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Nominations Committees’ Resolutions Series:#4 -An Induction Is not Enough

Any new job requires the appointee to assimilate critical information about how the company is run, what its business is and how the company can benefit from their experience. Non-executive directors are absolutely no different in this regard and company boards need to induct their new members effectively.

The UK Corporate Governance Code requires a full, formal and tailored induction for new directors on joining the board. At the beginning of the year, it is worth spending sufficient time and effort reviewing and developing training materials for new board members. Particular thought must be given to the induction, mentoring and training requirements of non-executives fulfilling their first directorship. The first board role can be daunting for even the highest qualified executive, so support will almost always be required.

Taking on non-executive positions demands many skills and experiences to be effectively deployed of the benefit of the company board. Ill equipped with the right knowledge and information and boards can quickly become ineffective and even dysfunctional.

Board packs should be concise, timely and accurate. Committees should provide transparent information and point directors in the right direction when they want to gather more information independently. The regulatory landscape is constantly evolving and boards are being asked to adhere to a raft of new governance measures. Updates on legal, accounting, governance and compliance changes are beneficial to both new and existing board members. As an example, the SEC will soon require issuers to disclose a range of new data relating to executive pay. A company’s board should provide adequate opportunity for its directors to fill their knowledge gaps and continue to serve the board most effectively.

Good information is critical to a well-functioning board. The respective committees must allow appropriate information to flow between them and the information from the CEO and her executive committee is of paramount importance. Nomination Committee must ensure the wider-board remains well informed of their activities and that they too, acquire information and understanding central to their responsibilities as a committee. Learning must be a key part of the non-executives role. Board tenures exceeding 10+ years in US firms, according to ISS, account for around 47% of directors. This is a significant amount of time for a director to stay on a board, arguably too long to remain independent, however the essential point is the speed of the environmental change that surrounds that business demands the board directors remain well appraised.

Read the next building block for effective boards.

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