Avoid Perfunctory Descriptions
Companies, who avoid perfunctory descriptions but explain more clearly their board nomination and selection process, and substantiate their decisions with rationale, are being transparent and cultivating shareholder understanding and appreciation of important aspects of governance.
Board Diversity Disclosure
Any policies on board appointments including policies on diversity, initiatives the company has in place and steps it is taking to promote board diversity, would be in the annual report. The actions of the Nominating Committee and its consideration of board composition would also be included, providing a picture of how the board views diversity and its actions in this regard. Guideline 4.6 of the Code of Corporate Governance requires a description of the process for the selection, appointment and re-appointment of directors to the board to be disclosed in the company’s annual report, which should also include disclosure on the search and nomination process.
Investors can also gain a deeper understanding of the effectiveness of the board and any role diversity has played, from the annual report, as Guideline 5.1 of the Code of Corporate Governance further requires the board to disclose how the assessment of the board, its board committees and each director has been conducted.
The Listing Manual requires a company to make immediate announcement of any appointment and resignation of directors. Required disclosures on board appointment include the board’s commentary on the rationale, selection criteria as well as the search and nomination process. Thus individual announcements of appointment can provide rich ground for learning about the board’s composition and diversity.
For example, investors should look out for the rationale for director appointment, noting not just how the nominee qualifies for appointment but also why he stands out over other candidates and how he fits with the rest of the directors on the board. The explanation would allow understanding of whether and how diversity was achieved.
Questions at Annual General Meetings
Annual general meetings are important avenues for investors to interact with the board and management of listed companies. Investors can pose meaningful questions on board diversity and its effectiveness, as well as elicit direct justification from the board before approving new director appointments.