|There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management and 10% shareholders2. No individual or small group of individuals should be allowed to dominate the Board's decision making.|
This Principle sets out two important aspects of the composition of an effective board:
- The presence of a sufficient number of Independent Directors (IDs) so that objectivity and diverse views are brought to bear on Board decisions.
- No single group or individual, including the Chairman, should dominate or have undue influence in the collective decision-making.
To achieve these two objectives, the Guidelines describe:
- The importance of independence (Guideline 2.1).
- The number of Independent Directors (IDs) required on the Board to ensure a critical mass for a (regular) Board (Guideline 2.1), and for one where the Chairman is not independent (Guideline 2.2).
- The criteria for independence of a director (Guideline 2.3).
- The “nine-year rule” that applies when a director may not be independent after serving nine years on the Board (Guideline 2.4).
- The size of the Board (Guideline 2.5).
- The importance and nature of Board diversity (Guideline 2.6).
- The role of Non-Executive Directors (NEDs) (Guideline 2.7) and the need for them to meet without management (Guideline 2.8).
The term “10% shareholder” shall refer to a person who has an interest or interests in one or more voting shares in the company and the total votes attached to that share, or those shares, is not less than 10% pf the total votes attached to all the voting shares in the company. “Voting shares” exclude treasury shares.
There should be a strong and independent element on the Board, with independent directors making up at least one-third of the Board.
The independent directors should make up at least half of the Board where:
- the Chairman of the Board (the "Chairman") and the chief executive officer (or equivalent) (the "CEO") is the same person;
- the Chairman and the CEO are immediate family3 members;
- the Chairman is part of the management team; or
- the Chairman is not an independent director.
An "independent" director is one who has no relationship with the company, its related corporations4, its 10% shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director's independent business judgement with a view to the best interests of the company. The Board should identify in the company's Annual Report each director it considers to be independent. The Board should determine, taking into account the views of the Nominating Committee ("NC"), whether the director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the director's judgement. Directors should disclose to the Board any such relationship as and when it arises. The Board should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, including the following:
The independence of any director who has served on the Board beyond nine years from the date of his first appointment should be subject to particularly rigorous review. In doing so, the Board should also take into account the need for progressive refreshing of the Board. The Board should also explain why any such director should be considered independent.
The Board should examine its size and, with a view to determining the impact of the number upon effectiveness, decide on what it considers an appropriate size for the Board, which facilitates effective decision making. The Board should take into account the scope and nature of the operations of the company, the requirements of the business and the need to avoid undue disruptions from changes to the composition of the Board and board committees. The Board should not be so large as to be unwieldy.
The Board and its board committees should comprise directors who as a group provide an appropriate balance and diversity of skills, experience, gender and knowledge of the company. They should also provide core competencies such as accounting or finance, business or management experience, industry knowledge, strategic planning experience and customer-based experience or knowledge.
Non-executive directors should:
- constructively challenge and help develop proposals on strategy; and
- review the performance of Management in meeting agreed goals and objectives and monitor the reporting of performance.
To facilitate a more effective check on Management, non-executive directors are encouraged to meet regularly without the presence of Management.