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FGRE PUBLICATIONS

Foundation's Engagement Publication No.1

Engagement between boards of FTSE-small cap
and FTSE-250 companies and institutional shareholders
August 2008

However, the Executive Summary is reproduced below:

Executive Summary

This Publication deals with engagement between FTSE-small cap and FTSE-250 company boards and institutional shareholders, as distinct from disclosure in a company's annual report for analysis and evaluation by shareholders and/or their agents. Whilst both are communication, engagement requires contact and dialogue between the two parties. High quality disclosure (reporting) on the part of companies and effective engagement between companies and their institutional shareholders are essential to the sustainability of the ‘comply or explain' basis for the Combined Code.

Engagement, however, can also have a wider purpose, namely the enhancement of shareholder value. This is referred to as active engagement.

The Publication is divided into two Sections. Section 1 focuses on the Key Issues and Practical Recommendations on engagement. These are based on research conducted through meetings with senior and experienced practitioners in the business, institutional shareholder and corporate adviser/broking communities, supplemented by other work. This is presented in Section 2.

The key issues are identified under a series of questions, namely:

• Where does responsibility for initiating engagement lie?
• Should engagement be with the fund manager or governance specialist?
• Where does responsibility for identifying governance issues requiring engagement lie?
• Under what circumstances does active engagement apply?
• Are the incentives for fund managers to actively engage sufficient?
• Are there gains for the fund manager from less active forms of engagement?
• How do small cap portfolio fund managers cope with the large number of investee companies?
• How important is the involvement of chairmen?
• Do company advisers and brokers have a role in engagement?
• What is there to learn from the private equity and hedge fund models?

Thirteen practical Recommendations on engagement are proposed for serious consideration. To that end, further work to progress some of the Recommendations, as well as relevant and associated projects to be initiated, are outlined and included as a final Recommendation.

The Foundation's purpose is to encourage better engagement between the boards of FTSE-small cap and FTSE-250 companies and institutional shareholders by leading the debate on the Recommendations and their implementation - supported by continuing research, publications and forums for discussion.

An article on the Foundation's Engagement Publication No.1 has recently appeared in both -

The December 2008 issue of “ Governance ”–

“Engaging the Board : Dr John Mellor looks at engagement between boards of FTSE small cap and FTSE-250 companies and institutional shareholders”
August 2008

and the February 2009 issue of the ICAS Journal “ CA Magazine ” –

“Strictly Boardroom :
It takes two to tango. John Mellor looks at some of the governance issues that arise between institutional shareholders and company boards, and asks which partner should take the lead role as problems crop up.”

This article highlights six key issues which lead to eight Practical Recommendations on engagement deserving of serious consideration.

Click here to download the PDF file.

CORPORATE GOVERNANCE RESEARCH ON
SMALL AND MID CAP QUOTED COMPANIES

Research sponsored by the
Quoted Companies Alliance

and conducted by Professor John Mellor MBA Ph.D

January 2006 

Full copies of the Report are available on request.

A GUIDE FOR NON-EXECUTIVE DIRECTORS IN THE PRIVATE AND PUBLIC SECTORS foundation fidirs publications no.1 - June 2004

by Professor John Mellor MBA Ph.D, Chairman and Founder of the Foundation for Independent Directors and Visiting Professor of Corporate Governance at Bristol Business School

"Introduction

It is widely accepted that non-executive directors are the custodians of the governance process in publicly listed companies and can play a useful role on the boards of private companies and other entities in both the private and public sectors. The demands of the role, however, give rise to profound implications not only for the levels of professionalism and commitment required to be effective but also for the process of recruitment, appointment and diversity in the range of candidates. The Government initiated Higgs Review of the Role of Non-Executive Directors sought to address these, and other, issues and its conclusions, with a few exceptions, have been drawn together in the new Combined Code published in July 2003 and applying from 1 st November 2003. The Code applies to companies listed on the main London Exchange only (i.e. it does not apply to AIM or OFEX listed companies), and it does not carry the force of law. "Comply" or "explain" non compliance is however a requirement of the Listing Rules.

The Code is now a rich source of reference material for non-executive directors. This publication is both a source and guide to that material and written with private sector companies generally, and their non-executive directors, in mind.

It is also intended to be a useful source of reference for non-executive directors of public sector entities, for which many aspects from private sector practice apply but with some important differences. Within the public sector are a host of entities and activities stretching from central to local government. This is a formidable arena but the role and responsibilities of non-executives, and comparisons with their private sector counterparts, can be understood from examining the boards of central government organisations and some "public bodies". The key point to remember is the different objectives of the two governance regimes. Whereas governance in the private sector is ultimately focused upon maximisation of shareholder value, that in central government is focused on delivering the public service objectives (within the policy set by Ministers) of the organisation with good value for money, regularity and propriety.

Contents

The Guide is divided into two sections, each presented under main headings for easy access.

Non-executive directors in the private sector

1. the unitary board context and the important contribution the role of chairman makes to the effectiveness of non-executive directors
2. legal responsibilities and liability
3. the core elements of the role
4. important personal attributes and behaviours required
5. independence and board balance
6. membership of board committees
7. information for non-executive directors
8. induction, professional development and performance evaluation
9. relationship with shareholders
10. recruitment and appointment

Five appendices accompany this section. The first of these is from the Companies Law Review on "General principles by which directors are bound", and three further ones from the Code on "Performance e valuation of non-executive directors", "Pre-appointment due diligence checklist for new board members" and a "Sample letter of non-executive director appointment" for immediate information. The fifth appendix lists additional selected references to the Code.

All material is cross-referenced with the Combined Code where appropriate.

Non-executive directors in the public sector

This section compliments the section for the private sector by focusing on the important differences in the role and its context.

11. central government organisations and non-departmental public bodies (NDPBs or "public bodies")
12. accountability structures
13. boards of central government organisations and NDPBs
14. the role of non-executives on the boards of central government organisations
15. the implications of the Higgs Report
16. board committees
17. audit committees and the Smith Report

A short sixth appendix lists two useful websites."

To register an interest in one or more copies email drjohnmellor@foundationgre.com or visit our " contact us " page for further details.

Books

PRACTICAL CORPORATE GOVERNANCE: for Smaller Quoted Companies and Private Companies by Dr John Mellor

Publishers: Jordan Publishing (released in 2008)

“Smaller quoted companies and private companies are a vital component of the economy. How these companies are governed is critical, not only to their prosperity but also to their capacity to attract funds for investment and growth. However, to date the focus of corporate governance has been on much larger companies.

This book is a practical guide tailored to the circumstances of these companies and their investors, focusing on the relevance and application of governance principles in the boardroom and for the raising of capital. It includes recommendations, check lists, case studies and sample materials such as board minutes, providing readers with everything they need to implement the principles discussed.

This is an invaluable book for all directors, investors and their professional advisors interested in developing their companies, increasing profitability and success. It will also be of interest to public policy makers and regulators.”

To order this book click here to go directly to the Jordan Publishing's website

A PRACTICAL GUIDE TO CORPORATE GOVERNANCE by Richard Smerdon

1 chapter by Professor Mellor: "Corporate Governance and Central Government"

Publishers: Sweet & Maxwell [released in April 2004]

GEE CORPORATE GOVERNANCE HANDBOOK

2 chapters by Professor Mellor: "Non-Executive Directors" and "Nomination Committees"

Publishers: Sweet & Maxwell [released in March 2004]

Journals

REVUE FRANÇAIS DE GOUVERNANCE D'ENTREPRISE – Journal of the Institut Français des Administrateurs' (IFA)

In January 2008 Professor John Mellor, who has been elected a member of the IFA's Conseil Scientifique, had a paper published in the IFA Journal, titled “The UK Combined Code on Corporate Governance and its application to smaller quoted companies.”

This paper is divided into three parts, beginning with a short explanation of the United Kingdom Combined Code on corporate governance, followed by its application to UK smaller quoted companies, and concluding with some results of preliminary corporate governance research by the author.

[For full text .... ]

PROFESSIONAL INVESTOR - the official journal of the UK Society of Investment Professionals

A lead article by Professor John Mellor – “ A Question of Leadership ” – in the corporate-governance-themed December/January 2004/2005 edition.

“Corporate governance – the purpose of it all – in the midst of all the regulatory brouhaha, it's easy to forget that corporate governance is meant to support enterprise and wealth creation, says John Mellor.”

[For full text .... ]

PRACTICAL GOVERNANCE

Article by Professor Mellor "Non-Executive Directors in Focus - a regime for professional recognition"

Published in the May edition 2002

[For full text .... ]

GOVERNANCE

Article by Professor Mellor: "On behalf of the Non-Executive Director"

Published in the July edition, 2001

[For full text .... ]

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