The Institute of Chartered Secretaries and Administrators (ICSA) published new guidance1 in June this year regarding best practice for the induction of new directors into companies.

The guidance focuses on key areas that newly appointed directors need to be aware of, namely:

  • the nature of the company and the market it operates in;
  • the people within the company;
  • understanding the company’s main relationships;
  • the scope of their role as a director of the company; and
  • the framework in which the board operates.

Recommendations

In summary, ICSA recommends that the following topics are covered by the induction:

  1. the role of the director, in terms of his/her statutory and regulatory duties but also as a part of the company (e.g. policies and procedures relevant to the director);
  2. the structure of the board and its committees, board procedures, previous board minutes, the company’s constitution and the law and regulations applicable to the company;
  3. the nature of the company, its business, the markets in which it operates;
  4. overview of the people in the firm, employee committees, locations, making site visits, holding meetings with senior management ; and
  5. the company’s important relationships, for example, who are its customers, suppliers, shareholders, advisors etc.

How to ensure the director gets the most out of the induction

Each newly appointed director will have different experience. It is therefore essential that you discuss with the director his/her previous experience before devising an induction. Ensure that the induction is planned to prioritise information that will be needed immediately and arrange meetings over a reasonable period to enable the director to settle in and process the information they receive.

Is it necessary?

The UK Corporate Governance Code 2010, which applies to all companies with a premium listing of equity shares, states that all directors should receive an induction. However, good corporate governance is an essential consideration for all companies. Providing a detailed introduction to any newly appointed director should be a priority to enable that director to perform his/her role to the best of their ability and in the best interests of the company. This is an area that probably does not receive the attention it deserves from most companies, given the myriad of day-to-day tasks that distract directors and employees involved in running a busy company. However, high standards of business practice contribute towards ensuring the company’s sustainability and its relationship with its shareholders, and helping directors to understand the scope of a company and their role within it can only facilitate the company’s overall success.