7. Board Composition and Succession Planning

Question 1

The Code makes no recommendation on the size of the board of directors. It is accepted that the size of the board varies on what factors?

Answer 1

• Company size
• The complexity of the business;
• The industry or sector; and
• The AoA

Question 2

The requirements for a balanced include:

Answer 2

• Separation of the roles of chair and CEO
• Appropriate balance of ED and NEDs
• Appropriate skills, experience and knowledge
• Gender balance
• Diversity

Question 3

How many NEDs should each committee prescribed from the code have?

Answer 3

Nomination committee - majority of members should be independent NEDs
Audit committee - at least three independent NEDs (2 for smaller companies)
Remuenration committee - at least three independent NEDs (2 for smaller companies)

Question 4

Principle K says that the board and its committees should have a combination of skills, experience and knowledge. What can this achieve?

Answer 4

FRC Guidance on Board Effectiveness – directors will be more likely to make good decisions if the right skillsets are present in the boardroom, diversity can reduce the risk of group think and diversity of personal attributes is equally important i.e. sources of intellect, courage, ability to listen, ability to forge relationships, etc

Question 5

What does the code and FRC Guidance say about diversity?

Answer 5

• J - Both appointment and succession plans should be based on merit and objective criteria and should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths
• L -Annual evaluation of the board should consider its composition, diversity and how effectively members work together to achieve objectives
• 23 - The annual report should describe the work of the nomination committee, including: PEGD
• the process used in relation to appointments, its approach to succession planning and how both support developing a diverse pipeline;
• how the board evaluation has or will influence board composition;
• the policy on diversity and inclusion, its objectives and linkage to company strategy, how it has been implemented and progress on achieving the objectives; and
• the gender balance of those in the senior management and their direct reports.

FRC Guidance on Board Effectiveness – improving diversity at each level of the company is important if more diversity at senior levels is to become a reality

Question 6

What does the Code say about the Nomination Committee?

Answer 6

• J – Appointments should be subject to a formal, rigorous and transparent procedure and an effective succession plan should be maintained
• 17 – establish a NomCo to lead the process for board appointments and succession planning – majority independent NED
• 12 – describe the work of the nomination committee