|There should be a formal and transparent process for the appointment and re-appointment of directors to the Board.|
The foundation of an effective Board begins with the appointment of the right balance and mix of qualified directors who, collectively, can govern the company with the goal of its long-term success. The job of determining the appropriate size, structure, composition, and membership of the Board often rests with the Nominating Committee (NC). However it is done, it is important that the Board appointment process is formal and transparent.
Towards this end, the Guidelines set out:
- The structure, composition and disclosures of the NC (Guideline 4.1).
- The key duties of the NC (Guideline 4.2).
- The responsibilities of the NC in relation to director independence (Guideline 4.3).
- The issue of multiple directorships (Guideline 4.4).
- The appointment of alternate directors (Guideline 4.5).
- The key disclosures required in the company’s annual report, such as the selection, appointment and re-appointment of directors (Guideline 4.6), and the key information regarding directors (Guideline 4.7).
The Board should establish a NC to make recommendations to the Board on all board appointments, with written terms of reference which clearly set out its authority and duties. The NC should comprise at least three directors, the majority of whom, including the NC Chairman, should be independent. The lead independent director, if any, should be a member of the NC. The Board should disclose in the company's Annual Report the names of the members of the NC and the key terms of reference of the NC, explaining its role and the authority delegated to it by the Board.
The NC should make recommendations to the Board on relevant matters relating to:
- the review of board succession plans for directors, in particular, the Chairman and for the CEO;
- the development of a process for evaluation of the performance of the Board, its board committees and directors;
- the review of training and professional development programs for the Board; and
- the appointment and re-appointment of directors (including alternate directors, if applicable).
The NC is charged with the responsibility of determining annually, and as and when circumstances require, if a director is independent, bearing in mind the circumstances set forth in Guidelines 2.3 and 2.4 and any other salient factors. If the NC considers that a director who has one or more of the relationships mentioned therein can be considered independent, it shall provide its views to the Board for the Board's consideration. Conversely, the NC has the discretion to consider that a director is not independent even if he does not fall under the circumstances set forth in Guideline 2.3 or Guideline 2.4, and should similarly provide its views to the Board for the Board's consideration.
When a director has multiple board representations, he must ensure that sufficient time and attention is given to the affairs of each company. The NC should decide if a director is able to and has been adequately carrying out his duties as a director of the company, taking into consideration the director's number of listed company board representations and other principal commitments7. Guidelines should be adopted that address the competing time commitments that are faced when directors serve on multiple boards. The Board should determine the maximum number of listed company board representations which any director may hold, and disclose this in the company's Annual Report.
Boards should generally avoid approving the appointment of alternate directors. Alternate directors should only be appointed for limited periods in exceptional cases such as when a director has a medical emergency. If an alternate director is appointed, the alternate director should be familiar with the company affairs, and be appropriately qualified. If a person is proposed to be appointed as an alternate director to an independent director, the NC and the Board should review and conclude that the person would similarly qualify as an independent director, before his appointment as an alternate director. Alternate directors bear all the duties and responsibilities of a director.
A description of the process for the selection, appointment and re-appointment of directors to the Board should be disclosed in the company's Annual Report. This should include disclosure on the search and nomination process.
Key information regarding directors, such as academic and professional qualifications, shareholding in the company and its related corporations, board committees served on (as a member or chairman), date of first appointment as a director, date of last re-appointment as a director, directorships or chairmanships both present and those held over the preceding three years in other listed companies, and other principal commitments, should be disclosed in the company's Annual Report. In addition, the company's annual disclosure on corporate governance should indicate which directors are executive, non-executive or considered by the NC to be independent. The names of the directors submitted for appointment or re-appointment should also be accompanied by details and information to enable shareholders to make informed decisions. Such information, which should also accompany the relevant resolution, would include: