Board composition

Board recruitment

The board must ensure that it has the right mix of competencies to meet the company’s evolving needs.

Managing the process that encompasses succession planning, nomination and director recruitment is one of the board’s most important tasks.

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Checklist for assessing board composition

The ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 3e (2014), introduced a number of substantive changes, including a number of governance practices that were previously noted only in the publication’s commentary being elevated to recommendations, meaning that they must now be reported against on an if not, why not basis.

One such change, under Recommendation 2.2, is the need to disclose the company’s board skills matrix which shows the mix of skills and diversity that the board currently has or is looking to achieve in its membership.

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Directors' fees

It is becoming more important for boards to have a clear and transparent remuneration process due to heavy scrutiny from an organisation’s shareholders, stakeholders and the media.

Transparency encourages market confidence and allows comparisons between organisations.

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Evaluating an organisation before joining

Joining any board is an important step regardless of the type of organisation or your level of experience.

Yet many directors take this step without sufficient reflection on the possible risks in terms of personal financial liability and reputational damage, and without sufficient investigation of the particular company, industry and people involved.

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Guidance for preparing a board skills matrix

The ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 3e, introduced a number of substantive changes, including a number of governance practices that were previously noted only in the publication’s commentary being elevated to recommendations, meaning that they must now be reported against on an if not, why not basis.

One such change, under Recommendation 2.2, is the need to disclose the company’s board skills matrix which shows the mix of skills and diversity that the board currently has or is looking to achieve in its membership.

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How to find a directorship

For the aspiring director, finding a directorship involves the creation of opportunities. Most aspirants will start small, usually in the not-for-profit sector.

As you gain boardroom experience and build your networks, other opportunities will arise.

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Key competencies for directors

The board is responsible for ensuring that it has represented on it the skills, knowledge and experience needed to effectively steer the company forward.

Directors will be appointed to the board because their specific skills, knowledge and experience will fill particular gaps on the board.

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Resignation or removal of a director

As a general rule, a company’s constitution will deal with resignations and removal of directors, as well as the procedures for filling casual vacancies caused by a director leaving the company.

Reading the constitution is always an excellent starting point for a director or board faced with this situation.

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Role of executive directors

Executive directors wear two hats: that of a company employee, usually a senior executive, and that of a board member. On top of their full time executive position, they are appointed to the board.

At law they have the same duties and responsibilities as other directors. In the United States, executive directors are sometimes known as inside directors and are quite common there relative to Australia.

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Role of non-executive directors

A non-executive director is one who is not employed by the organisation.

This is not the same as an independent director who is one who is not only not employed by the organisation (non-executive director), but also has no relations with the organisation other than being a director. Current good practice recommends that a majority of directors on listed company boards be independent non-executive directors.

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Selecting a new director

A board needs to have directors who possess a broad mix of skills and experience to be effective.

The key goal in selecting directors is to build a mix of individuals that can work as a well-rounded team.

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Succession planning

Boards have to plan for orderly succession and renewal as well as be prepared for everything from sudden departure to sudden illness or death of a board member or chief executive officer.

It is important to understand that the disruption that occurs when companies change their CEOs and chairs in too rapid succession takes a long time to repair.

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Types of directors

There are a number of different types of directors, known by a variety of names. All directors generally have the same duties and responsibilities regardless of their title.

The following types of directors will be discussed: alternate director, chair, de facto director, executive director, non-executive director, independent director, lead director, managing director, nominee director and shadow director.

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