Onboarding of new directors

By Parmi Natesan and Prieur du Plessis

“A well-constructed induction programme will equip directors to add value more quickly and improve their overall contribution.”

South African boards are under pressure to improve their diversity in order to improve their decision making in a complex and demanding economic and social environment. The unintended consequence of this drive to identify and recruit directors from beyond the traditional club is that new directors may find themselves with a lot of ground to cover before they can genuinely begin to contribute.

At the same time, even apparently experienced directors are likely to find the challenges of taking up a new board appointment more difficult to overcome than they might originally have thought.

One initiative by the Institute of Directors in South Africa has been to create two professional designations for directors, namely the Certified Director and Chartered Director (South Africa). These are designed to provide directors with a structured way to acquire the basic skills they need to discharge their duties, and to keep their skills current. But even a professional director will need assistance when joining a specific board.

The King IV Report on Corporate Governance makes the point very clearly (Principle 7, Recommended Practice 22) that boards should “ensure that incoming members are inducted to enable them to make the maximum contribution within the shortest time possible”. It also suggests that mentorship and training should be provided to those directors with “no or limited governance experience” (Recommended Practice 23).

It is considered best practice that this be a formal, structured process. Russell Reynolds, a leading executive search consultancy, has proposed an excellent model for constructing an effective onboarding process. The first step is to have a plan and then the means to tailor it to the individual director. The plan should be led by the chair as he or she has by far the best insight into how the board operates within the corporate governance structure and the long-term strategy ̶ but it should also involve the CEO. Currently, few CEOs seem to be involved in director induction (only 20% in FTSE 350 companies, and there’s no reason to suspect the picture is any better here).

Of course, there is considerable tension between the executive and non-executive roles but, under the chair’s guidance, both parties can benefit ̶ the director from an in-depth understanding of the business and the CEO from a director better positioned to give informed advice.

The final part of the Russell Reynolds model is for the new director to broaden his or her knowledge of the organisation “on the ground”.

Induction checklist

What should the elements of an ideal director-induction programme be? At base, such a programme should cover four broad areas:

• General company information. This would cover the company profile, including its history, a company organogram and an overview of its products and services. This information should also set out the value and mission statements, the current strategic and business plans, the risk profile, its corporate social responsibility initiatives and insurance. Key performance indicators should be specified.

Any research or information on the company’s reputation and stakeholders’ perception is also important components. Contact details of important officials, including their personal assistants, are practical aids for directors.

• Board background and modus operandi. This section should aim to inform the director about how the board works, its calendar, its code of ethics, what committees it has, and the results of previous board evaluations. Details of the other directors should be furnished, along with a full portfolio of previous board minutes and AGM documentation.

• Operational overview. This should include an operational overview of all business areas and how they relate to each other. Previous integrated or annual reports are a useful source.
New directors should also meet important role players within the company, such as the CFO, the chief risk officer, the heads of Legal and Compliance, and divisional executives. Key external advisors like legal counsel, auditors and remuneration consultants should also be visited, along with the head office and key sites.

• Director’s role and governance matters. Because they now bear personal liability, it is vital that directors understand what their statutory duties are. Understanding the roles and responsibilities of all parties is important. Directors must also be properly briefed on board committees they may be asked to join. Directors need to understand exactly what constitutes a conflict of interest, and how such matters are properly resolved. Finally, they need to be briefed on how the organisation expects them to develop and maintain their skills through ongoing training.

Crafting a good induction process for each new director is highly beneficial. It not only means he or she will be fully contributing sooner, but it also sets the tone for what the company expects of him or her, and thus for the future.

Parmi Natesan		Dr Prieur du Plessis

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.z