• Principle 3 — Board composition and resources

    Rule 9.2.5

    "The Board and its committees must have an appropriate balance of skills, experience, independence and knowledge of the Reporting Entity's business, and adequate resources, including access to expertise as required and timely and comprehensive information relating to the affairs of the Reporting Entity."

    • Balance of skills and independence

      22. A major consideration that underpins the effectiveness of the Board is the availability at the Board level of the relevant skills, expertise and resources as are necessary to discharge the Board functions, taking due account of the nature, scale, diversity and complexity of the business of the Reporting Entity.
      23. It may well be that no single Director has all the knowledge, skills and expertise needed by a Board to discharge its functions. The Board should have an appropriate number and mix of individuals to ensure that there is an overall adequate level of knowledge, skills and expertise commensurate with the nature, scale and complexity of the business of the Reporting Entity.
      24. In order to ensure that the Board is equipped with the necessary skills, expertise and resources appropriate to the business of the Reporting Entity, there should be a formal, rigorous and transparent procedure for the appointment of Directors to the Board. Appointments to the Board should be made on merit and against objective criteria, with due regard to the benefits of diversity on the Board. Care should be taken to ensure that appointees have enough time available to devote to the job. This is particularly important in the case of chairmanships.
      25. All Directors should be submitted for re-appointment at regular intervals, subject to continued satisfactory performance. The Board should ensure planned and progressive refreshing of the Board to ensure the on-going effectiveness of the Board, particularly the objectivity of the decision making by the Board and maintaining the skills and expertise as relevant to the Reporting Entity's business.
      26. All Directors should be subject to election by Shareholders at the first annual general meeting after their appointment, and to re-election thereafter at intervals of no more than three years. The Board should satisfy itself that there is adequate succession planning in respect of Board membership and the Senior Management, so as to ensure an orderly and smooth change-over of positions whilst maintaining an appropriate balance of skills and experience within the Reporting Entity and on the Board.

    • Chairman

      27. For the appointment of a chairman, there should be a job specification, and an objective assessment against the relevant criteria including an assessment of the time commitment expected, recognising the need for availability in the event of crises. Generally, the nomination committee should undertake this function. A chairman's other significant commitments should be disclosed to the Board before appointment and included in the annual report. Changes to such commitments should be reported to the Board as they arise, and their impact explained in the next annual report.
      28. The chairman should ensure that new Directors receive an appropriate induction on joining the Board. The chairman should ensure that the Directors continually update their skills and their knowledge and familiarity with the Reporting Entity required in fulfilling their role both on the Board and its committees. All Directors should have appropriate knowledge of the Reporting Entity and should be provided with adequate access to its operations and staff to carry out their respective responsibilities.
      29. The Reporting Entity should provide the necessary resources for developing and updating its Directors' knowledge and capabilities. The chairman should regularly review and agree with each Director their training and development needs.

    • Executive and non-executive Directors

      30. The Board should include a balance of executive and non-executive Directors (including independent non-executive Directors). No individual or small group of individuals should be able to dominate the Board's decision making. At least one third of the Board should comprise non-executive Directors, of which at least two non-executive Directors should be independent.
      31. The Board should consider a non-executive Director to be "independent" if that Director meets, upon an assessment, objective criteria of independence set by the Board. Such independence criteria should encompass independence in character and judgement of the individual by having no commercial or other relationships or circumstances which are likely to affect or could appear to impair his judgement in a manner other than in the best interests of the Reporting Entity. In making the assessment of independence against such criteria, the Board should consider matters such as whether the person:
      a. has already served as a member of the Board for a significant period;
      b. has been an Employee of the Reporting Entity or a member of the Group within the last five years;
      c. has or has had, within the last three years, a material business relationship with the Reporting Entity, either directly or as a Partner, Shareholder, Director or senior Employee of another body that has such a relationship with the Reporting Entity;
      d. receives or has received, in the last three years, additional remuneration or payments from the Reporting Entity apart from a Director's fee, or participates in the Reporting Entity's Share option, or a performance-related pay scheme, or is a member of the Reporting Entity's pension scheme;
      e. is or has been a Director, Partner or Employee of a firm which is the Reporting Entity's external auditor;
      f. has close family ties with any of the Reporting Entity's advisers, Directors or senior Employees;
      g. holds cross Directorships or has significant links with other Directors through involvement in other Companies or bodies; or
      h. represents a significant Shareholder.
      32. The terms and conditions of appointment of non-executive Directors should be made available for inspection by any person at the Reporting Entity's registered office during normal business hours. The letter of appointment should set out the expected time commitment. Non-executive Directors should undertake that they will have sufficient time to meet what is expected of them. Their other significant commitments should be disclosed to the Board before appointment, with a broad indication of the time involved. The Board should be informed of subsequent changes.
      33. The annual report of the Reporting Entity should identify each non-executive Director it considers to be independent, and the chairman and members of each of the Board committees. It should also state the relevant skills and expertise which each Director brings to the Board and set out the number of meetings of each of the committees and individual attendance by Directors.
      34. As part of their role as members of the Board, non-executive Directors should constructively challenge and help develop proposals on business objectives and strategies for achieving those objectives. Non-executive Directors should scrutinise the performance of Senior Management against agreed goals and objectives and monitor the reporting of their performance.

    • Nomination committee

      35. The Board should establish and maintain a nomination committee to lead the process for appointments and make recommendations to the Board relating to the appointment of Board members and the Senior Management. A majority of members of the nomination committee should be independent non-executive Directors. The chairman of the nomination committee should be an independent non-executive Director.
      36. The mandate, composition and working procedures of the nomination committee should be well defined. The nomination committee should make available on the website of the Reporting Entity its written terms of reference explaining its role and the authority delegated to it by the Board.
      37. The nomination committee should evaluate the balance of skills, knowledge, independence and experience on the Board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment.
      38. A separate section of the annual report of the Reporting Entity should describe the work of the nomination committee, including the process it has used in relation to Board appointments. An explanation should be given if neither an external consultancy nor an open advertising process has been used in the appointment of the chairman or a non-executive Director of the Board.

    • Secretary of the Reporting Entity

      39. The responsibilities of the Reporting Entity's secretary should clearly include, under the direction of the chairman, ensuring good information flows within the Board and its committees and between Senior Management and non-executive Directors, as well as facilitating induction and assisting with professional development of Board members as required. The secretary should also be responsible for ensuring that Board procedures are fully complied with, and advising the Board through the chairman on all governance matters.
      40. Both the appointment and removal of the secretary of the Reporting Entity should be a matter for the Board as a whole.

    • Information and support

      41. All Directors should have access to accurate, timely and clear information relating to the business and affairs of the Reporting Entity to enable them to discharge their duties, taking due account of the roles undertaken by such members. The chairman is responsible for ensuring that the Directors receive such information. Senior Management has an obligation to provide such information, but Directors should seek clarification or amplification where necessary. All Directors should also have access to the advice and services of the secretary of the Reporting Entity, as he is responsible to the Board for ensuring compliance with the Board procedures.
      42. The Board should ensure that Directors, especially non-executive Directors, have access to independent professional advice at the Reporting Entity's expense where necessary to enable them to discharge their respective roles and responsibilities. Committees of the Board should also be provided with sufficient resources including information to carry out their role and responsibilities effectively.

    • Performance evaluation

      43. The Board should undertake a formal and rigorous evaluation of its own performance and that of its committees and individual Directors at least annually.
      44. The chairman of the Board should act on the results of the performance evaluation by recognising the strengths and addressing the weaknesses of the Board and making any changes to the composition of the Board as required.
      45. The Board should state in the annual report how performance evaluation of the Board, its committees and its individual Directors has been conducted.