Board Composition and Governance Support

Board authority is exercised collectively, but its quality depends on the people appointed and the way their roles are understood. A board needs knowledge of the business, financial and regulatory competence, enough independence to test management and sufficient continuity to oversee the consequences of its decisions.

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A board assembled for its purpose

The Companies Act prescribes minimum numbers of directors for different forms of company. The Memorandum of Incorporation may require a larger board and create different routes through which directors take office. Shareholders must retain the statutory right to elect the required proportion of directors in a profit company other than a state-owned company.

Compliance with the minimum does not establish that the board is suitably composed. The company should identify the skills and perspectives required by its strategy, regulation and risk profile. Appointments should address those needs rather than preserve a familiar structure.

King V expects the governing body to have an appropriate balance of knowledge, experience, diversity and independence. The board should be able to explain its composition and the way in which succession planning will preserve the capabilities required over time.

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Executive and non-executive directors

Executive directors combine board office with a management role. Their detailed knowledge of operations assists the board, although it also means that they are closely involved in developing and implementing the proposals under consideration.

Non-executive directors are not responsible for the daily management of the company. They contribute through board and committee work, bringing experience and a degree of distance from management. That distance does not create a lower standard. A non-executive director must prepare properly, understand the company’s affairs and request further information where the material presented is not sufficient.

A suitable balance allows operational knowledge to be tested through independent scrutiny. The structure should prevent one individual or aligned group from exercising authority without effective challenge.

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Independence

Every director must exercise independent judgement, irrespective of whether they are formally classified as independent. The separate designation of an independent non-executive director considers whether a relationship or interest could reasonably influence judgement or create the appearance of bias.

Independence should be assessed by substance rather than title. A material shareholding, recent executive role, longstanding commercial relationship or close association with a controlling shareholder may affect the conclusion. The assessment should be revisited as relationships and tenure change.

Formal independence is not a substitute for competence. A board needs directors who understand the company and remain willing to question established thinking.

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Nominee directors

An investor may negotiate the right to nominate a director. The appointment gives the nominating party representation at board level, but it does not convert the director into an agent who may disregard the company’s interests.

A nominee director may consider the knowledge and concerns of the shareholder that nominated them. The director must still reach an independent conclusion in the company’s best interests. Instructions from the nominator cannot replace the judgement required by the office.

Information rights require particular care. Appointment by a shareholder does not give the director unrestricted authority to pass confidential board information to that shareholder. The Memorandum of Incorporation, shareholder agreement and board policies should distinguish the information that may be shared from information held only in the director’s board capacity.

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Alternate directors and prescribed officers

An alternate director who participates in board affairs assumes the duties and potential liabilities attached to office. The appointment should be authorised by the Memorandum of Incorporation and properly recorded. It should not be treated as an informal arrangement for sending a substitute to a meeting.

Certain senior executives may be prescribed officers even though they have not been appointed to the board. The classification depends on the functions performed and the degree of general executive control exercised over the company or a substantial part of its activities. Important conduct and liability provisions extend to them.

Boards should identify prescribed officers and ensure that they understand the responsibilities attached to their positions. Job titles alone do not determine the legal position.

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The company secretary

The company secretary holds a distinct governance office. Public companies and state-owned companies must appoint one, while other companies may do so voluntarily or because their Memorandum of Incorporation requires it.

The statutory duties include advising directors on their powers and responsibilities, alerting them to relevant law, reporting failures to comply with the Act or constitutional documents and supporting the proper recording of board, committee and shareholder meetings.

The office should not be reduced to the preparation of packs and minutes. A capable company secretary identifies procedural defects before decisions are taken, maintains the governance calendar and helps the board keep its charters, delegations and disclosures aligned.

The reporting relationship should allow candid advice. The company secretary works closely with the chair and management, but should have direct access to the board and enough standing to raise a concern about the conduct of any person involved in the process.

Private companies can also benefit from professional company secretarial support, particularly where ownership is divided, the company operates across jurisdictions or a significant transaction is approaching. The arrangement may be internal or outsourced, provided that the role has access to suitable information and authority.