New directors: How to hit the ground running
Monday, 21 May 2018
A more thoughtful approach to board induction will ensure newly appointed non-executive directors are able to begin contributing sooner.
By Parmi Natesan and Prieur du Plessis
With the spotlight on governance, a growing universe of stakeholders (analysts, employees, pensioners, communities, activists) now holds directors responsible for company performance.
In many cases, though, the process through which new directors are prepared for their role remains ad hoc. The better the induction process for new board members, the more rapidly they will become effective. A thorough induction will also provide the foundation for the non-executive director’s performance throughout his or her board tenure.
Research by Russell Reynolds Associates in the United Kingdom shows that almost a quarter of directors newly appointed to the boards of FTSE 350 companies had never sat on a public board before. One factor driving this trend may be the need to appoint a more diverse range of people on boards ̶ something that is particularly important in South Africa. These new board members need to understand not only the nuances of governance practice, but must also be in a position to offer sound business advice to executives.
Leading the induction process
The Companies Act stipulates that the company secretary should provide the directors of the company with guidance as to their duties, responsibilities and powers. The King IV Report on Corporate Governance recommends that the governing body should ensure that incoming members are inducted to enable them to make the maximum contribution within the shortest time possible.
We feel strongly that this process should be a formal one ̶ as the Russell Reynolds research shows, almost a third of FT 350 boards did not have a formal process and 24 per cent of directors said they were responsible for their own induction. The figures are likely to be higher in smaller organisations.
If a good induction programme is built on a formal plan, then what should it cover? The induction should basically cover the company itself, its history, strategic plan and key performance indicators, the board itself, an operational overview of the company and, critically, the role of the director. As we have pointed out in these articles before, it is critical that directors understand not only their legal and statutory responsibilities, but also how their role is distinguished from that of management.
Many commentators rightly advise that some thought should be given to how this content should be presented and structured. One principle would be to tailor it to the needs of the particular director, taking into account what he or she learnt while performing due diligence on the company; another would be to ensure the process involves the chair, who is best placed to provide an insider’s view of board dynamics and hot-button issues.
Get out into the field
It is also recommended that new directors spend time with senior executives and at key sites to gain an insight into the company’s ethos and culture, as well as to begin developing information sources to supplement board packs. Meeting with the auditors and legal counsel would also be productive. It is also advisable for new directors to attend a first round of all board committee meetings, albeit as an observer on those of which they are not members.
Another recommendation would be to appoint a mentor director for each new non-executive director. Many directors report that the help of a mentor and/or one-on-one contact with the chair was invaluable in getting them up to speed.
To conclude, we should stress that these principles should be used to devise a formal induction process that is flexible enough to cater for the needs and experience of individual directors, and which best prepares them for their role. It should thus be aligned with the culture of both the board and the company itself, and the issues they face.
And, like all important processes, board induction should be regularly assessed and feedback used to drive continuous improvement. Non-executives have a key role to play in a company’s success and every care should be taken to provide them with an induction programme that will underpin a valuable contribution ̶ and thus act as the first step in a programme of continuous professional development.
Parmi Natesan and Dr Prieur du Plessis are Executive Director: Centre for Corporate Governance and Chairman of the Institute of Directors (IoDSA) respectively.
Better Directors. Better Boards. Better Business