BEST PRACTICE GUIDELINES FOR THE …

1 DIRECTORS FORUMBEST PRACTICE GUIDELINES FOR THE appointment OF DIRECTORSS eptember 20121. The Board is responsible for the long-term success of a company and its first responsibility is to provide direction and leadership within a framework of prudent and effective controls. The purpose of this paper is to promote best PRACTICE through practical GUIDELINES for the selection and nomination of directors in order to ensure that the Board consists of members with diverse skills and competencies, whilst ensuring a formal and transparent process for shareholders to recommend potential The purpose of this paper is not to reiterate the Code of Corporate Governance (the Code ), but rather to complement the Code and facilitate its There is no one-size-fits-all approach and each company must determine the process that suits its size and needs.

2 All companies can apply these These Best PRACTICE GUIDELINES (the GUIDELINES ) should facilitate understanding of the roles of: Independent Directors; Non-Executive Directors; and Directors appointed by way of The GUIDELINES are organised in 6 essential steps for the appointment of directors:- Needs analysis- Profile- Search- Selection- Nomination- A special resource pack designed to assist with the practical implementation of these GUIDELINES can be downloaded from the MIoD website ( ).STEP 1 Needs AnalysisSTEP 5 NominationSTEP 6 AppointmentThose who havenot beennominatedDocumentsSubmittedMeet theselectedcandidatesMake nalrecommendationsto the BoardBoard ApprovalCommunicate tothe shareholdersBoard MinutesOrganise InductionLetter ofAppointmentElection by theshareholders at theAnnual MeetingDocumentedSkills.

3 Experienceand AttributestableThose who have notpassed the selectionSTEP 2 Develop Pro leand CompetencySTEP 3 SearchSTEP 4 Selection- The Context- The size of the Board- Evaluation of current directors- Succession planning- Skills and Expertise required- Board diversity- Potential con icts of interestASSESS- Fellow directors- MIoD Directors Register- Business associates- Trade organisations- Professional search companies- Adverts in the media and on the company websitePOTENTIAL SOURCES- assess potential directors backgrounds, skills and experiences against the agreed pro le- check con icts of interest or independence issues- check number of directorshipsPRODUCE A SHORT LIST:YYYYNNNN- track records- references- veri cation checks DUE DILIGENCE.

4 Action StepProcessDecisionDocumentMultipleDocum entFlow LineStoresDataPrede nedProcessSortKEYSTEP 1 Needs AnalysisSTEP 5 NominationSTEP 6 AppointmentThose who havenot beennominatedDocumentsSubmittedMeet theselectedcandidatesMake nalrecommendationsto the BoardBoard ApprovalCommunicate tothe shareholdersBoard MinutesOrganise InductionLetter ofAppointmentElection by theshareholders at theAnnual MeetingDocumentedSkills, Experienceand AttributestableThose who have notpassed the selectionSTEP 2 Develop Pro leand CompetencySTEP 3 SearchSTEP 4 Selection- The Context- The size of the Board- Evaluation of current directors- Succession planning- Skills and Expertise required- Board diversity- Potential con icts of interestASSESS- Fellow directors- MIoD Directors Register- Business associates- Trade organisations- Professional search companies- Adverts in the media and on the company websitePOTENTIAL SOURCES- assess potential directors backgrounds.

5 Skills and experiences against the agreed pro le- check con icts of interest or independence issues- check number of directorshipsPRODUCE A SHORT LIST:YYYYNNNN- track records- references- veri cation checks DUE DILIGENCE:Action StepProcessDecisionDocumentMultipleDocum entFlow LineStoresDataPrede nedProcessSortKEY2 FLOW CHART3 Transparency and DisclosureA formal and transparent selection and nomination process is critical to gain the confidence and trust of all stakeholders, improve the understanding and efficiency of the processes in PRACTICE , and essential to improving Board particular, four important aspects should be disclosed.

6 Ownership Structures, adequate information on the Nominated Candidates, the Nomination Process and finally the Elections are encouraged to provide greater transparency of the processes which the Board adopts in searching for and selecting new directors for the Board and to report to shareholders on the processes. Such reporting should include the following:- details as to whether the company develops a board skills matrix or profile and uses this to identify any gaps in the skills and experience of the directors on the Board;- the process by which candidates are identified and selected including whether professional intermediaries are used to identify and/or assess candidates;- the steps taken to ensure that a diverse range of candidates is considered;- the factors taken into account in the selection and nomination processes.

7 And- adequate information on the candidates including full background and relevant experience; and why the Board believes they are suitable timing of information is important as it should be disclosed prior to the Shareholders Meeting, preferably with the Notice of the Shareholders Meeting, giving the shareholders enough time to review the abilities and suitability of candidates. If, between Shareholders Meetings, a director has been appointed by the Board to fill a casual vacancy, the shareholders should be advised immediately, with full details of the process of from sending the maximum information with the Notice of the Shareholders Meeting, companies can also use their websites for full information and disclosure as well as full disclosure in the company s Annual NEEDS The ContextThe starting point for a Board in the recruitment of new directors is a review of the company s strategy and business.

8 For example, a company looking to expand into new sectors may want someone with experience in mergers and acquisitions. It is important to review the context for each new appointment as strategy Size of the The company s constitution normally sets out the size of the Board. The number of Board members depends on the size and complexity of the organisation, the type of business, industry and the operating Too few or too many directors may pose problems for effective decision making. A Board with too few members may not allow the company to benefit from an appropriate mix of skills and experience. A larger Board, on the other hand, is typically more difficult to manage.

9 It can make consensus-building both time consuming and difficult, with a tendency to form cliques and core groups and there is a danger of loss of individual The following factors should be taken into consideration: ensuring productive and constructive discussions with different perspectives; size of the quorum for making prompt decisions; enough members to easily manage the work load of the Board; the effective composition of Board committees composed primarily of and chaired by independent directors; engaging all Board members in a meaningful activity so they remain motivated and involved; the need for a separate Chairman and CEO; at least 2 executives on the Board; at least 2 independent directors.

10 Ideally one third of the Board should be composed of independent directors; the right balance between executive and non-executive directors and independent directors so that no individual or small group of individuals can dominate decision making; and the appropriate mix of skills or specific experience Conflicts of When selecting directors, the Board should be conscious of shareholder and public perceptions and seek to avoid situations where there might be a perceived or real conflict of interest. Candidates who have conflicting interests to the company should not be short Numerous studies show that diversity in Board demographics provides companies with competitive advantage.