Combined Code on Corporate Governance: Appointment of directors
Induction and training for directors
The authors of the Code believe that new directors have to be properly trained. This means an effective induction process when the director joins the board and an on-going programme of professional development. In the words of main principle A.5, directors should “regularly update and refresh their skills and knowledge”. (If they do not they cannot possibly hope to keep up with the pace of legislative and regulatory change. The new code of directors’ duties in the Companies Act 2006 – see the section on Directors' duties – is only one recent development.)
“The company,” says the Code, “should provide the necessary resources for developing and updating its directors’ knowledge and capabilities”. Note also the obligation in Listing Principle 1: “A listed company must take reasonable steps to enable its directors to understand their responsibilities and obligations as directors.”
The essential point is that directors must be given the right “equipment” and get the right preparation to do their jobs/discharge their duties. There is reference to “tailored induction”. Thus the Code recommends that new non-executives get the chance to meet major shareholders as part of their induction process (A.5.1) and that “consideration should be given to visiting sites and meeting senior and middle management” (Higgs' Suggestions for Good Practice).
For all directors, the right “equipment” includes “accurate, timely and clear information”. The company secretary, under the direction of the chairman, must, say the supporting principles, ensure “good information flows within the board and its committees and between senior management and non-executive directors”.
The words “clear” and “good” here are sometimes forgotten when directors are first appointed. Companies can tend to overburden an individual. As ICSA says in its guidance notes on the induction process, “it has become apparent that some newly appointed directors have been completely overwhelmed with the sheer volume of documents and other papers provided by the well meaning company secretary to such an extent that some have been completely put off by it”. To avoid this, ICSA suggests giving the director essential information only on their appointment and providing further necessary information in the subsequent few weeks. Subsidiary information can follow once the first two batches have been digested.
The company should also be prepared to pay for independent professional advice where the directors judge it necessary.
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