The 2018 Guidance on Board Effectiveness ("The Guidance") was released by the Financial Reporting Council (FRC) to accompany the 2018 UK Corporate Governance Code ("the 2018 Code") and has been structured to reflect the 2018 Code. It includes guidance on areas such as culture, relations with the workforce and wider shareholders and diversity, alongside sections on the workings of board committees.

In January 2024, the FRC issued an updated Code ("The 2024 Code") and has issued guidance to support companies in applying the 2024 Code.  The FRC stresses that the guidance should not be viewed as part of the 2024 Code and should not be seen as a requirement of the FRC. It is aimed at contributing helpful context to a board’s consideration of how they might go about complying with the 2024 Code.  The 2024 Code will apply to accounting periods commencing on or after 1 January 2025 except for Provision 29 – the declaration on the effectiveness of the risk management and internal control framework – which will apply to accounting years commencing on or after 1 January 2026.  Until the 2024 Code comes into effect, the 2018 Code applies and continues to be supported by: The Guidance on Board Effectiveness; The Guidance on Audit Committees; and The Guidance on Risk Management, Internal Controls and Related Financial Business Reporting.  This page includes information about the 2018 Guidance and the 2018 Code requirements.

The 2018 guidance includes questions for boards to ask themselves or, in some cases, to ask management, about effectiveness in key areas.

Board leadership and company purpose

This section covers the nature of the effective board, its focus on generating and preserving value for shareholders for the long-term whilst taking account of the interests of the workforce and the impact on other stakeholders (Section 172), its focus on values, behaviours and culture, the importance of diversity and avoiding “group think”, and achieving high-quality decision making.

It covers relations with shareholders, with the workforce and with wider stakeholders, including examples of workforce engagement activities that some companies use to achieve meaningful, regular two-way dialogue.

Division of responsibilities

This section focuses on clarifying and delineating the roles of board members including the chair, senior independent director, executive and non-executive directors, and board support functions, such as the company secretary/secretariat.

Composition, succession and evaluation

This section covers the role of the nomination committee and the focus on values, behaviours and the balance of skills, experience, knowledge and diversity on the board.

It also discusses methods of improving diversity and inspiring diversity throughout the workforce through mentoring and sponsorship schemes and positive action. The section on succession proposes that boards should discuss tenure at the time of appointment to help inform and manage the long-term succession strategy and again encourages looking at succession as an opportunity to motivate employees throughout the organisation.

On board evaluation, there is a call for boards to obtain input from the workforce and other stakeholders on the board’s performance.

Audit, risk and internal control

This short section covers the role of the audit committee and reiterates some key points that are also in the Guidance on Audit Committees. It also highlights the FRC’s focus on viability statements.

Remuneration

This section covers the role of the remuneration committee. Boards can choose to delegate responsibility for overseeing wider workforce remuneration, incentives and workforce policies to the remuneration committee, or, where appropriate, another committee with relevant responsibilities.

It calls for an integrated approach that joins up consideration of wider workforce pay and policies with the consideration of executive remuneration, and proposes that the remuneration committee should engage with the workforce to explain how executive remuneration aligns with wider company pay policy and promotes long term value generation.