3.1 Directors are appointed based on merit, through a transparent process,
and in alignment with the purpose and strategy
3.2 Tenure of directors is limited to encourage renewal and staggered to retain
3.3 The board reflects a mix of personal attributes which enable it to fulfil its
3.4 The board assesses and records its members’ skills and experience, and this
is disclosed to stakeholders
3.5 The board undertakes succession planning to address current and future
skills needs in alignment with the purpose and the strategy
Having the right people around the table is critical
to the effectiveness of a board. Boards should look
critically at who their directors are and how they are
appointed. There is no one-size-fits-all ideal structure
and composition for boards. Instead, the directors must
decide what form their board should take and give
consideration to how this might change over time.
Directors are generally appointed by:
- direct appointment by the board; or
- election by the members.
Organisations may use either of these methods or a
combination of the two. Generally, an organisation’s
governing documents and any laws that apply to it will
set out requirements about who can be appointed as a
director and by what process they must be appointed.
It is a good idea to set out the process for appointing
directors in a policy. This policy should include matters,
such as who is eligible to be a director, how they can
nominate and any processes that must be followed
so that their appointment is valid. Making this policy
available to stakeholders, especially members, can help
promote transparency and will help prospective directors
to understand the process.
If directors are appointed by election, it is important the
process is transparent. One way that this can be achieved
is through appointing an impartial third party (sometimes
called a ‘returning officer’) to oversee the process so
that it is fairly and properly run. Often an organisation’s
governing documents will set out the requirements in
relation to the election process.
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Tenure of directors
Directors are generally appointed for a fixed term. The
total time that they are appointed for (which may include
several terms) is referred to as ‘tenure’.
Once a director’s term concludes they will either be
reappointed for another term or they will cease to be
a director. An organisation’s governing documents will
generally set out requirements about how long a director
is appointed for, whether they can be reappointed and,
if so, whether there is a limit to the number of terms (or
years) that a person can serve as a director.
It is a good idea for a director’s tenure to be limited to
encourage renewal. Although there may be good reason
for a director to serve for an extended period in certain
circumstances, there are many benefits to bringing fresh
perspectives onto a board.
Boards should consider how a director’s tenure may
impact their performance, particularly if serving for
ten years or longer. Even if a director does serve for an
extended period, limiting tenure will encourage regular
review about whether their appointment continues to be
in the best interest of the organisation.
It is also important to consider how the mix of tenure
on a board might affect the retention of institutional
knowledge. If too many directors depart at once, this
could result in the loss of important history and context,
which helps the board to make good decisions. Directors
also play an important role in mentoring their peers and
so it is important that new directors can work with, and
learn from, more experienced directors as part of their
For this reason, it is a good idea to stagger board tenure
so that the number of departing directors, new directors
and ongoing directors is balanced.
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Measuring skills and experience
To understand what skills they have, address shortages
and forecast future needs, many boards quantify and
record their directors’ skills and experience in a ‘skills
A skills matrix is a document that profiles its directors’
skills and experience. There are several ways that this
can be presented, including which skills are highlighted
within the matrix. Boards should consider what skills and
experience are relevant to them in the context of their
purpose and strategy.
The example simple skills matrix below demonstrates
how three fictional board members have been assessed
against a set of general criteria. Some more detailed
matrices will ask directors to assess their proficiency
within the set criteria.
Figure 3: Example board skills matrix
While technical skills are important, boards should look
beyond these to consider the other attributes of directors
such as a passion for the organisation’s purpose and soft
skills such as communication, negotiation and conflict
resolution. One of the more challenging balances to strike
is in having diverse perspectives and encouraging robust
debate while maintaining a respectful and cohesive
working relationship between directors. The absence
of a collegiate approach to decision-making can lead to
dysfunction and decision paralysis.
It is a good idea for boards to disclose their members’
skills and experience to stakeholders to help them
understand who is responsible for governing the
organisation. Although some boards may disclose a full
skill matrix as in the example of Figure 3, NFPs will
also provide this information in an anonymous way. For
example, through recording how many directors have a
certain skill without disclosing which particular directors
have this skill.
The skills matrix can also be a useful way to identify areas
for board training, development and succession planning.
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Size of the board
Boards need to have enough members to fulfil their
responsibilities, access the skills and experience they
need, and to facilitate changes to composition without
major disruption. However, if the board is too large it
may be difficult for all directors to contribute and this
may undermine its effectiveness.
Boards must determine for themselves, within the limits
imposed on them by their governing documents and the
law, what the ideal board size is for their circumstances.
Generally, NFP boards tend to be between six and 11
people, though they may be smaller or larger.
An organisation’s governing documents and any laws that
apply to it may set out requirements about the minimum
and maximum number of directors a board may have.
There may also be requirements about how many directors
must be present at a meeting for it to be valid (quorum).
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Succession planning refers to taking a methodical
approach to projecting the future skill and experience
needs of the organisation, and putting plans in place to
meet them. Boards should forecast when vacancies will
arise and identify suitable candidates to facilitate smooth
transitions between directors.
It is important that a board is prepared to respond to
and meet the gaps created by the natural rotation of
directors, or more unexpected events such as sudden
illness or death. Boards should engage in succession
planning not only for directors, but also for the CEO
and other senior staff. This is not always a precise
activity, and so boards should be prepared to be flexible
in their approach.
One way this can be done is through maintaining a list of
suitable and interested candidates to create a pipeline of
prospective directors that can be drawn on in response
to need. Some boards use more structured programs
such as allowing prospective directors to be ‘observers’,
so they can learn about the board’s business (without
participating in decision-making) and be better prepared
when a vacancy arises. It is also common for boards to
appoint people to committees with a view to preparing
them to become directors in the future.
It may be helpful to get advice from a recruitment
consultant to deepen the talent pool of potential
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One of the benefits of having a board is that it brings
several minds to focus on a shared purpose. This benefit
is multiplied when directors bring diverse perspectives
to bear on their work, making available different ways of
processing information and solving problems.
Governance is a team sport, and as with any sports
team it is the quality of the team overall (and not any
individual member) that defines its success.
The arguments for the importance of board diversity
have their roots in social justice, drawing on principles of
equality and fairness. However, research demonstrates
that diversity on the board can contribute to improved
performance. Diverse boards have also been shown to
increase staff retention and engagement, promote a
better understanding of an organisation’s stakeholders
and drive innovation. Diversity also assists in deepening
the talent pool from which to draw staff, executives and
Boards should aim to reflect a mix of personal attributes
in their composition. This may include:
- Cultural and linguistic background;
- Professional experience;
- Educational qualification;
- Lived experience;
- Technical skills;
- Socioeconomic background;
- Marital or family status;
- Boardroom behaviours;
- Religious belief; and
- Gender identity.
Research has shown that it is not only the diversity of
personal attributes which influence a board’s performance
but also diversity in thinking style. This is referred to as
Diverse boards also send an important message about
the values of an organisation and the society it wishes
to create. There has been a significant focus on the
representation of women on boards for many years
which recognises the imbalance of female participation in
the workforce, particularly in senior roles. Much progress
has been made in this regard, but there is also increasing
focus on other aspects of diversity, such as the under
representation of people from culturally and linguistically
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Achieving board diversity
Diversity can be a challenging goal for organisations to
achieve. For many NFPs, simply finding someone who is
willing to serve as a director can be challenging enough,
let alone representing multiple diverse attributes in a
small cohort of people. This difficulty can be compounded
for organisations whose directors are appointed by
election where the board may have limited opportunity
to influence its composition.
One way through which boards can aim to achieve
diversity is through establishing a diversity policy.
This is a policy that both expresses the organisation’s
commitment to achieving diversity and outlines the
practical measures the organisation will take to achieve
diversity. For example, a diversity policy might:
- Set targets for the representation of certain personal
attributes (such as gender) on the board or in the
staff cohort, and measure and publicly report on
performance against these targets;
- Commit to inclusive and flexible employment practices
such as providing reasonable adjustments to physical
work environments for people living with disability,
and providing flexible working arrangements to support
different lifestyle needs;
- Support programs that encourage and celebrate
diversity such as cultural awareness training and
networks for lesbian, gay, transgender and intersex
people and their allies; and
- Require that recruitment practices are inclusive to
guard against conscious and unconscious bias in
"Setting performance targets
around diversity is important
because what gets measured
Setting performance targets around diversity is important
because what gets measured gets done. For example,
many boards in the private sector have committed
to ensuring at least 30 per cent of their board are
women because this number has been shown to be the
‘tipping point’ after which diversity will usually become
entrenched in an organisation’s culture.
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Questions for Directors
- Is the process for appointing directors clearly defined, transparent and followed?
- What is the board's current skill mix, and how is it communicated to stakeholders?
- Who will be leaving this board in the near-term future and is there a plan to respond?
- What skills will the board need in future and how will they be accessed?
- What steps has the board taken to promote diversity?
HelpfulCare has six directors. Each director is appointed
for a three-year period. The appointments are staggered
so that there are never more than two members departing
the board at any one time (unless they depart for other
reasons, including resignation). The constitution allows the
appointment of members to casual vacancies. The board
has a composition policy which they use to assist them in
making decisions to appoint directors.
The composition policy sets out the skills and experience
it is seeking from its directors. The board reports its
directors’ skills against five key dimensions:
- Sector knowledge;
- Strategy and risk;
- People, culture and conduct;
- Financial acumen; and
- Regulation and governance.
The number of directors with each skillset is
communicated through the annual report. The board
has also set a quota of having 40 per cent women on
its board, and its performance in this regard is also
communicated in the annual report.
HelpfulCare’s board review their composition annually
and consider this in the context of succession planning.
The board’s nominations committee is charged
with identifying and developing relationships with
suitable candidates for board roles consistent with the
requirements of the composition policy.
The nine directors of the Friendlies are elected by the
membership at their annual general meeting. Directors are
elected for a two-year period. The Friendlies’ constitution
sets out how elections are to be held, including if
directors can be reappointed after their two-year term.
The relevant parts of the constitution are circulated to
members in advance of the annual general meeting.
The Friendlies communicate their directors’ skills and
experience by including profiles of them in their annual
report. The board maintains a skills matrix but this isn’t
disclosed to stakeholders. At the annual general meeting,
the president makes a statement (approved by the board)
about the skills gaps they are seeking to address. At the
meeting, those nominating for a position are allowed the
time to address the members about how their skills and
experience would benefit the organisation.
At the discretion of the president, members are permitted
to attend for non-confidential parts of a few board
meetings to act as ‘observers’. The immediate past
president has a special role set out in the constitution
which enables them to continue on the board for one year
in order to provide continuity, and to take a mentoring
role with new members, at the board’s discretion.