|The Code takes as its starting point a recognition that the Board has the dual role of setting strategic direction and of setting the company’s approach to governance. This includes establishing an appropriate culture, values and ethical standards of conduct at all levels of the company. The role of the Board is therefore broader than that of providing oversight. A well-constituted Board fosters more complete discussions, leading to better decisions and enhanced business performance. This version of the Code expands on the need for a strong and independent element on the Board, along with a diverse skill set.|
Paragraph 3 explains the dual role of the Board, which in the SID’s parlance, is:
- Conformance: To safeguard shareholders’ and other stakeholders’ interest by complying with existing rules, regulations and policies.
- Performance: To ensure that the company’s resources are used efficiently and productively, and in the best interests of its investors and other stakeholders.
Far too often, the role of the Board is associated with providing oversight, and primarily focusing on conformance and risk management. Certainly, the very existence of the Code creates the impression that there are many rules and regulations.
This paragraph makes the point that the Board has a clear role in ensuring performance. Indeed, paragraph 1 (Definition of Corporate Governance) emphasises the need for the Board to “enhance long-term shareholder value whilst taking into account the interests of other stakeholders” and Principle 1 of the Code states that the Board is collectively responsible “for the long-term success of the company”.
For the Board to be effective in ensuring performance, it needs to be well-constituted for the right kind of debate and discussions that will lead to better decisions and enhanced business performance. In this regard, two key ingredients of an effective Board are diversity and independence. These two elements are further elaborated on in Principle 2 of the Code.
In many respects, conformance and performance are two sides of the same coin. Both are needed, and many aspects of the boardroom deliberations lend themselves to both conformance and performance. A solid foundation for both, mentioned in this paragraph, requires the right culture, values and ethical standards of conduct at all levels of the company.
B. Related Rules and Regulations
C. CG Guides
- Board Guide 1.1: Introduction [Corporate Governance]
- Board Guide 1.2: Company Performance [Corporate Governance]
- Board Guide 1.3: Regulatory Conformance [Corporate Governance]
D. Related Articles
- “Conformance begets performance” by El’fred Boo. (374KB)
- “Performance trumps conformance” by Wilson Chew. (364KB)
- “Governing for performance” by V Ramakrishnan. (317KB)
- "High performing boards: transcending good governance” by Bob Arciniaga and Alan Hepburn. (1.81MB)