Questions around a director’s qualifications: why due diligence is so important prior to appointment
Recent news reports that a high-profile individual was removed from a Board, allegedly because one of her qualifications had been misstated, is the latest in a line of similar incidents. However, the director in question has reportedly indicated that her qualification is legitimate, and that the confusion arises from the fact that she changed her name at some point. Whatever the case, questions around the validity of directors’ qualifications should not come up after appointment.
According to Professor Parmi Natesan, CEO of the Institute of Directors in South Africa, “Performing due diligence on any appointment in any organisation, and especially senior appointments, is basic good governance. Given the huge responsibility that directors carry, and their importance to the organisation, they of all people need to be thoroughly vetted before appointment,” she says.
Research by the IoDSA shows that board composition probably has a greater impact on the future success of an organisation than any other aspect of governance. It therefore follows that ensuring the board members have the right skills for the organisation’s needs is vital, in line with Principle 7 of King IV: The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.
Equally important is ensuring that the board members have the highest ethical standards.
Recommended Practice 19 specifically advises that “candidates’ backgrounds should be independently investigated, and their qualifications should be independently verified”. Despite this, recent news reports indicate that a number of organisations on whose boards the director served have never vetted her qualifications as this was either not felt necessary or was not a requirement.
Professor Natesan says that failure to perform this item of governance housekeeping makes an organisation vulnerable to reputational damage, while longer-term harm could be caused by the unqualified director’s inability to provide the quality input needed.
The due diligence process should be formal, transparent and rigorous, the IoDSA says. It must begin with ensuring that the potential director meets the criteria for serving on the board as determined by applicable legislation and the organisation’s founding documents. This typically includes identification, qualification, reference and even credit checks.
In addition, the board needs to interrogate the candidate’s knowledge of, and experience in, directorship. It’s no longer enough to be a subject-matter expert—modern-day directorship requires a range of professional directorial skills. It’s also important to assess whether the potential director has the right personal qualities, which would include integrity, honesty, curiosity, courage, teamwork, communication skills and so on. In addition, care should be taken to ensure that any potential director would fit with the board’s culture and dynamic, and has a genuine interest in the organisation and what it does.
“An organisation that does not perform this routine vetting of directors prior to appointment risks eroding the trust that shareholders, potential investors and other stakeholders have in its wider governance, and thus in its potential to succeed,” she argues.
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