Other Provisions Concerning the Composition of the Board of Directors

Summary

A minimum number of directors is (usually) prescribed by law. In exceptional cases, the codes talk of a minimum number of directors (Santens Commission). The recommendations and codes on the contrary usually prescribe a maximum number of board members. The effective operation of the board (such as thorough discussions, sufficient cohesion, involvement and a feeling of responsibility is enhanced by a limitation of the number of directors). These maxima are sometimes expressed in absolute terms, either as a strict standard (10–20) or as a benchmark (between 7 and 16). Increasingly, the recommendation of a ‘relative’ benchmark is gaining ground. Such a ‘relative’ measure will differentiate depending on the complexity, size and nature of the enterprise. Moreover, a gradual reduction in the number of directors is more feasible than a sudden enforced cut.

Virtually all the codes devote attention to the selection and appointment process of directors. It is unanimously agreed that the attraction of new directors must be based on an independent and formal selection process, as is now usually the case with senior management. This presupposes that the independent directors will be given a major role in this appointment process (usually through the nomination committee) and that a formal selection profile will be drawn up. This selection profile forms a guide when looking for new directors and is also the touchstone during periodic evaluation of the directors (which is necessary before each reappointaient).

The selection profile is drawn up in two stages:

• a global profile determines the capacities and characteristics which must be represented on the Board of Directors as a whole; this is a balanced combination of complementary capacities, depending on the nature of the enterprise and the corporate strategy; monitoring of the required diversity is also included as desirable; the proposals in this respect are primarily of the benchmark type because the overall profile is closely enterprise-linked;

• the individual profile is formulated more prescriptively because these are characteristics which directors all over the world should meet; they are characteristics which are a fundamental condition for sound governance.

Since the requirements regarding corporate governance are becoming increasingly strict and the tasks of directors are also becoming increasingly complex and demanding, an increasing number of codes — albeit to widely varying degrees — are advocating the necessary education and training. The proposals by the Institute of Directors in the U.K. go far in this respect and advocate the introduction of a form of certification in order to be recognised as a ‘Chartered Director’.

Most codes formulate restrictions regarding the number and duration of directors’ offices. Most codes do not contain proposals to limit the total term of the offices (there are few genuine proponents because the advantages of a restriction would not balance the disadvantages; explicit opponents of such a restriction do however exist). There is unanimity chiefly in favour of limiting the duration of appointment by building in regular re-election. Diversity is rife as far as the stipulation of the optimum ‘term’ is concerned.

Few recommendations have been issued concerning the restriction of directors’ offices by building in an age limit. Restricting the number of offices per director has been the subject of more attention although, here too, widely varying views exist as to the interpretation of what should be regarded as an acceptable number.

At world level, much support also seems to exist for the dismantling of the interlocking directorships between directors and managers.