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3. Induction and education

Boardroom Best Practice

In this chapter

Executive Summary

  • All boards should operate a tailored induction programme for all directors, whether first-timers or not.
  • Continuing education for directors is essential to ensure they are aware of business, legal and operational changes and the impact on their responsibilities.
  • Directors should be given every opportunity to see the operations at first hand to support their understanding of the business.
  • Tailored programmes such as Spencer Stuart’s Directors’ Forum should be a part of every outside director’s commitment.

3.1 Board induction

Chairmen and boards have a responsibility to ensure that new directors are given proper support in learning their role so that they can get up to speed as quickly as possible.

An induction programme should be mandatory for all directors, regardless of experience.

The induction is usually overseen by the company secretary. New directors should ask for the process to be tailored to them, particularly if they feel they want to explore certain areas of the business in greater depth.

A full programme should involve:

  • Presentations from management on the business model, profitability and performance
  • A review of the previous 12 months’ board papers/minutes to understand current issues
  • Meetings with key executives/functions such as finance, marketing, IT, HR, etc.
  • Site visits to understand how the business works and to meet people on the ground
  • Meetings with advisors, for example, bankers, brokers, accountants or others
  • Explanation of regulatory and governance issues
  • Attendance at an investor day.

3.2 Mentoring

The practice of mentoring existing and aspiring directors is increasing. The mentoring is often done by an existing director or sometimes by an external professional. There is an opportunity for mentoring new directors. For instance, an existing director could take charge of the induction of the new colleague and be responsible for making them comfortable in the role and maximising their potential — at least for the first six months.

3.3 Role assignments

Any director’s arrival on a board will be made easier if they are able to make an immediate contribution.

For instance, the chairman should not wait to make a new director a member of at least one board committee; it is appropriate that all outside directors should serve on at least one committee.

Sometimes unitary boards assign particular spheres of interest to an outside director, relevant to their experience. This can take the form of assigning to them a part of the business operations or function as an area of first responsibility. Such assignments can be valuable and, again, should not be delayed.

3.4 Continuing education

Boards should seek continuously to develop the knowledge and competency of their directors. Business complexity is increasing, as well as governance, accounting, legal and regulatory changes that require regular training updates. In the same way that directors expect management to be at the cutting edge of their industry, management expects directors to keep themselves informed about their role, the sector and the company.

This obligation is the subject of constant review and will normally be reported on annually to shareholders and others.

Well-resourced companies can contemplate undertaking the task of continuing education themselves, but it is a broad field of study.

There is no shortage of organisations offering to update and educate directors. For first-time non-executives we recommend participation in one of the many new director training programmes available. Such events offer the opportunity to become more familiar with boardroom debates and governance issues. Accounting and law firms also hold regular seminars updating directors on the latest developments in remuneration, audit, risk and governance generally.

Advice to aspiring outside directors

Taken from Becoming a non-executive director, published by Spencer Stuart

What follows may be helpful for experienced directors passing on advice to executives who have not yet served on an outside board.

Your first directorship is also the hardest to get and will take the longest; but others will follow more quickly once you are a non-executive director and have experience.

A serving executive is generally only allowed one, or occasionally two, non-executive roles, so it is vital to choose the right company. What you are seeking may be neither appropriate nor what you need at this point. Your options may be limited by your own board or by local corporate governance rules. You have to be realistic and pragmatic. Organisation size and status aren’t everything; you should consider the option(s) most suitable to your background and experience.

Similarly, if you are about to retire from executive life the first non-executive directorship you choose is critical — it will signal the scale and type of company you are interested in and position you for future opportunities.

Identify sectors which you know or are contiguous with the day job. Look for companies which need or match your particular expertise, but which are sufficiently different not to pose a commercial conflict; companies you can learn from, as well as contribute to.

Bear in mind the following:

  • Sitting on a board for several years feels like a long time if you’re not enjoying it.
  • Mistakes will be on your CV forever.
  • Do not underestimate the time commitment. It is not just a question of preparing thoroughly for meetings (reading the board papers is essential), but making time for site visits and meetings with management.
  • Aim high, but be realistic.
  • Think through any potential conflicts of interest.
  • Don’t be hasty; the right opportunity is unlikely to become available immediately. Don’t be surprised if you go to many interviews before you find a board that is willing to hire you and that is a good fit. This is normal, so be patient.
  • Be prepared for rejection. Try to find out why you were rejected and learn from it.
  • Contiguity is inevitable and to be welcomed. This is not a time for reinvention. You will be hired for who you are and what you have done, so stay close to what you know.

Spencer Stuart Directors’ Forum is the leading international programme designed to equip new and aspiring directors for life inside the boardroom (see Appendix B). This programme is augmented by membership of an alumni group — a ready-made network of fellow directors.

3.5 Outside directorships as a career

All the above are responses to the growing professionalism required of outside directors. No longer hired for their experience or business relevance alone, outside directors are expected to have a working knowledge of relevant governance requirements and of the regulatory environment in which they and their colleagues operate.

This in turn is a response to the appearance of the “plural” outside director — a person who might have secured their first appointment on the basis of their executive experience, but who is subsequently appointed for their non-executive and independent qualities.

The “plural careerist” has undoubtedly professionalised the role of the outside director. As with other professions this should bring in its wake specialist training and the elevation of the company’s interest and those of stakeholders over the interests of the director.