Strengthening the board’s effectiveness: key considerations for closed-ended investment companies

08 April 2021

In our recent board effectiveness workshop, BDO explored the key Principles and Provisions of the AIC Code of Corporate Governance and considered what value board evaluations can add in enhancing the board’s effectiveness. The purpose of the AIC Code is to provide boards of the member companies with a framework of best practice in respect of the governance of investment companies.

This article builds upon the key themes emerging from the workshop and outlines key considerations for closed-ended investment companies, in particular Venture Capital Trusts (VCTs) and investment trusts in strengthening their governance arrangements.

The role of the board

Companies outsource their day-to-day activities to external service providers therefore, many are governed entirely by a board of Non-Executive Directors (NEDs). When companies outsource, the proper oversight of these relationships is a crucial aspect of achieving good corporate governance. The AIC Code emphasises the board’s responsibility for the governance of the company notwithstanding any delegation of responsibilities to third parties. The board should also ensure that the influence of third parties does not compromise or override independent judgement.


Improving culture in financial services has been a continuing priority for the regulator. The board is expected to not only establish the company’s purpose, values and strategy but it should also assess and monitor its own culture to ensure it is aligned with these objectives. To do this, the Board should be clear on what the organisation is trying to achieve, be responsive to the views of shareholders and wider stakeholders, and take action to identify and manage conflicts of interest.

Board and director independence

It is crucial that the board is able to give independent and robust challenge to third parties. The AIC Code expects at least half of the board to be non-executive directors whom the board considers independent. The boards should ensure a clear division of responsibilities between the board and the investment manager.

Length of service

As recommended in the AIC Code, non-executive directors are not considered to be independent after serving on the board for more than nine years. In practice, this nine-year period has been used as an indication of maximum tenure. The length of service of non-executive directors (in addition to their other NED commitments) should be carefully considered. Notwithstanding this, it is commonly accepted that a regular refreshment of the board’s membership is vital to bringing new skills, experience, and challenge in the boardroom.

Our board effectiveness reviews are designed to support your development into a high performing board. The reviews focus on assessing the areas discussed above and also cover the following:

  • Board structure and clarity of responsibilities;
  • Board skills and capabilities;
  • Board composition;
  • Board processes, cognitive capacity and agility; and
  • Board oversight and challenge of material risks.

Read more about our framework for carrying out a board effectiveness review in the flyer:


How can we help?

A measure of the usefulness of evaluations is how any observations from the process are taken forward. Our approach is underpinned by focused and collaborative engagement with you from the outset in order to achieve the best possible outcome.

Through the development of an improvement plan, we will provide the board with an action plan to ensure the evaluation provides a route to a more effective board.

For help and advice on this tool please get in touch with Leigh Treacy, Richard Barnwell or Shrenik Parekh.