The Central Bank of Ireland (“Central Bank”) has published its findings from a review of board effectiveness through the lens of diversity and inclusion (“D&I”) in the fund management company (“FMC”) sector — the first standalone D&I review conducted in this sector. The Central Bank’s overall assessment is that, while some positive practices were identified, more work needs to be done to enhance board effectiveness through the lens of D&I, with issues identified in governance processes across all firms reviewed and varying levels of understanding of D&I leading to uneven embedding of D&I across those governance processes.
The Central Bank expects that FMCs, and other regulated firms, review and consider the findings of this report and examine their governance processes relating to board effectiveness through the lens of D&I against both the findings and good practices outlined. Where gaps or weaknesses are identified, firms should develop and implement actions to mitigate any risk, and continually evaluate their arrangements to ensure they remain fit for purpose.
While the review was conducted through the lens of D&I, the Central Bank expectations are more broadly relevant to overall board effectiveness. The table below summarises the key findings across the main areas of review.
| | Theme | Good Practices Identified | Gaps and Areas Requiring Improvement | Central Bank Expectations |
| 1.
| Board, Senior Management Team and Board Committee Composition
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- A structured approach to D&I, evidenced through charter memberships, active board sponsorship, and embedding D&I into governance structures.
- Board and senior management team (“SMT”) membership reflecting diverse professional and educational backgrounds, supporting broader perspectives, richer discussion, and more informed decision-making at leadership level.
- Proactive steps to address challenges in attracting diverse senior applicants, including tools to identify and reduce gender-biased language, gender-neutral job descriptions, diverse interview panels, and ongoing HR engagement and challenge in respect of prospective candidates.
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- An over-emphasis on observable diversity characteristics (eg, gender) while not fully considering, proactively recognising, or discussing other diversity characteristics, such as diversity of thought.
- Gender imbalances at both board and board committee levels, with a significant gender imbalance remaining at the SMT level across some firms.
- Mistakenly equating D&I with Corporate Social Responsibility (“CSR”) activities such as charitable donations and community engagement.
- Failure to put diversity targets or metrics in place.
- Failure to implement local D&I reporting, local board D&I training, or board-level sponsorship.
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- Firms should adopt a more consistent and structured approach to embedding D&I within the organisation, particularly at board and senior leadership level, to strengthen governance, support better decision-making, and enhance overall board effectiveness.
- Key considerations in relation to the composition and effectiveness of the board, its sub-committees and the SMT are diversity of thought and independence of mind.
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| 2.
| Independent Non-Executive Directors
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- An independent non-executive director (“INED”) performing the role of board chair, which is in line with good practice observed across other industries.
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- Several INEDs were observed to have been in place for a prolonged period, in some instances for 10 or more years. The Central Bank has previously communicated the need for firms to regularly assess director tenure as part of board composition reviews.
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- Where an INED has been in place for a prolonged period, the independence of the director should be formally and comprehensively assessed at least annually, and the appropriateness of continued use of the INED designation should be considered.
- Firms should maintain a strong presence of truly independent directors who demonstrate independence of mind and objective judgement. A comprehensive process should be in place to assess and support the ongoing independence of INEDs to further strengthen the overall governance framework.
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| 3.
| Board Evaluation
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- A structured and comprehensive approach to board evaluations — for example, using a board skills matrix where directors assessed themselves as “Very Experienced, Experienced or Limited Experience” and provided a rationale for their chosen ratings, promoting greater self-awareness of individual capabilities.
- The inclusion of gender diversity within the board skills matrix, helping to embed D&I considerations directly into the evaluation process.
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- Over-reliance on self-assessment questionnaires, while broader assessments such as skills gap analysis and attendance reviews were not applied.
- Many evaluations used a simple affirmative / negative response format, which limited the depth and usefulness of insights gained.
- D&I considerations, particularly around inclusivity, were often absent, reducing the evaluation’s effectiveness in enhancing board dynamics.
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- Enhancing the depth and scope of board evaluations, including the integration of D&I considerations, can enable boards to identify areas for improvement and enhance overall effectiveness.
- When conducted effectively, board evaluations help identify critical blind spots, incorporate diversity of thought, and enhance specific skills or knowledge required by the board, enabling it to continuously evolve and adapt to the changing external environment.
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| 4.
| Succession Planning
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- Comprehensive succession plans outlining named successors, clearly defined time horizons, and detailed skills matrices.
- Clearly documenting, for each key personnel, their principal activities, responsibilities, and the skills, competencies and experience a successor would require, including whether a successor was “ready now” or required further development.
- Maintenance of a named panel of potential successors for INED roles from which future appointments could be drawn; this practice supports succession readiness.
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- Lack of specificity and clarity on how succession plans influenced board and executive appointments.
- D&I considerations were largely absent from succession planning, even in firms with diversity targets.
- In some instances, succession plans were out of date following turnover of named successors, did not include version control, and did not assign responsibility to any individual for succession planning within the firm.
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- Comprehensive succession plans can support firms in reducing their over-reliance on key individuals, assist the development of diverse leadership pipelines, and support long-term governance effectiveness.
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| 5.
| Strategic Decision-Making
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- Diverse project teams advising the board on strategic decisions under review.
- Well-documented board strategic decision-making procedures.
- Clear meeting minutes demonstrating challenge and discussion.
- A clear formal decision-making structure.
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- No standalone decision-making policy
- Insufficient documentation of the strategic decision-making process.
- Key decisions being made outside of formal board meetings without clear summaries or records documented.
- Failure in board minutes to evidence the discussion, challenge, or voting process that led to the approval of a strategic decision.
- Failure to conduct formal post-decision reviews (ie, “lessons learned”), missing opportunities for continuous improvement.
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- Improving the governance around strategic decision-making, ensuring thorough documentation, embedding formal review processes, and integrating D&I considerations, can strengthen board effectiveness and overall governance quality.
- Effective decisions made transparently with appropriate challenge promote accountability and enable boards to fulfil their governance responsibilities more effectively.
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Key actions for FMCs
Based on the report’s findings, FMCs should consider the following priority actions:
1. D&I Strategy and targets
- Establish or review D&I policies with measurable targets and metrics.
- Ensure D&I is embedded as a governance priority and is not conflated with CSR activity.
2. Board and SMT composition
- Ensure a consistent and structured approach is adopted to embedding D&I within the organisation.
- Consider proactive steps to address challenges in attracting diverse senior applicants, based on the good practices identified in the review.
- Assess composition beyond gender to consider diversity of thought, professional background, and other characteristics
- Address any identified gender imbalances at board committee and SMT level.
3. D&I training and reporting
- Implement local board-level D&I training and reporting; consider board-level sponsorship of D&I initiatives.
4. INED tenure
- Implement a formal annual process to assess the independence of long-serving INEDs and consider whether the INED designation remains appropriate.
5. Board evaluation
- Strengthen the board evaluation process to include board skill matrices, skills gap analysis, attendance reviews, and explicit D&I considerations beyond simple affirmative / negative questionnaires.
6. Succession planning
- Maintain up-to-date comprehensive succession plans, outlining named successors, clearly defined time horizons, detailed skills matrices, version control and clearly assigned ownership.
- Integrate D&I considerations into succession plans.
7. Strategic decision-making
- Introduce or review standalone decision-making policies and document strategic decision-making process.
- Ensure board minutes fully evidence discussion, challenge, and voting.
- Embed formal post-decision review processes.
Comment
The overall conclusion of the Central Bank’s report is that, while examples of good practice exist across the fund management company sector, the general standard of embedding D&I into board governance processes is not yet where the regulator expects it to be, with issues identified in all firms reviewed and significant variation in how D&I is understood and applied. The Central Bank clearly views D&I as core component of board effectiveness, directly linked to the quality of risk management, decision-making, and governance outcomes. As noted by Governor Makhlouf, “[T]here’s a growing body of research that confirms the benefits that inclusive diversity can bring to complex problem-solving, decision-making, governance, risk management, attracting talent, employee engagement and more.” FMCs should conduct a gap analysis against the report’s findings and consider the key actions outlined above.
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