Twelve elements of independent judgement

Independence is a valued quality of board members (and not just in the UK).

But what many UK board members don’t realise is that they have a legal obligation to exercise “independent judgment”.

This applies not just to large listed companies, but to companies large and small, listed and unlisted, for-profit and not-for-profit. It also applies to executives serving on a board, not just non-executives. This requirement may come as a surprise, suggests LBS Professor of Management Practice in Accounting Sir Andrew Likierman. Sir Andrew was a speaker at The Chartered Governance Institute (CGI) conference earlier this month where his booklet, The 12 elements of independent judgement for a UK board: A guide for directors, was launched.

“There are many who assume that the requirement applies only to independent non-executives of listed companies,” says Sir Andrew.

But what is 'independent judgment'? The legislation gives little guidance and Sir Andrew’s booklet aims to fill this gap. Sir Andrew's definition of judgment is best drawn from the following quotation which was first used in his article from last year, 'The Elements of Good Judgment' (Harvard Business Review, January/February 2020): "The combination of personal qualities with relevant knowledge and experience to form opinions and take decisions”.

Independent is defined by the law and the UK corporate governance code. It includes not being dependent on outside interests and avoiding excessive dependence on the knowledge of others, as well as providing fresh perspectives and holding management to account.

The 12 elements are based on what is available from official sources, supplemented by interviews with directors from a wide variety of organisations and Sir Andrew's own board experience. From interviews and other sources, three illustrative examples are given for each of the 12 elements, which are:

The raw material

• Giving full attention to the written and spoken material presented
• Checking, and where necessary questioning, the information provided, including measures and assumptions used
• Avoiding undue reliance on a single individual’s expertise or the majority view
• Taking account of context - objectives, precedents, relevant comparisons, legal requirements and ethical issues

Attitudes and feelings

• Developing an informed view based on the appropriate method of challenge
• Freedom from undue influence by sectional interests or agendas
• Awareness of one’s own biases, agendas and emotions as well as collective values, such as fairness
• Understanding risk and uncertainty and how to mitigate them

The choice

• An environment where diverse views are encouraged and dissent is seen as safe
• Checking for the way options have been framed, including those which might have been excluded from consideration
• Appreciation of the implications of trade-offs in the choice, including timing, consequences and feasibility
• Awareness of the need for any consultation on the choice with relevant stakeholders and other interested parties

Sir Andrew hopes the booklet will be helpful in clarifying what may well have been difficult for directors to pin down. He also hopes that while the guidance is specific to the UK, directors in other countries may find it useful as a starting point for defining a key board quality.

For more information on the CGI and Sir Andrew's booklet, visit the Chartered Governance Institute UK & Ireland website.

Read a recent article on this subject, 'Sir Andrew Likierman: What independent judgment truly means for boards' (Board Intelligence, by Megan Pantelides, 13 July 2021).