnerships between Departments and Arms’ Length Bodies: Code of Good Practice
Public bodies: Information for Departments
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