Inducting Directors

Directors are required by law and good
corporate governance to act in the best interests of their company.
However they’re unlikely to be able to do so without having good understanding of their company and the industry and environment in which it operates, and secondly the strategic and outward-looking perspective needed to make informed judgements on the broader long-term issues affecting their company – which their role demands.
Two processes to help directors meet these objectives are:
1. The formal introduction of newly appointed directors to their new position, otherwise known as induction, and
2. The continuing development of the skills and knowledge of directors throughout their term of office by formal ongoing external education and training.
The first process has more relevance to non-executives while the second applies equally to both non-executive and executive directors.
Each can improve your contribution around the board table and, in doing so, add value to the board to the benefit of the company and its shareholders.
Directors are often first appointed following successful careers in fields such as management, accountancy, financing, law, public life and, more recently, marketing and sales. However, while these skills are valuable careers skills, they are unlikely on their own to provide the breadth of vision and range of expertise required from today’s directors if they are to function effectively and competently.
Also, the current climate of complex financial transactions, the ever-growing number of laws and regulations imposing liability on directors and the worldwide demand for professionalism and accountability make it essential that directors not only acquire the necessary knowledge and skills, they must also keep their knowledge and skills up to date.

1. Induction
To ensure directors optimise their contribution to board affairs, induction should take place as soon as possible after appointment.
Boards should see that an induction programme for all their new directors is formally established. In the first instance, responsibility for doing so, and for implementing the programme in each case, rests with the chairman as leader of the board. It shouldn’t be left to new directors to initiate.
To be properly effective the induction should encompass (to the extent not already covered during the director’s appointment process) familiarising the director with the following:
? The board’s structure and functions.
? The board’s philosophy and vision for the company.
? The company’s operations and facilities including, if possible, an inspection of the company’s plant and products and tour of its divisions and subsidiaries; the most practical way of doing so can be to hold board meetings in the centres where the divisions and subsidiaries are located.
? The history and traditions of the company, and
? All other information concerning the company that could be expected to assist the director in fulfilling the new role to the best of the director’s ability.
The induction should also include meetings with key management and, of course, the other board members.
Depending on the size of the company’s operations it would not be unusual for the programme to be spread over several weeks.
A valuable aid in saving time in the familiarisation process can be folder of key board and company information.
An essential component is the company’s last annual report.
Other information could usefully cover things like:
? Goals and strategies, including mission and vision statements, and strategic plan.
? Board administration including operating procedures, activity plan, brief bio-graphies and contact details of all directors, meeting dates and locations, and details of the company’s external advisers.
? Legal matters including copy of the constitution and brief details of legislation applicable to the company and of directors’ and officers’ liability insurance.
? Board operations including evaluation procedures, code of conduct, makeup of committees, and rules governing conflicts of interest, insider trading and access to professional advice.
? Organisational matters including company group structure, and location and size of operating sites and principal markets, and
? Capital structure including principal shareholders and recent movements in share price.

2. Development
The number of educational and training courses available for directors has grown as directors and their companies have become aware of the need.
A variety of courses are available, including:
? The programme run by IoD.
? Courses offered by business and management schools at New Zealand universities.
? Correspondence business courses both within and outside New Zealand, and
? International courses conducted by major universities and business schools in the USA, UK and Europe.
Because of time constraints on those attending, shorter courses or seminars may be preferred.
Conferences and seminars on topics of special interest to directors or of relevance to the industries in which they work are often run, both in New Zealand and overseas, by professional organisations.
An appropriate time to establish the education and training needs of directors would be during any director evaluation process. Preferably this should take place annually.
Keeping up to date also means keeping informed in areas of management, law, industry, the economy, politics and in public expectations and opinion.

Peter Webb is director of Policy and Research at the Institute of Directors. This article is one of the Institute’s Best Practice Statements. The set of 28 is available for $200 or $7.50 each from the Institute of Directors, Box 7436, email [email protected]

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