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The GFSC continues to prioritise board effectiveness and hasn’t shied away from taking action where necessary to uphold standards. Governance failures can either result in sanctions, impact operational effectiveness and damage the reputation of the firm and all involved.
Boards carry a heavy responsibility to balance the growth and success of a firm, alongside meeting numerous GFSC compliance requirements. But this is often easier said than done. Effective governance is often hindered by recurring challenges: ineffective information flow, lack of constructive dialogue, and oversight that becomes too narrowly focused on financial metrics.
From our work with clients to assess and improve board effectiveness and governance arrangements, we’ve observed four key areas that can help boards be more effective and be in a position to demonstrate that commitment to the regulator.
1. Focusing on the quality and scope of information
The quality of the information presented to the board can make or break its effectiveness. In many cases, we’ve seen boards at both ends of the spectrum – either overwhelmed by reams of unnecessary detail or left guessing with incomplete data.
Boards should be regularly challenging their management team to provide reports that are accurate, concise, relevant, and focused on pertinent risks and opportunities. Naturally, financial reporting often dominates proceedings, but boards should ensure adequate attention is paid to other regulatory risks. It is key in governance to differentiate between roles and reporting remits. Operations or other management reporting should focus on recommending and advising on efficiencies to improve business services and impacts directly on the bottom line. Compliance risk reporting should provide an oversight assurance as to whether operational processes are effective in fact and combine both hindsight (CMP) reporting and proactive recommendations on further controls.
2. Actively encouraging and recording constructive dialogue
The strength of a board lies in its ability to have open, productive discussions. However, this often depends on the culture set by the chair and senior directors. We’ve seen that the most effective boards strive to maintain a strong culture of openness. Here, directors are encouraged to ask difficult questions and challenge assumptions without fear of stepping on toes.
An area that’s often overlooked is the quality of recorded minutes. More often than not used as a record of decisions and approvals, the regulator will use these as an early indicator of culture, effectiveness and where they may need to probe in more detail. Evidence of debate, and even dissent is looked on favourably, showing the board is actively engaging with key issues.
3. Strengthening oversight of risk and compliance
Financial stability is critical but can result in other areas of governance being given less airtime. Boards need to ensure they’re not just meeting the minimum compliance standards but actively managing risks and controls.
While audit and risk committees play a crucial role, their success depends on having clear objectives, are frequently reporting back to the board and that issues are given enough discussion time. While the GFSC doesn’t expect, they do expect boards to demonstrate that their firms’ business is conducted in accordance with the growing burden of regulatory expectations
4. Getting the balance of meetings right
It’s no surprise that a clear and structured agenda can help drive effective discussions. Boards that prioritise key risks and strategic goals and shift routine approvals outside the main meetings, free up valuable time for deeper discussions and debate on strategy and risk.
Meeting overload can be as damaging as a lack of focus. While there’s no single best answer for how frequently a board should meet, if issues flagged in one meeting aren’t followed up until months later, it may be time to rethink the board’s cadence.
Effective boards don’t happen by accident. They’re the result of continuous refinement, strong governance and bringing the right balance of expertise to the table. By focusing on quality information, fostering open dialogue, and strengthening oversight, boards can ensure they continue to run resilient, successful and compliant businesses – and be equipped to confidently address any questions or concerns raised by the GFSC.
How we can help
We support many of our clients to evaluate their governance framework, testing effectiveness, reporting flows, knowledge, expertise and the scope and remit of activities that support and enable. We provide firms with an objective viewpoint and clear practical recommendations to maintain or improve performance. Get in touch to find out more.
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