ICSA’s Report on Board Evaluations – A Brief Summary

23 February 2021

Following a request by the Department of Business, Energy and Industrial Strategy (“BEIS”) ICSA has prepared a report assessing the effectiveness of the independent board evaluation process introduced in the 2018 update of the UK Corporate Governance Code (the “UK Code”).  ICSA has concluded that the evidence does not suggest widespread market  failure in this area, and indeed that in some areas there are signs that the update to the UK Code is having a positive effect, but that there is room for improvement.   In particular it believes there is scope for broader adoption of good practices and greater transparency by both companies under review and reviewers.  To this end, it has made a number of recommendations.  These include introducing a voluntary code of practice and register for board reviewers, a set of voluntary good practice principles for companies and guidance for listed companies on how to report on their board performance reviews in line with the UK Code.  

Code of Practice and Register for Board Reviewers

ICSA recommended that a voluntary code of practice should be introduced for organisations undertaking external board performance reviews.  This is initially to be focused on organisations which are performing those reviews for FTSE 350 companies, or aspire to do so, but it is clear that ICSA would like to see the code adopted more widely.  

A proposed code, which adopts the approach of having high level principles accompanied by guidance on application, is included in their report, and covers areas such as competence and capacity; independence and integrity; client engagements and client disclosure.  In alignment with ICSA’s overall approach reviewers who commit to the code will do so on a “apply and explain” basis.  The overall thinking is that the transparency produced by compliance should mean that companies and stakeholders are able to understand the approach and qualifications of reviewers, and make an informed assessment of who is the best reviewer for them.

This code of practice is to be supported by the introduction of a public register of board reviewers.  Initially the requirements for registration will be light touch, being limited to disclosure of the basis on which the applicant has “applied and explained” the code, but it is anticipated that this will be kept under review and more onerous conditions will be introduced later.

Subject to an appropriate “owner“ of the register being identified by BEIS, ICSA’s recommendation is that it should go live by the end of the year, with details of how registration will take place being announced as soon as practicable to give reviewers a chance to adjust their practices and update their disclosures before it does.

Good Practice Principles for Companies

ICSA notes that the UK Code already has extensive provisions dealing with conduct of board evaluations and the appointment of external reviewers, but concluded that there would be value in setting out voluntary good practice principles to which companies could commit and which go further than the UK Code’s “comply or explain” obligations.  Again a proposed set of principles is annexed to the report, and are designed to mirror the code of practice for board reviewers.  

The principles cover areas such as selection of reviewers, conflicts of interest, agreeing a scope of works, appropriate access and reporting processes, and disclosure of compliance.  They also require the reviewer’s agreement be given to certain information about the review to be disclosed in the company’s annual report.

Adoption of these principles is not limited to FTSE 350 companies.  Indeed ICSA’s view is that they could be adopted by any entity which undertakes board evaluations.

Disclosure Guidance

The final core element of ICSA’s recommendations is the publication of additional guidance about disclosures listed companies (not just FTSE 350 companies) should make in relation to their internal and external board review processes.  As before suggested guidance is set out in the report.

This suggested guidance focuses on three areas of disclosure in addition to those required by the UK Code:

  1. whether the reviewer is a signatory to the reviewer’s code of practice;
  2. information about the length of relationship between the company/person leading the appointment process and the reviewer; and
  3. the process by which the reviewer was appointed.

Again the intention here is to ensure transparency and allow stakeholders to form judgements about the process followed.  For example, it is considered that having a reviewer selected by only one person within the company or without a formal process involving at least two candidates would raise a red flag.

ICSA has also concluded that as a matter of good practice reviewers should be given the opportunity to ensure they are comfortable with the disclosures being made in the company’s annual report in relation to the description of the review process and any comments which purport to represent the reviewer’s opinion.  Companies complying with the guidance are required to confirm that they have agreed the relevant statements with the reviewer.

Future Developments

In wrapping up its recommendations ICSA recommend that the Financial Reporting Council should review practice and reporting on board evaluations as part of its regular monitoring of the UK Code and report on its conclusions, and also that BEIS should conduct a formal review of the impact of ICSA’s proposed measures three years after the register of review providers goes live.  BEIS’s review should consider whether the proposed measures should move from a voluntary to a mandatory basis, whether additional oversight of the board reviewer’s code of practice is required and generally if any changes are needed to the content of the reviewer’s code of practice, the principles for companies or the disclosure guidance.

Board evaluation is clearly an evolving area of regulation.  It seems very likely that ICSA’s recommendations will be implemented in the short term, but listed companies and board reviewers can expect further changes as the area matures and the recommended reviews take place.

This blog has been drafted and provided by Kingsley Napley LLP. It should be used for informational purposes only. The information is based on current legislation and should not be relied on as an exhaustive explanation of the law or issues involved without seeking legal advice.

Latest blogs and news

BEIS White Paper on Audit Reform: Will Kwarteng's reforms really unchain entrepreneurs?

In 2012, as a recently elected MP, Kwasi Kwarteng co-authored “Britannia Unchained: Global Lessons for Growth and Properity”, a political pamphlet which championed risk-taking and innovation in the UK economy, and which ever since has led some to label him a fervent Brexiteer. Appointed as the Business Secretary in January 2021, only a few months later his department (BEIS) published one of the longest and most ambitious government White Papers in recent years.

What is an Advanced Subscription Agreement?

If you are involved in investing, either as a startup or an investor, you are likely to come across an advanced subscription agreement. So what is an advanced subscription agreement and what do you need to consider when entering into one? 

Lifecycle of a tech startup series: Tax reliefs

You are aware that the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two tax incentive schemes for individuals who invest in early-stage companies. What are the key considerations when determining whether a particular investment is eligible for SEIS/EIS relief?


The FCA proposes new listing guidance for cannabis-related businesses – a positive step for investors concerned about the Proceeds of Crime Act

In September 2020 the FCA published a statement regarding the listing of cannabis-related businesses (CRBs) in the UK. Since then several CRBs have been admitted to the London Stock Exchange (LSE) and appetite for investments in the medicinal cannabis industry continues to grow.

FCA consults on guidance for cannabis companies

The FCA has launched a consultation on a technical note setting out guidance for companies applying for listing which have cannabis-related businesses. As with all companies applying for listing, those with cannabis related businesses must be assessed for eligibility for listing under the Listing Rules.  Because of the legal complexities around cannabis businesses the FCA applies additional due diligence requirements to them.    

Death in the digital age – continuing your online life

The pandemic has changed the world – there is no doubt we are all “online” far more now than before. Social media now extends into every aspect of our lives, from those notorious repetitive baby pictures to those ‘should never have been posted university photos‘. We collect and share moments of our lives in the digital world.

Will the FCA's proposed new SPAC rules result in more SPACS being attracted to the UK?

Following the release of the Hill Report, the FCA has moved quickly to consult on proposals intended to provide an alternative route to market for larger Special Purpose Acquisition Companies (“SPACs”).  The broad proposal is that if a SPAC can meet additional investor protection requirements the FCA will not generally require that the listing of its shares be suspended once an acquisition is announced.

The discontinuation of LIBOR and phasing in of SONIA in the Sterling Markets, what do we know so far?

Global financial markets are preparing to transition away from the use of the London Interbank Offered Rate (“LIBOR”) and adopt an appropriate alternative risk free rate (“RFR”) by the end of 2021. What are the reasons for the move away from LIBOR, the progress to date in terms of identifying the Sterling Overnight Index Average (“SONIA”) as the most appropriate alternative rate in the Sterling markets, and the steps still required to be taken to ensure such markets are ready for the phasing out of LIBOR by the end of the year

FCA Moves to Deregulate SPACs

Following the release of the Hill Report at the start of last month, the FCA has announced that it is going to open a consultation into changing the Listing Rules and connected guidance with a view to encouraging the listing of Special Purpose Acquisition Vehicles (SPACs).

The Hill Report – Impact on Smaller Issuers

Lord Hill’s keenly awaited report on the UK’s listing regime was released on 3 March 2021.  Many of his recommendations focus on the premium listed segment, and much of the commentary to date has focussed on recommendations such as permitting dual class share structures.  However, the report includes a number of proposals which if implemented may make the Official List more appealing to smaller companies, which we have highlighted in this blog.

As Lockdown Ends – Updated Guidance on General Meetings During Covid

On 30 March 2021 the provisions of the Corporate Insolvency and Governance Act 2020 (“CIGA”) which allowed purely virtual general meetings will lapse, and the normal rules will apply.  ICSA have produced some useful guidance to assist companies in dealing with their general meetings in the light of this change.

ICSA’s Report on Board Evaluations – A Brief Summary

Following a request by the Department of Business, Energy and Industrial Strategy (“BEIS”) ICSA has prepared a report assessing the effectiveness of the independent board evaluation process introduced in the 2018 update of the UK Corporate Governance Code (the “UK Code”).  

One hand in the cookie jar: Fraud and directors’ duties in insolvency

What happens when a director commits fraud by misappropriating company assets?  Or what of the director who continues trading knowing that the company has no realistic prospect of paying its debts as and when they fall due? To whom does a director owe duties at that point and what recourse is there against that director? This article explores these questions.

£26 billion fraud: The other side of the Coronavirus Business Interruption Loan Schemes

We have previously examined how the Government’s Coronavirus Business Interruption Loan Schemes (the Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS)(together the “Schemes”) work. A report issued by the Public Accounts Committee on 10 December 2020 highlights the darker side of the Schemes and what it is costing the UK taxpayer. 

Lifecycle of a tech startup series: Preparing to raise investment

In the last instalment we talked about the ways in which the founders of KNow Wear Limited could protect the intellectual property in their business. Since then, the business has been progressing well and our founders have been working on developing a prototype.  

Sell, sell, sell! OTS’s recommendations on the current CGT scheme

Back in July Rishi Sunak requested a review of the current capital gains tax (CGT) system. The Office of Tax Simplification (OTS) was asked by Sunak to produce a report on whether certain features of CGT distort the behaviour of individuals. 

Lifecycle of a tech startup series: Intellectual Property

In our last instalment our founders, Sarah and Chris, considered the basics in establishing their tech startup and they incorporated a company under the registered name ‘KNow Wear Limited’. 

Lifecycle of a tech startup series: The basics

Welcome back to the blog series covering the lifecycle of a tech startup, from a legal perspective.

Lifecycle of a tech startup series: Case study

Alex (tech), Andy (tech), Emer (investments) and I (investments) work alongside startups and founders day to day and thought it might to helpful to some of you out there to bring together our expertise on the legal issues that tend to arise and how we deal with them. 

COVID-19 and Covenant Breaches in Leases and Loan Facilities

As the June quarter date fast approaches and the economic impact of COVID-19 begins to be felt across all sectors, what steps should landlords be taking to vary their lease arrangements with tenants who are unable to meet their rental obligations, and could a reduction in rental income due to COVID-19 put landlords in breach of their own obligations under their loan facilities?

Share insightLinkedIn Twitter Facebook Email to a friend Print

Email this page to a friend

We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

Leave a comment

You may also be interested in:

Close Load more

Skip to content Home About Us Insights Services Contact Accessibility