Selection, Appointment and Re-appointment Process
The process for the selection, appointment and re-appointment of directors should take into consideration the composition and progressive renewal of the Board, as well as each director's competencies, commitment, contribution and performance (e.g. attendance, preparedness, participation and candour) including, if applicable, his or her performance as an independent director (ID).
To facilitate investors’ understanding of its nomination process, the Board should disclose the following:
- the channels used in searching for appropriate candidates, whether through search services or personal networks; and
- the criteria used to identify and evaluate potential new directors, including whether only relevant experience and skillsets to the company’s business are considered, or whether broader search criteria such as diversity and technological expertise are also included.
Boards are encouraged to go beyond their immediate circle of contacts, including using third party search firms and institutions, to identify a broader range of suitable candidates.
The company should disclose how the Board, with its collection of skills, experience and diversity, meets the needs of the company.
Appointment of Alternate Directors
A director should take on a directorship appointment only if he or she is able to commit the time to discharge the duties of a director, one of which includes attending all Board meetings. Alternate directors should only be appointed in exceptional circumstances. In particular, companies should not appoint alternate directors for IDs.
Alternate directors bear all the duties and responsibilities of a director. All rules and procedures that apply to directors similarly apply to alternate directors.
The responsibilities of a director of a listed company are complex and demanding. Directors need to make the substantial time commitment required to fulfill their responsibilities and duties to the company and its shareholders. A director with other major commitments can be, or be perceived to be, ineffective because he or she is unable to allocate sufficient time to properly discharge his or her duties on the Board.
The Board and Nominating Committee (NC) should therefore take into account the number of directorships and principal commitments of each director in assessing whether he is able to or has been adequately carrying out his or her duties. The Board and NC should establish guidelines on what a reasonable and maximum number of such directorships and principal commitments for each director (or type of director) should be. For instance, directors who are full-time executives could have less capacity to take on listed company directorships, as compared to retirees who may be able to focus entirely on directorships. In addition, an appointment as a non-executive chairman of a listed company would likely require more time and commitment as compared to other non-executive directorships.
The Board and NC should also consider other factors in determining the practicality of multiple directorships and principal commitments. For example, scheduling board and committee meetings may be challenging for a director sitting on four boards with similar financial year ends and/or reporting timelines.