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UKGI00044313
UK Government
Investments
This Guidance Note is for the information of UKGI staff. It is not to be circulated outside of UKGI.
Guidance Note 14 NED Appraisal Updated March 2023
This Guidance Note is intended as a guide to the key elements of an annual appraisal for NEDs. While
responsibility for this appraisal sits with the Chair, it is important for Shareholder teams to encourage
assets to undertake them and provide guidance as appropriate.
This note sits alongside the guidance notes on Chair Appraisals and Board Effectiveness reviews.
The Reason for Appraisals
Regular appraisals of all Board members are key to effective corporate governance and a core part of
the FRC Corporate governance code (principle L and paragraph 21) and the recently published Cabinet
Office “Principles of Governance for all Public Body NEDs”~ as a means of improving and monitoring
the performance of the Board. The Code requires companies to review the effectiveness of individual
Directors as well as the effectiveness of the Board as a unit on a continual (generally annual) basis.
Additionally, they provide the opportunity for NEDs to reflect on their contribution and identify areas
for development that will benefit the board in the round. It may also give an opportunity for NEDs to
feed back to the Chair views about the Board and position of the business. Finally, it provides the
opportunity to build evidence to support (or otherwise) a potential reappointment case.
Who is responsible:
Responsibility for reviewing the performance of Non-Executive Directors sits solely with the Chair
Shareholder teams should ensure that the Chair is aware of their responsibility and encourage them
to conduct formal and rigorous annual appraisals of the Non-Executive Directors. Chairs should be
reminded of this responsibility as appropriate (often this is best done through the shareholder
appointed NED) as well as via the “governance expectations of the Chair” annex to the annual Chair’s
letter. This responsibility should be codified within governance documents such as Directors’ letters
of appointments and the Board Terms of Reference.
The Chair should be prepared to share the annual appraisal of Non-executives with the shareholder,
either in the form of short written appraisals of the NED sent to the UKGI shareholder team, or through
discussion between the Chair and the shareholder. UKGI should be alert to the sensitivities of such
appraisals and may only wish to ensure that such reviews have been undertaken, rather than probe
for the details of such reviews. However, a written note will be required when seeking to reappoint or
extend a board members tenure. UKGI should make sure both the Chair and the NEDs are aware of
this.
Timing:
Appraisals should happen annually. There is no set time during which appraisals are best undertaken.
Chairs may consider NED appraisals are best undertaken ahead of the Board effectiveness review or
during a particularly quiet time in the Board’s annual calendar. UKGI should push Chairs to ensure that
appraisals are complete in good time ahead of any decisions regarding a certain NED’s reappointment.
Process:
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The Chair is free to decide how to conduct these appraisals, however it is likely that they will rely on
their own experience of the Non-Executive’s input throughout the year, and over their whole tenure,
with a one-to-one meeting with the individual. The Chair may wish to involve the SID as useful
sounding board and may wish to consult other NEDs, such as any members of committees chaired by
the NED. The UKGI NED on the board should offer to share their reflections with the Chair. The review
format should be proportionate, and the Chair has considerable discretion in this area.
Meetings should be constructive and offer the Director an opportunity to feed back any observations
regarding either their own performance, or that of the Board, to the Chair.
It is worth noting the Cabinet Office’s advice on reappointments expects evidence to be presented on
the specific skills, strengths, contributions and general effectiveness of a Director as well their
opportunities for development (including training and skills). You may wish to share this with Chairs
as a way to help focus appraisals, especially of those who they may wish to reappoint.
NED appraisals should look forward, not just back, in order to take account of the future needs of the
ALB and its Board. Learning and development opportunities should be identified and the aspirations
of the individual discussed. While many NEDs bring considerable expertise and experience from their
wider careers it should not be automatically assumed that they have no ongoing development needs.
Training and development requirements identified during appraisals may be specific to the public
sector (e.g. developing experience of public sector accounting standards), the body itself, or external
topics such as cyber risk or certain markets. Alternatively, the development needs may be more
generic, or reflect a collective knowledge gap of the Board as identified as part of the Board
effectiveness review. Framed correctly, development activities can be beneficial to the body but also
potentially make a director more suited to other roles in the public sector. Where development
activities require funding the Chair should always be clear that this is necessary expenditure for that
organisation.