Why “Effective Boards” Still Preside Over Disasters

There is a curious literary genre hidden inside corporate annual reports.

It is called the board evaluation.

The plot is always the same.

The board is well composed.
The committees function effectively.
Challenge is constructive.
Governance is robust.

Everyone nods politely and goes home feeling reassured about capitalism.

Then, a few months later, the company explodes.

This happens often enough that one begins to suspect the board evaluation may not be the corporate equivalent of a medical check-up.

It may be closer to a flattering portrait.

The annual ritual

Under the UK Corporate Governance Code, boards are asked to evaluate their effectiveness every year.

FTSE 350 companies must also hire an external facilitator every three years to perform the ritual with greater solemnity.

This has produced a thriving ecosystem of governance specialists who interview directors, observe board meetings and produce thoughtful reports explaining how the board might become even more effective.

The work is serious. The people doing it are serious. The reports are serious.

And yet, the companies being evaluated occasionally fall apart shortly afterwards.

The governance specialists

The UK board evaluation market is dominated by a relatively small group of specialist firms.

These include consultancies such as Lintstock, Boardroom Review, Independent Board Evaluation, Clare Chalmers Limited and Independent Audit Limited.

Large professional services firms also participate in the market. Companies occasionally ask firms such as Deloitte or PwC to conduct governance reviews alongside their broader advisory work.

The techniques used are fairly consistent across the industry.

First come director questionnaires. These structured surveys ask board members to rate the quality of debate, the clarity of strategy, the performance of committees and the effectiveness of the chair.

Then come individual interviews, usually conducted with each director and sometimes with members of the executive team.

Some evaluators also observe one or two board or committee meetings to assess the tone of discussion and the willingness of directors to challenge management.

Finally the evaluator produces a report highlighting strengths, areas for improvement and a handful of practical recommendations.

Most of these recommendations are entirely sensible.

Perhaps the board should spend more time on strategy.
Perhaps the audit committee could sharpen its focus on risk.
Perhaps the board papers could be shorter.

None of this is wrong.

It is simply not where disasters usually begin.

Carillion: effective all the way to the crater

Consider Carillion.

In 2018 the outsourcing giant collapsed spectacularly, leaving a £2.6 billion pension deficit and tens of thousands of unpaid suppliers behind it.

Parliament later described the company’s rise and fall as a tale of recklessness, hubris and greed.

But if you read the annual report the year before the collapse, the mood was considerably sunnier.

The external board evaluation had concluded that the board and its committees continued to operate very effectively.

Strengths included governance processes, board expertise and a robust approach to risk management.

Which must have been comforting.

Meanwhile, inside the business, construction contracts were quietly bleeding money. Project margins were being adjusted with remarkable optimism. Internal estimates and board-level numbers had begun to resemble distant cousins rather than close relatives.

At one point an internal review suggested that a major hospital project was running at a substantial loss.

The margin reported to the board remained positive.

The difference between the two figures ran to tens of millions of pounds.

Under those circumstances the board could indeed operate effectively.

It was simply doing so inside a carefully managed hallucination.

Wood Group: the culture that didn’t exist

Fast forward to John Wood Group.

In March 2026 the Financial Conduct Authority fined the company nearly £13 million for publishing misleading financial information across several reporting periods.

The regulator concluded that Wood Group had developed what it politely described as a poor financial culture.

This is regulatory language for a situation in which the numbers begin to behave strangely because management would very much prefer them to.

Accounting provisions were released in ways that conveniently offset losses elsewhere in the business. Financial judgments were influenced by the desire to maintain previously stated results.

In other words, reality was being gently encouraged to cooperate with expectations.

During this same period the board underwent an externally facilitated evaluation conducted by Clare Chalmers Limited.

The process involved interviews with directors, observation of board meetings and a review of governance practices.

The conclusion?

The Audit, Risk and Ethics Committee was operating effectively.

Which is entirely plausible.

It probably held its meetings on time.
It probably reviewed the board papers carefully.
It probably asked thoughtful questions.

Unfortunately, asking thoughtful questions about numbers that have already been politely adjusted does not always improve the answers.

Thomas Cook and the strategic zombie walk

Some disasters are not caused by accounting manoeuvres.

Some are caused by strategy.

Or more precisely, the slow and stubborn refusal to admit that the strategy stopped working several years ago.

Thomas Cook spent much of the 2010s attempting to modernise a heavily indebted travel business built for an earlier era.

The board held discussions about transformation. Committees reviewed strategic plans. Directors engaged with the company’s challenges.

External evaluations concluded that the board added value through diversity of perspective and remained deeply engaged with the strategic agenda.

All of which may have been true.

Unfortunately, the business still had about £9 billion in liabilities and a business model that the internet had been quietly dismantling for the better part of a decade.

The company collapsed in 2019.

The perspectives had been diverse.

Reality had been less accommodating.

The small difference between process and truth

None of this means board evaluations are pointless.

They often improve useful things.

Meetings become more disciplined.
Committees become clearer about their roles.
Directors become more comfortable challenging one another.

All good developments.

The problem is that corporate failures rarely occur because the board meeting started ten minutes late or because the succession planning matrix lacked colour coding.

Disasters tend to occur because the business model is deteriorating, the numbers are being massaged, or the executive team has begun to believe its own slide deck.

Board evaluations measure the process of governance.

Corporate collapses occur in the substance of the business.

These are not the same thing.

The information problem

There is also a structural difficulty that governance theory tends to glide past politely.

Boards rely almost entirely on information prepared by the executives they are meant to supervise.

In well-run organisations this arrangement works tolerably well.

In troubled organisations it can produce something more theatrical.

Board packs arrive on time.
Dashboards glow reassuringly green.
Risks are categorised, prioritised and summarised.

Meanwhile, somewhere deep in the operating business, reality has quietly wandered off in another direction.

By the time the board realises this, the share price usually has as well.

Governance theatre

Modern governance systems are extremely good at measuring the appearance of oversight.

They can assess meeting quality, debate structure, committee effectiveness and director engagement with remarkable precision.

What they struggle to measure is whether the board is actually seeing the business as it really is.

This is why the annual report often reads like a slightly tragic piece of dramatic irony.

The board evaluation confirms the board is functioning effectively.

The committees are robust.

Challenge is constructive.

Everyone is behaving impeccably.

Unfortunately, the company is about to collapse.

In the next piece we will examine a slightly awkward question.

If board evaluations frequently miss serious problems, why do the reports almost always sound so reassuring?

The answer has less to do with governance theory and more to do with incentives.