Becoming a non-executive director Hitting the ground running as a non-executive director

For any new director, a learning curve comes with the territory. However, just how steep that learning curve is, and how quickly a new director is able to contribute meaningfully to the work of the board and its committees, can hinge directly on the quality of the induction process.

Understanding the business – its operations, strategies, risks, competitive landscape, and management team – as well as the responsibilities and culture of the board and its committees takes time.

But a structured induction program, including essential information and briefing materials, quality discussions with key people, and a “roadmap” for getting up to speed, can greatly accelerate a new non-executive director's integration and contribution to the board’s work.

Directors joining their first board face the added challenge of understanding the unique role of a non- executive director and how it differs from that of management in helping to oversee and guide the business forward.

Formal induction programs help ensure that new board members understand their responsibilities, current issues, and the circumstances of the organization. However, the on-boarding needs for new board members will vary from director to director depending on a number of factors, including the director's background and experience, and the role the director is expected to play on the board and board committees. As a result, a new member should be prepared to take responsibility for their induction program, working with management and others to determine how best to get up to speed and build a strong foundation for informed oversight.

Below, we discuss a number of things for new directors to consider as part of an overall on-boarding framework, including:

• Suggested reading;
• An initial orientation session;
• Developing a deeper understanding of the organization and the board;
• A reminder that there’s no “one size fits all”; and
• Other potential discussion topics for follow-up one-on-one meetings with key people in the organization.

Ultimately, a robust on-boarding process should help position a new director to engage in a healthy ongoing dialogue with management, fellow directors, and others with insights into the company and the business environment in which it operates.

A new board member will want to review a number of corporate documents and background materials early on. The specific documents will vary in line with the role, but are likely to include:

Information about the company:

• Financial statements and interim financial reporting for the previous two years
• Annual Reports for the past year or two
• The most recent materials provided to the board (and any relevant committees), as well as board and relevant committee minutes
• The organization’s strategic plan, as well as information prepared by management or third parties regarding customer needs, the existing competitive landscape, and emerging competitors
• Third party assessments, including analyst reports, vulnerability studies, and any communication from activist or institutional investors regarding the organization or board. Consider social media too.
• The organizational structure chart, as well as the biographies of the organization’s leadership team, and the succession plans for the CEO and other key executives
• Recent reports assessing the organization’s reputation, culture, and the strength of its brand(s); and, if not otherwise included, presentations made to the board during the past year on risk, strategy, succession, and crisis management
• Reports on the organization’s compliance program, as well as any significant investigations and/or litigation

 

Information about the board and its committees:

• Corporate Governance Code and Corporate Governance Reports, and guidelines for Boards and Directors
• Matters reserved for the board
• Committee terms of reference
• A description of the organization’s directors and officers liability insurance
• Policies applicable to directors such as the organization’s Code of Conduct, conflict of interest policies, insider trading policies, and others.

While the length and formality of an initial orientation session will vary from company to company, it should provide new board members with an overview of:

• The business – including its products and services, customers, and competitors, as well as the key risks faced by the organization
• The overall financial status of the organization and its key business units
• The company’s short-term and long­ term strategy
• The organization’s processes for identifying and managing risk
• The organization’s culture

 

Who participates in the initial orientation session will vary, depending on how the organization’s orientation process is structured, e.g., whether the initial orientation is viewed as the first step in a more lengthy process, or whether it is viewed as a more comprehensive orientation session. Depending on the approach, only a few executives might participate in the initial orientation session – e.g., the CEO, CFO, and Company Secretary – or a number of others might participate as well, including perhaps each member of the senior management, as well as key subject matter experts.

Regardless of whether it is part of a formal or structured orientation process, a new board member will want to have one-on-one discussions with a number of key leaders of the business to gain a better understanding of the organization – the culture, strategy, key risks, strengths, areas of concern – and to get to know the leaders outside of the formality of the boardroom.

Initially, it may be helpful to get the “lay of the land” by meeting separately with the chairman of the board, senior independent director and the Company Secretary – each of whom can be valuable sources of information and insight. What are the hot-button issues facing the organization? What issues have management and the board been spending the most time on? What governance processes work well, or not so well? What is the culture of the company – and of the board?

The Company Secretary can provide information about the board from a legal and process point of view, including the committee structure:

• The organization’s strategic direction, and key risks to the strategy
• Effectiveness of risk management processes and the overall control environment
• Tone and culture of the organization, including ethics, legal, and regulatory compliance, as well as whether the organization is future-focused, innovative, open to reinvention as necessary committee, and how the committees coordinate and communicate about oversight activities. The Company Secretary also can provide an update on significant litigation, investigations, or other compliance related matters.
• Advice on the responsibilities of a director and any independence requirements

 

In the weeks and months following the initial orientation session, a new board member may also want to meet one-on-one with other leaders in the business: CEO; CFO; CRO (or equivalent); CIO and CISO (or equivalent); heads of sales, operations, marketing and HR; to get their views on a number of key company-wide issues, including:

• Strengths and weaknesses of the management team and the board
• The company’s acquisition strategy including any potential acquisitions underway

 

The business leaders also will have important insights to offer on issues that are specific to their areas of focus and responsibility. In section 5, below, we have identified possible issues to explore.

Board members can also get a good understanding of the organization through both social media and talking to people beyond the board. Get out of the head office and visit the factories, stores and operations, as applicable to the organization.

A good on-boarding process – which is key to getting a new board member up to speed and in a position to contribute to the work of the board – is not a “one size fits all” process, and may vary considerably depending on the size of the organization and on the background, experience, and areas of interest of the new director.

While management obviously plays a key role in shaping the on-boarding program, every new board member needs to take charge of his or her own on-boarding in order to make sure that it is properly tailored and focused.

Ultimately, a good on-boarding process should provide information about the company that will enable a director to add value based on their unique experience and perspective.

Education, or professional development, should never stop. Continually seeking out relevant information (from internal and external sources) and a deeper understanding of the business, the competitive landscape, and emerging opportunities and threats, will be essential to providing effective oversight and bringing insight and foresight to the boardroom dialogue.

Chairman

• How the board interacts with the CEO and other officers
• How important decisions are made – formal and informal processes
• Toughest issues facing the board/committees
• Board culture, including openness and candor of communications and debate between management and the board, and among directors
• Committee chairs
• Expectations and role of committee members
• Board composition – skills, background, experience, and expertise
• Highlights of the last two board assessments

 

CEO

• Any significant issues or concerns identified by other business leaders
• On what does the CEO expect to spend the most time over the next few months
• What are the top opportunities and challenges for the organization
• How can the skills and background of the new board member – and board members generally – be best leveraged for the benefit of the board and the organization

 

CFO /Financial Controller

• Earnings trends
• Disclosure philosophy, including the level of transparency
• Adequacy of the control environment, including fraud controls
• Capital allocation processes, and degree of alignment between short-term and long-term objectives

 

CIO and CISO (or equivalent role)

• How the company manages data security, compliance, cyber risk, major IT investments, and other “defensive” IT risks
• How the company leverages IT "offensively” for strategic advantage
• Nature and frequency of CIO communications with the board/audit committee
• Company policies/practices for data governance, use of social media, and adoption of emerging technologies

 

COO

• How the organization leverages its supply chain for strategic advantage
• The organization’s business continuity and crisis management plans
• The organization's philosophy with respect to social responsibility issues in terms of both substantive policies and degree of transparency

 

Chief HR Officer

• The organization's remuneration policy, overview of remuneration arrangements and linkage between remuneration incentives and both short-term and long-term strategic goals
• How the organization attracts, motivates, and retains top talents and the diverse mix of skills, experiences, and backgrounds needed to design and implement strategy

 

Chief Marketing/Sales Officers

• How the organization defines its target customers and what methods it uses to understand and develop products that address customers’ needs
• The organization's approach to innovation and market disruption
• How the organization monitors and leverages evolving social, economic, and political trends
• The strategic planning process, the frequency of which strategy is reviewed, the process by which external trends are assessed with respect to their implications for strategies, and the measures and metrics used to track progress

KPMG’s Board Leadership Center offers non-executive and executive board members and those working closely with them (including CROs and Heads of Internal Audit) a place within a community of board-level peers and access to topical seminars and ‘lunch and learn’ Board Academy sessions, invaluable resources and thought leadership, and lively and engaging networking opportunities.