| Area |
Key Guidance |
| Setting strategy |
- A key role for any board is to set the firm’s strategy; the strategy of the firm should be owned by the board as a whole
- The board should be able to give evidence that the firm is managed to a clear and prudent strategy and risk appetite
- The PRA recognises that the chairman and chief executive have leading individual roles to play in the board’s development and maintenance of the firm’s business model
|
| Culture |
- The board should maintain a culture of risk awareness and ethical behaviour for the entire organisation
- This culture should be embedded using appropriate incentives
- The non-executives should hold the management to account for embedding and maintaining this culture
|
| Risk appetite and risk management |
- The risk appetite should be well-articulated, measurable and clearly understandable by employees throughout the business
- The board should be able to give evidence of the active oversight of risks according to the risk appetite
- The risk control framework should flow from the risk appetite and be kept under active review
|
| Board composition |
- The key message is that non-executives should be able to hold management to account effectively
- In order to do so, the board should include a sufficient number and quality of non-executives who are independent and who between them have sufficient breadth of understanding of the business
- In the case of listed firms, established best practice is that at least half the board is comprised of independent non-executives. Smaller firms should ensure they have at least two independent non-executives
- The chairman should be non-executive; where this is not the case the firm should be able to explain how its governance arrangements otherwise satisfy the need for independent oversight of the executives
|
| The respective roles of executive and non-executive directors |
- Once more, the key message is that the non-executives should be able to challenge the executives, and hold them to account
- The PRA expects that boards will do so in a collegiate and supportive manner
|
| Knowledge and experience of non-executive directors |
- Between them, non-executive directors need to have sufficient current and relevant knowledge and experience to understand the key activities and risks in the business
- The PRA will expect to see evidence of effective challenge, particularly in relation to key strategic decisions
- The board should make decisions as a whole, and not simply delegate responsibility for major decisions to individuals among them who are considered specialists
- Non-executive directors should be able to call on appropriate professional advice, although the directors will always remain ultimately accountable for all the board’s decisions
|
| Board time and resources |
- Non-executive directors should ensure they have sufficient time to fulfil their duties
- Discussions may take place outside formal board meetings, but meetings themselves should be genuine, open discussions and not 'stage-managed'
- The chairman should take a lead in the training and ongoing professional development of board members
|
| Management information and transparency |
- The provision of information in a timely, accurate and complete fashion is fundamental in allowing the board to fulfil its duties and responsibilities
- The board should actively guard against the risk that too much data renders their role unworkable
- Management should not confine information reported to the board to those matters solely reserved for the board’s attention; management should understand when the size, nature or impact of an issue suggests that escalation to the board is appropriate
|
| Succession planning |
- Boards should ensure they have robust succession plans, including for the unexpected loss of key individuals
|
| Remuneration |
- Remuneration should align incentives with prudent risk taking
|
| Subsidiary boards |
- The PRA considers it undesirable for key positions on subsidiary boards (e.g. chairman, chief executive, finance director or chairs of sub-committees) to be occupied by executive members of the parent company’s board
|
| Board committees |
- The role of a board sub-committee is to support the board. The committees are accountable to the board but should not relieve the board of any of its responsibilities
|
