In July, the Institute published a new guidance note on director induction. It covers:
- references to induction in regulation and guidance
- good practice and points to consider in induction design and delivery
- director induction checklists
- board committee induction
- a specimen induction programme.
The objective of induction is to provide a new director with the information they will need to become as effective as possible as a director of the company within the shortest practicable time.
I have always believed that the induction process is a great opportunity for the company secretary or governance professional to begin a relationship with a new board member which will last throughout the director’s tenure. Working through a skills matrix with them – whether or not you call it that! – and designing a personalised induction programme which meets their needs really helps with developing that relationship. Following through on that programme can then act as a structure for ongoing ‘keeping in touch’ calls with the director.
The FRC’s Guidance on Board Effectiveness states that induction ‘should extend beyond the boardroom. Initiatives such as partnering a non-executive director with an executive board member may speed up the process of them acquiring an understanding of the main areas of business activity, especially areas involving significant risk. [Directors] should expect to visit operations and talk with managers and non-managerial members of the workforce. A non-executive director should use these conversations to better understand the culture of the organisation and the way things are done in practice, and to gain insight into the experience and concerns of the workforce.’
Furthermore, in 2003 the ‘Higgs Suggestions for Good Practice’ stated that the induction process should aim to achieve three things, and these remain relevant today:
- build an understanding of the nature of the company, its business and the markets in which it operates;
- build a link with the company’s people; and
- build an understanding of the company’s main relationships.
The Institute guidance draws out two further elements, helping to ensure an understanding of:
- the role of a director; and
- the framework within which the board operates.
Providing directors with a well thought out and comprehensive induction programme is an important element of the UK Corporate Governance Code.
Of course, the Code only applies to companies with a premium listing of equity shares at the London Stock Exchange, but the good practice principles that it advocates are, in the Institute’s view, applicable across organisations of all kinds in all sectors. And the requirement to provide induction for new directors is a case in point. This is borne out by the ubiquity of induction, either explicitly or implicitly, in other sector’s governance codes.
For example, the Charity Governance Code requires (paragraph 5.8.1) that ‘Trustees receive an appropriately resourced induction when they join the board. This includes meetings with senior management and covers all areas of the charity’s work. Trustees are given the opportunity to have ongoing learning and development.’
Conversely, the Wates Principles for the governance of large private companies do not specifically mention induction, but they do emphasise the effectiveness of the board by recommending a commitment to ongoing professional development (principle 2) and ensuring that the board and the committees have a clear understanding of their accountability and responsibilities (principle 3). Similarly, governance codes in other sectors reflect the need for an effective board, of which good induction is a key support.
As is often the case, the focus of the codes is on outcomes, rather than process. They pose the question: do you take steps to ensure that your board is the best that it can be? And that, to my mind, could easily be used as a definition of the purpose of the company secretary.
The new guidance note is aimed at chairs, other board directors, company secretaries and other governance professionals. In the specific case of listed companies, the guidance aims to help a company secretary to discharge their responsibility to facilitate director induction under the leadership of the chair in line with the Corporate Governance Code.
As well as providing a checklist of topics and documents to consider covering in an induction programme, the guidance note makes suggestions for programme design, because the way in which any induction programme is delivered is an essential factor in its success.
It is not possible to design a single programme to suit all circumstances, and the programme should therefore be tailored to the needs of the specific individual and company. Similarly, the time taken to complete an induction will depend on the organisation, its size and complexity, and the prior experience of the individual, but may take twelve months in order to cover a full board cycle.
Read the full guidance note on Induction of directors to find out more about our good practice recommendations.
