Managing the process that encompasses succession planning, nomination and director recruitment is
one of the board’s most important tasks. A nomination committee often performs the details of this task.
Following are a series of points to consider when the board needs to recruit one or more new directors.
Does the board have the right mix of competencies?
Having the appropriate mix of competencies for a board
to undertake its role is seen as the most important
requirement of a modern board. In short, a board without
the mix of competencies required to fulfil its task is a board
which is bound to fail. It should be noted that the term skill
is used here interchangeably with the term competency,
although technically competency is the more encompassing
A regular, formalised skills gap analysis is crucial and,
in order to perform this function well, the board must
be able to articulate the agreed strategic direction and then
identify the skills needed to oversee the strategy. The skills
profile of existing directors can be mapped against the
skills matrix and any gaps identified. The ASX Corporate
Governance Council (ASXCGC) in Recommendation 2.2 of
its Corporate Governance Principles and Recommendations
3e (2014) suggests
"a board skills matrix setting out the mix of skills and
diversity that the board currently has or is looking to
achieve in its membership."
Once a skills matrix has been completed, to assist in
formalising the requirements of the different governance
roles, a position description may be compiled for the chair
and each director and then reviewed and adjusted regularly.
This position description can stress the specific roles each
director is expected to bring the board in line with their
Specific skills may be required to support a particular
activity – for example, if the business is looking to expand
overseas, undertake a merger or acquisition or make major
changes to technology. Some boards hold ‘hot seats’ for
directors whose input will be very helpful, but only for
a relatively limited time.
Early-stage businesses are likely to experience particularly
rapid change – for example, a director with experience in
raising capital might be invaluable in the first 12 months
of the company’s life, but have less to contribute when it
moves to the next stage.
How diverse is the board?
A contemporary board needs diversity in terms of gender,
age and culture. In recognition of this need, the ASXCGC
includes the following in its Recommendation 1.5 (Corporate
Governance Principles and Recommendations 3e):
"A listed entity should:
(a) have a diversity policy which includes requirements
for the board or a relevant committee of the board
to set measurable objectives for achieving gender
diversity and to assess annually both the objectives
and the entity’s progress in achieving them".
The recommendation goes on to include reporting
requirements including the need for a diversity policy,
diversity objectives and providing data on the respective
proportions of men and women on the board, in senior
executive positions and across the whole organisation.
The ASXCGC also provides guidelines for a diversity policy.
From a board perspective, the need for diversity needs
to be balanced against the fact that the majority of boards
contain between four and nine directors. The need to
ensure that the board is competency based and at the
same time contains sufficient diversity can be challenging.
The Australian Institute of Company Directors, as
secretariat of the Australian chapter of the 30 per cent
Club, encourages the target of a minimum of 30 per cent
female representation on ASX 200 boards by the end of
2018.9. Realistically, any director on a modern board will
need to cover several skills and at the same time add to the
diversity mix of the board.
Is everyone on the board performing effectively?
There is no room for passengers in the boardroom and the board should have
a process for divesting itself of anyone with little to contribute. The board
should also have the self-awareness to look for and recognise groupthink and
then find a way to address this. Any new directors appointed to bring in fresh
ideas should have the courage to question and challenge the rest of the board.
“ There is no room for
passengers in the
boardroom and the board
should have a process for
divesting itself of anyone
with little to contribute.”
Does the board set a limit on how long members
are allowed to serve?
Limits on how long directors should spend on the board is a controversial area.
One school of thought is that a limit should be imposed, either formally through
the company’s constitution or informally through a policy. Limits of around
nine to twelve years are common, often expressed as three or four terms of two
or three years. Even with such a policy, continuing tenure should be closely
linked to performance and contribution – a poorly-performing director should
not be able to assume that he or she will automatically remain on the board for
the maximum time allowed.
The reasons put forward for recommending a limit to the maximum term
a person spends on the board include:
• To ensure that directors stay on a board to make an active contribution in
the interests of the company and not primarily because of the monetary
and/or psycho-social benefits being a director provides to an individual;
• To ensure there is continual refreshment of the board ; and
• Arguments that after about ten years directors become captured
by management – they lose their ability to adequately challenge
An alternative school of thought is that limits are arbitrary and that time served
should be at the discretion of each board. Directors who are making a valuable
contribution should not be forced out because they have completed a stated
maximum term. This school of thought places emphasis on continual appraisal
of each director’s contribution to the board and ensuring the directors have
competencies which are necessary to the company’s future strategic direction.
Is the board too limited in its search for new directors?
Boards can no longer rely on personal networks and
retiring senior executives from their own industry to
provide the range of skills and experience they need. A
good professional search firm will suggest candidates from
further afield and, if a board member does put forward a
name, provide an impartial assessment. Engaging a search
firm will also signal to shareholders/members that directors
are being chosen on merit. In particular, just relying on the
contacts of existing directors has been identified as a major
reason for the historic lack of diversity of many boards of
Is there an effective succession plan for the
chair in place?
Many boards are now formalising the title of deputy
chair and appointing a director to this position on the
understanding that he or she is next in line. This gives the
director time to become familiar with the demands of the
role and ensures that an appropriate person is ready to
step up quickly if the chair should have to leave without
notice. However, care should be taken to ensure that such
a process has the full support of the board and that having
an heir apparent does not alienate the other directors.
1 Kiel G, Nicholson G, Tunny J A and Beck J, Directors at Work: A Practical Guide for Boards, Thomson Reuters Australia, 2012.
2 Higgs D, Review of the Role and Effectiveness of Non-Executive Directors, Department of Trade and Industry, London, 2002.
This document is part of a Director Tools series prepared by the Australian Institute of Company Directors. This series has been designed to provide general background information and as a
starting point for undertaking a board-related activity. It is not designed to replace legal advice or a detailed review of the subject matter. The material in this document does not constitute
legal, accounting or other professional advice. While reasonable care has been taken in its preparation, the Australian Institute of Company Directors does not make any express or implied
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