Ocorian, the specialist global provider of regulatory and compliance, fund, corporate and fiduciary services, warns that failing to conduct regular board evaluations can result in regulatory sanctions, dilution of effectiveness and reputational damage.
Just 62% say their firms’ board is evaluated for effectiveness annually
Its global study* with senior legal executives at private companies with revenues of between £10 million and £1 billion found just 62% independently evaluate their board annually. Around a third (32%) say independent reviews are only carried out every two to three years while 6% only conduct inhouse reviews.
Ocorian warns that not conducting regular independent reviews of board effectiveness leaves many firms exposed to potential issues which could significantly impact their business.
Real estate sector is the worst performer with just 33% saying they conduct independent board evaluations
The study shows that across different industries the real estate sector is the worst performer. Just a third (33%) of executives working in real estate across private and listed companies say they independently evaluate their board annually. The majority (67%) only do so every two to three years.
Aron Brown, Global Head of Regulatory & Compliance at Ocorian, says: “This is worrying because regulators use their assessment of board effectiveness at the start of every regulatory visit as a litmus test; determining if the business is being run as they expect. If regular independent board evaluation is not taking place private companies are leaving themselves wide open to potential fines, reputational issues, or issues with listings and M&A activity.”
Ocorian warns the research shows that maintaining best-in-class board structure can slip down the corporate agenda as market issues, regulatory changes, financial pressures, and challenges with resources intrude.
The listing or sales process should trigger an evaluation for private equity companies
Triggers for board evaluation should include governance issues, impending regulatory visits or ones that have taken place. They can also include reputational issues and risk management. For private equity companies in particular the listing or sales process should trigger an evaluation.
Ocorian’s board performance evaluation services draw on a team of corporate governance experts to run a streamlined evaluation exercise designed to spot risks and address potential exposures. Its service goes beyond a compliance box-ticking exercise, adding real value and insight into business effectiveness.
*Ocorian commissioned independent research company PureProfile to interview 100 senior legal executives across listed and private companies with annual revenues of between £10 million and £1 billion during June 2023. The study included 50 executives at private companies. The executives interviewed work in the UK, Switzerland, Sweden, the Netherlands, Germany, France, Italy and Denmark in the energy, mining, retail, real estate, transport and manufacturing sectors and their firms currently use third-party corporate services provider for some or all of their entity management obligations. To find out more about Ocorian and its services, including regulatory information, visit www.ocorian.com