Director’s Diary: A handbook is essential to effective governance

Director’s Diary: top governance insights designed to get you thinking as part of your corporate governance education – brought to you by The Corporate Governance Institute co-founder David Duffy.

A corporate governance handbook, or manual, is a practical guide for inducting new board members and helping them to understand and implement good governance.

Ideally, it sets out the following:

• Constitution of the company
• Regulatory landscape
• Governance structure
• Board roles and responsibilities
• Terms of reference for board committees
• Board policies such as matters reserved for the board, code of conduct etc.

There are a number of reasons:

1. If you are carrying out due diligence on a potential board role and there is no governance handbook available, it’s a sign that governance might not be at the top of the chair’s or board’s agenda. For me, it is a potential red flag. I would be unlikely to continue the due diligence process unless I can get greater comfort about the substance of the corporate governance from current directors and, more importantly, from former board members who are likely to be more open for example.
2. They’re a crucial stepping stone to solid boardroom work. The more detailed and thorough a handbook is, the more likely new directors will be more productive faster.
3. The handbook will bring clarity to the roles and responsibilities around the boardroom. Many new directors struggle with understanding the line in the sand between the role of the board and that of the executive. If this is a first board role, many new directors tend to be more comfortable with the “operational” rather than policy or strategy. The operational is the domain of the executive, as it is their job to implement policy and strategy. If a new director is poking their nose into the executives’ operational domain, then this will cause unnecessary friction.
4. It provides the chair with a set of policies to hold board members accountable if their behaviour is inappropriate, if they have a poor attendance record, or if they have a conflict of interest. For example, if a director is consistently late, only attends parts of meetings, or does not attend in-person meetings at all, then without a policy in relation to this, it will be difficult to hold the director accountable. In short, it could get messy!
5. It provides a great reference source for new directors to understand the operating rules of the board