Appointing Directors should be a process

Companies need to be careful in the appointment of Directors and implement a due diligence process, to ensure that a new Director is going to bring the skills and knowledge to supplement the ones supplied by the other directors.

A popular process is to develop a ‘Directors Skills Matrix’. This will identify the skill levels that are available from the current directors and to then pinpoint the skills that could benefit the company.

A recent article in the “Financial Review” indicated that a Director appointment is now a vocation in its own right requiring ongoing reading, professional development and an awareness of new developments that might affect the company.

In many companies, the Chair undertakes a mentoring role with all directors, particularly new directors, to ensure that they have a clear understanding of the ‘modus operandi’ of the company and its subsidiaries and an understanding of the accounting, budgetary, legal processes that relate to the company.

The person proposed to be appointed a Director should also be undertaking their own due diligence before their appointment is ratified. Some of the questions that the proposed Director could be asking include:

What is the company’s current financial position?

Is the company solvent?

Are there are outstanding liabilities owing to the ATO and for the payment of superannuation?

What is the situation on loans that the company has received? Are there any loans with arrears owing?

What intellectual property assets does the company own? Are these assets recorded in the financial statements?

How does this company operate? Does the leadership team acknowledges the legal responsibility of the Board of Directors to be kept informed about key issues affecting the business?

When the due diligence reviews are completed, the proposed Director should indicate to the Chair whether he/she is interested in proceeding with the invitation to accept appointment to the Board.

However, before appointing a new Director, the Chair should review the company’s Constitution as it relates to the appointment of a Director. Who can appoint a person to a casual vacancy on the Board of Directors?

The Company Secretary should ensure that the new Director has signed an ‘acceptance of appointment letter’ and that the appointment of the new Director has been notified to ASIC.

The determination of a corporate governance strategy is important for all companies large and small.

Towers Business Development can assist with the implementation of an effective appointment of a Director for your company. Contact us on 07 4724 1118 or email .