Posted: 23rd August 2018
The revised UK Corporate Governance Code (the Code) puts increased onus on boards, nomination committees and the chair in particular to ensure that there is the right mix of competencies, backgrounds, and behaviours amongst company directors.
The call for more focus on holistic ‘succession planning’ as opposed to ‘one-for-one replacement’ of outgoing board members supports a more thoughtful approach to board composition and recruitment. However, combined with the nine-year independence guideline and the generally accepted view that after six years a director becomes ‘stale’, this approach will result in increased non-executive director (NED) turnover.
Let’s make this a bit more real. If you have a non-executive director and assume that they have a six-year board tenure, you will generally be appointing one new NED a year. If a new NED only becomes ‘useful’ in year two of their tenure, as a recent BP&E Global study suggested, and each time a new director joins there is a ‘drag’ on the board’s overall performance for a short time, there are obvious commercial benefits to speeding up the integration process.
We recommend that organisations critically review their director induction programme to ensure they support an individual’s integration, enabling them to quickly, and meaningfully, contribute to the organisation. An effective induction programme will also help the new director avoid cultural missteps, particularly important as revisions to the Code place much more emphasis on culture, inclusion, diversity and governance
We have seen a wide range in the quality of director induction programmes–ranging from practically nothing to comprehensive, fully-tailored programmes. In the former case, the new director is simply supposed to find their own way—the thought being ‘they are a grown-up, after all’—but this approach is unnecessarily slow and can be disruptive to board and business.
From an organisation’s perspective, devoting time to a structured induction programme is a relatively small, incremental investment, especially when considering the monetary cost and interview time already spent in the recruitment process. For the new director, this kind of structured process will increase their likelihood of success, enabling them to establish relationships and directorial presence.
Effective board induction programmes
Induction programmes need to be tailored to organisational and individual needs; however there are common good practices which we suggest you consider:
- The chair must take personal responsibility for the induction of each new director — The Code sets responsibility for induction with the chair, supported by the company secretary. In our experience, the extent of the chair’s leadership is a key factor in the efficient and effective integration of any new director.
- The induction programme will have core components, but it needs to be tailored to the individual — This tailoring is also called out in the Code. Practically speaking there will be significant reuse of general induction plans, but the individual’s experiences, competencies and behavioural characteristics, garnered during the recruitment process, will provide input to programme content and the prioritisation of activities. A helpful approach is for the company secretary to prepare a draft programme and timetable based on an initial discussion with the chair, followed by the chair’s detailed review.
- Provide documents that give a full picture of the organisation — The objective here is to bring the director up to speed on all aspects of the business. The company secretary should maintain a ‘war room’ of relevant documents from which information can be selected. This would include usual documents such as financial reports, organisation charts, business strategy reviews, regulatory reports, client information, internal and external audit results / issues, risk management reviews (including technology risks) and so on. This documentation should also include information about the culture of the organisation, such as culture surveys, employee engagement surveys, employee tenure, etc.
- Provide documents that detail information about the board, its committees and operations — This would include the prior and current years’ meeting schedule of board and committees, minutes of the same, and the most recent board packs (the number of sets varies by situation). It would also include results and follow ups on board self-assessments and third-party reviews.
- Organise one-to-one meetings with key personnel — The new director should personally meet business heads and other functional heads such as Human Resources, Finance, Risk, Marketing, Technology, Strategic Communications, etc. We advise chairs to communicate the purpose and importance of candour to participants. The director needs to remember that these sessions are just about learning, so any desire to promise follow-up actions at this stage should be avoided.
- Organise attendance at executive / organisation group meetings — This could include town hall meetings, executive / senior leadership team meetings, and governance group meetings below the board committee level. Attending these can enable the director to gain a sense of the organisation’s culture and the day-to-day operations of the organisation.
- Organise meetings with all other directors —Whilst this may have taken place during the interview process, the dynamics and purpose of these early meetings should be focused around integrating the new director into the team.
- Schedule regular, periodic meetings between the chair and the new director — This feedback loop is critical to both parties and therefore should not be left to ‘ad hoc’ meetings. We have found that having these meetings every four to six months is most effective.
- Appoint an existing NED as ‘buddy’ or ‘integration partner’ — This partnership should be a ‘safe-haven’ for the new NED to ask questions and seek guidance. The chair should select the most appropriate colleague, and this should be provided for all incoming directors, regardless of their level of experience.
- Provide a view from outside the organisation — This could take the form of attending an Investor Day, an investor meeting with the chair, a review of customer satisfaction surveys, and so on.
- Provide logistics support — Assign a point person to assist with matters such as organising a security pass, clarifying who to turn to for administrative / organisation support, how to view online board documents, what communications security protocols should be provided, a list of contact points, etc.
Whilst the above advice is focused on NEDS, boards must also consider the support provided to executive directors, whether appointed from outside or inside their organisation, even if they have been ‘servicing the board’ and therefore already ‘expected to know how things work.’
New executive directors will need to understand their new responsibilities, typically broaden their business understanding and appreciate the complexities of being part of the executive board. A successful CEO induction programme will also have many of the same components as a NED or executive director programme, but with an even greater level of engagement with the chair.
In summary, getting your director induction programme into an even better shape will be time well invested. It may very well be the easiest way to enhance your board’s effectiveness and an individual director’s contribution.