Effective Boardroom practices

132 Pages·2004·3.35 MB·English

Effective boardroom
Price: £60.00 for Volume 1 and Volume 2*
* Volume 1 and Volume 2 are to be used in conjunction with each other and should not to be sold separately.
practices for
investment trust
directors
A best practice guide for meetings of
investment trust boards and their committees
September 2004
RSM Robson Rhodes LLP is a limited RSM Robson Rhodes LLP is registered Offices at: Birmingham, Bristol, Cambridge,
liability partnership and is an to carry on audit work by the Institute Dublin, Edinburgh, Hemel Hempstead, Leeds,
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www.rsmi.co.uk www.rsmi.co.uk/financialservices
Acknowledgements
This guide has been produced by RSM Robson Rhodes LLP in conjunction with several highly experienced
investment trust directors. We extend our great thanks to our steering group of Hugh Aldous, Hamish Buchan,
James Fox and Alex Hammond-Chambers who have shared their immense experience as chairmen and directors
of various investment trust boards, and to Alison Andrews who has written and produced this guide.
Mini-biographies are available on page 51. We have also received valuable input from the AITC.
© RSM Robson Rhodes LLP, 2004
All rights reserved. No part of this guide may be reproduced in any form
without permission in writing from the publisher and author.
This publication was prepared strictly as a best practice guide.
It is not prescriptive and professional advice should be obtained.
Accordingly RSM Robson Rhodes LLP owes no responsibility and disclaims
all liability to any party who uses or relies on this publication or its contents or conclusions.
Printed in the United Kingdom
Designed by: Corporate Design Unit, RSM Robson Rhodes LLP
Effective boardroom practices
for investment trust directors
Contents
Volume 1 Page
1 Introduction 1
2 How to: structure an investment trust board 5
3 How to: set an effective agenda 15
4 How to: prepare and distribute effective board papers 19
5 How to: run effective board meetings 23
6 How to: manage conflicts of interest 31
7 How to: undertake a strategic review 43
Appendices
Mini-biographies of steering group 51
The RSM Robson Rhodes Investment Trust Team 53
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Effective boardroom practices
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Table of abbreviations
AITC Association of Investment Trust Companies
AITC Code The AITC Code of Corporate Governance © issued in July 2003
AITC’s Directors’
Handbook AITC’s Handbook for Directors of Investment Trusts
BVCA British Venture Capital Association
Combined Code Revised Combined Code on Corporate Governance issued in July 2003
FRAG 21 Report A report on internal controls of an investment custodian or similar body, prepared by
the directors of the reporting entity, which may be reviewed by an independent
reporting accountant in accordance with the framework for reporting set out in
FRAG 21/94 (revised) [Audit 4/97] issued by the Audit Faculty of the Institute
of Chartered Accountants in England and Wales
FSA Financial Services Authority
Higgs Report A report by Sir Derek Higgs, from which suggestions for good practice are attached
to the Combined Code
Listing Rules Listing Rules issued by the FSA
NAV Net Asset Value
OEIC Open-ended investment company
Section 842 Section 842 Income and Corporation Taxes Act 1988
Section 266 Investment company status under Section 266 of the Companies Act 1985
Smith Report A report by Sir Robert Smith entitled “Guidance on Audit Committees” which is
attached as related guidance to the Combined Code
SORP Statement of Recommended Practice: Financial Statements of Investment Trust
Companies published by the AITC
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Effective boardroom practices
for investment trust directors
Introduction
1
RSM Robson Rhodes LLP
1
Name: Clifford Shanbury
Position: Partner - Client Service
Qualifications: LL.B, FCA, MICM
Summary of Career
Effective boardroom practices
for investment trust directors
1 Introduction
1.1 Background
Although every board faces a unique set of challenges, the desire from directors to discharge their
responsibilities effectively is common across all boardrooms. At the heart of any board must be a team of
motivated directors with complimentary skills and experiences, who are led by a strong and impartial
chairman. For a boardroom to function most effectively, directors must address the appropriate topics in an
orderly fashion by means of a clear boardroom agenda. This agenda must be supported by comprehensive
papers that facilitate directors’ consideration and debate of relevant issues and thereby ensure that they make
decisions in the best interests of shareholders.
In this guide, we provide a workable, co-ordinated and practical framework to help investment trust directors
achieve or improve their effectiveness in the boardroom. The guide is a compilation of observed best practice
procedures based on the wealth of experience of the steering group. We cover best practice procedures for
structuring an effective board and its committees, for setting an effective agenda, for preparing and
distributing effective board and committee papers, and most importantly for ensuring the effective use of
these papers in the boardroom.
This guide is intended for use primarily by investment trust directors and company secretaries but it also
provides a useful insight for other participants in the investment trust industry, such as investment managers,
advisers, administrators, brokers, and perhaps even shareholders. The guide allows readers with industry
experience to compare their own established methods with others in their peer group. It is also a valuable
handbook for new and inexperienced directors joining investment trust boards.
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1 Introduction
1.2 Structure
This guide is presented in two volumes.
Volume 1 contains practical information relevant to all users of the guide in the form of ‘how to’
chapters on:
(cid:122) structuring an investment trust board and its committees;
(cid:122) setting an effective meeting agenda;
(cid:122) preparing and distributing effective papers to support that agenda;
(cid:122) running effective meetings;
(cid:122) managing conflicts of interest;
(cid:122) undertaking a strategic review.
Volume 1 provides useful context for Volume 2 which is more of a reference guide. It is recommended that
users of this guide read Volume 1 first.
Volume 2 contains a chapter on each of the most common types of directors’ meetings, namely board
meetings, audit committee meetings, remuneration committee meetings, nomination committee meetings and
management engagement committee meetings.
Each chapter includes:
(cid:122) a best practice agenda — a comprehensive menu of agenda items which can be tailored to the
circumstances of each trust;
(cid:122) a best practice menu of information to support that agenda — guidance on matters for consideration under
each agenda item and on the type of information needed to support an effective discussion of the relevant
issues;
(cid:122) practical considerations — guidance on how directors can assess and evaluate the documentation
supporting each agenda item with a view to making decisions in the best interests of shareholders.
This guide is not intended to be a ‘rulebook’ or an alternative to the valuable Handbook for Directors of
Investment Trusts produced by the AITC — it is a set of best practice recommendations from experienced
industry participants. It aims to enthuse readers to reconsider their own practices and to ‘want to do
things better’.
Some recommendations in this guide may appear obvious or common sense to readers. However, the guide
is intended to be comprehensive, and it is worth remembering that what is everyday practice for one director
may be radical for another.
It should be noted that we have not included specific references to executive directors of self-managed
investment trusts, although much of this guide remains equally applicable to them.
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Effective boardroom practices
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How to: structure an investment
trust board
2
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Effective boardroom practices
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2 How to: structure an investment trust board
2.1 Introduction
The Combined Code states that “every company should be headed by an effective board, which is collectively
responsible for the success of the company”. To put this into context for the investment trust industry, we
consider below the purpose of an investment trust board and how it gives the investment trust industry a
powerful competitive advantage over other types of collective investment schemes. We then look at the roles
and responsibilities of an investment trust board and its committees, as well as the post of non-executive
director and chairman. This is followed by a summary of the regulations and guidance on the composition of
an investment trust board and its committees in line with the Combined Code and the AITC Code. The purpose
of this chapter is to provide background and context for the rest of this guide.
2.2 A differentiating factor
The first public investment trust, now called the Foreign & Colonial Investment Trust plc, was launched in
1868 and much of its early popularity is attributed to the confidence that investors had in its highly regarded
board. Other types of collective investment schemes, such as unit trusts and open-ended investment
companies, do not have independent boards of directors, but
instead they have an independent trustee (or depositary) whose
role is to safeguard the assets. The trustee has limited powers
“It is a widely held view that the
compared to a board of directors. Different structures of
board of directors is one of the
collective investment schemes exist to meet the diverse needs of
unique features which can make an
investors and there are advantages and disadvantages in every
investment trust a more attractive
type. The challenge for the investment trust industry is to
collective investment vehicle than the
promote the benefits of an independent board to create a
other available options. It is a
competitive advantage.
protection not offered by unit trusts
or most OEICs.”
Source: AITC’s Handbook for Directors
of Investment Trusts
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