Two-fifths of the world’s CEOs believe their business will no longer exist in 10 years’ time based on their current trajectories (1).
This stark figure reflects unpredictable economic conditions, along with environmental threats created by climate change, geopolitical tensions and increasing regulatory burdens.
To mitigate these risks and thrive, companies need agile and effective boards working within robust governance and risk management frameworks. However, only 29% of C-Suite executives rate their board performance as good or excellent (2), indicating room for improvement.
The importance of internal audit
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It brings systematic, disciplined evaluation and improvement of the effectiveness of risk management, control and governance processes.
The scope of internal auditing includes
- Governance, risk management and operational effectiveness/efficiency control
- The reliability of financial and management reporting
- Compliance with laws and regulations
- The identification of potentially fraudulent acts
Regular board evaluation as part of the internal audit process
Corporate Governance Codes in Guernsey, Jersey, and the UK require regular board evaluations. The UK government advises that external reviews offer deeper insights into board relationships and behaviours (3). Regulators also use board effectiveness as a litmus test during regulatory visits.
External evaluations are valued not only by regulators but also by investors.
As the focus on ESG considerations grow, investors seek robust corporate governance and risk management in their portfolios.
What are the typical challenges uncovered by board evaluations?
Independent board evaluations can uncover issues, which once resolved, allow companies to function more effectively. And while no two boards are the same, there are challenges that surface time and again.
Just 29% say their board has the right mix of skills and expertise, while only 21% say the board has enough gender, racial and ethnic diversity. In addition, executives report challenges including excessive deference to veteran board members; a reluctance to retire; board members who are stretched too thin from holding several non-executive director roles; and domineering chairs who are unwilling to hear opinions from other directors.
How important is it to address feedback following board evaluations?
With just 29% of C-suite executives believing their boards need no change (4), regular reviews are crucial.
Boards need to be reinvigorated and refreshed if they are to keep pace with changing business dynamics, regulatory requirements and wider ESG risks.
Independent board evaluations provide a dispassionate overview and actionable recommendations for change. The evaluation process goes beyond compliance and risk management, adding real value to businesses. Only by fully understanding how a company is operating can businesses hope to survive long into the future.
When did you last independently evaluate your Board?
Newgate Compliance (Channel Islands) Limited, a subsidiary of Ocorian, offers independent internal audit and board evaluation services. Our independent expert panel assesses risks and exposures across various sectors. Learn more at Ocorian.com/compliance/board-evaluation-services.
