The third edition of the ASX Corporate Governance Principles and Recommendations (taking effect for listed entities’ full financial year commencing on or after 1 July 2014) includes a recommendation that listed entities should have and disclose a Board skills matrix, setting out the mix of skills and diversity that the Board currently has or is looking to achieve in its membership.
Boards who already have capability matrices will rightfully be considering how much information they can disclose without revealing the organisations’ strategic direction. The recommendation states:
“The disclosure need only be made collectively across the board as a whole, without identifying the presence or absence of particular skills by a particular Director. Commercially sensitive information can be excluded.”
Boards who haven’t yet attempted to construct a Board Capability matrix will find that it is a useful tool that can show gaping skills in the Boards’ capabilities. Equally, it may uncover untapped skills.
Unfortunately, if done correctly such that skills requirements stem from organisation strategy, constructing a skills matrix is not as easy as it sounds. (Our tips to developing an effective capability matrix can be found here. We also provide a Board Capability service assisting Boards to effectively map the current skills of Directors to future skills requirements. )
The time required to properly complete this one element of Board governance is emblematic of the considerable work that now goes into the renewal and supervision of the Board itself.
The “Nomination” role is not purely about hiring a new Director when a role becomes available or providing cookie cutter training courses. It is a state of awareness – constantly having a finger on the pulse of the Board, considering factors such as:
- Specialist skills and training (eg legal, accounting, technology);
- Diversity (Age, gender, culture);
- Relationships and independence; and
This entails examination of individual Directors and the Board as a whole in light of the Board’s overarching strategy.
This is not an easy job and is also one that is attracting increasing scrutiny as key investors closely examine Board composition when voting on Director appointments. The combination of toil and scrutiny heightens the importance of the nomination role, which is often rolled together with remuneration oversight into one committee. (ASX Corporate Governance Council Recommendation 2.1 requires a nomination committee, while Recommendation 8.1 requires a remuneration committee.)
Currently around 20% of top 50 and top 100 companies have separate nomination committees. As with the risk committee, this will be an interesting space to watch.