Director selection and appointment

However, there are circumstances where ministers may not be responsible for these appointments. For example, when a director is an ex-officio member or where the board has the right under its legislation to appoint a director by co-option (such as on a Training and Further Education Council).

The board (via the chair or a special board committee) has the important role in informing the minister and the relevant department about the required knowledge and skills, personal qualities and specialist expertise based on the operations and future strategic direction of the public entity. The board may also be involved in nominating people for appointment following a selection process.

The department can also provide independent advice to the minister about director selection and appointment.

A committee of the board may also advise the board about who to recommend or co-opt to the minister for appointment.

Establishing a Public Entity Board

The following tasks are involved in establishing a public entity board or renewing a board, following a significant change in the public entity’s mandate:

specifying the required capabilities, composition and diversity needed for the particular board. This is often achieved using tools such as a board and director capability map or matrix
determining the initial board size and specifying minimum requirements for board committees that need to be formed
developing position descriptions for roles including the board chair, directors, committee chairs, board secretary and chief executive officer for the recruitment process. This includes determining if all directors are to be non-executive directors and clarifying the role of any nominee directors
developing a director recruitment strategy and developing information packs for potential new directors. This includes confirming whether directors will be paid (and if so, the quantum) and whether other director benefits are applicable, such as expenses, in accordance with guidelines
recruiting and formally appointing the board chair (usually by the minister) with the required skills, experience and attributes
recruiting and appointing directors with the required skills, experience and attributes
appointing the chief executive officer and determining whether the chief executive officer is also an executive director, that is, a director of the public entity
overseeing, as appropriate, other appointments, including the board secretary
welcoming and inducting new directors.

Director Skills, Qualities and Experience

Directors bring a broad range of skills sets to the Board. The majority have a mix of the following skills, qualities and experience.

Skills

strategic thinking
governance
planning and leadership
risk management and audit
understanding financial statements
legal, financial and other professional skills
marketing and communication
industry-specific skills and knowledge
stakeholder management.

Qualities

integrity and standing in the community
demonstrated honesty
openness to different views
a track record of acting in good faith and in the best interests of an organisation
ability to listen, analyse, think clearly and work well with others
willingness to prepare for and attend meetings, ask questions and take responsibility.

Experience

previous experience working on a board
networking and dealing with stakeholders
working in a regional, rural or remote context
performing at high levels in relevant fields of expertise
previous experience as a chair (if the person is to be a chair).

Director Pre-appointment Checks

When a potential director is interviewed, the following background checks are usually undertaken:

Referees

Potential directors nominate referees who can comment on their suitability for service as a director.

Bankruptcy

A person who has been, or who becomes, bankrupt will typically be disqualified from appointment, or continued membership of a board. The following two checks are undertaken:

Australian Security and Investment Commission Register of Persons Prohibited or Disqualified by ASIC under provision of the Corporations Act 2001 (Cwlth).
Insolvency and Trustee Service Australia National Personal Insolvency Index.

Police check: A person convicted of an offence, unless it is very minor, may not be suitable for service on a board.
A declaration of private interests provided by the potential director: This discloses actual or potential conflicts of interest.
Disqualification from acting as a director: A person who has ever been disqualified by a court or the Australian Securities and Investments Commission from acting as a director or manager may not be suitable as a director.

Reappointing a Director

Reappointment as a director to the board is not automatic, especially where a director has already served two terms.

The board should consider the following factors before recommending the reappointment of a director:

statutory requirements
board composition (specifically looking at skills, knowledge and specialist expertise currently required by the board)
diversity
preparation for, and attendance at, meetings
commitment, availability and overall performance and effective contribution to the board
character and reputation
specialised expertise, merit, skills and knowledge.

The board will need to balance the benefits of fresh ideas and enthusiasm of new directors against the experience and knowledge of current directors.

Public Sector Employee or Stakeholder Nominee

Generally, appointment of a public sector employee to a board is only made when legislation requires it.

In public sector employee appointments not covered by statute, the appointing body considers such matters as:

possible conflicts of interest
whether the public entity is commercially focused
whether the public entity operates at arm’s length from government or helps facilitate government policy.

A departmental employee may be required to be a director of the board of a public entity in the same portfolio. This is possibly a public entity from which the department purchases services.

The departmental employee should try to ensure that the public entity complies with government policy objectives and considers the department’s interests as the customer. At the same time, the departmental employee is a director whose duty is to pursue the interests of the public entity.

Where a departmental employee is a director, the board may address possible conflicts of interest by:

excluding the departmental employee from sensitive board discussions on matters such as the forthcoming budget strategy
submitting government policy matters to the board of the public entity by a different person from the department
handling departmental issues related to its status as a customer through stakeholder consultations outside the board process.

Industrial negotiations taking place between the government and unions can give rise to very real conflicts of interest for individual directors, particularly where they are also union nominees who sit on the board. Good practice would be for such directors to stand aside from board positions for the duration of such negotiations.

A risk management problem can also arise if a public entity fails to manage its relationships with stakeholders. A particular concern can arise with regard to stakeholder nominees on the board. Such individuals need to manage their relationships with their stakeholder constituency with care. In particular, given their director responsibilities and their requirement to make decisions in the best interests of the public entity.

A stakeholder nominee on a board may have a conflict of duty, that is, a duty to the board as well as a duty to the stakeholder organisation. Where a conflict of duty exists, the board should:

consider the degree, nature and extent of such potential conflicts and make these known to all involved, including other directors
agree that the stakeholder nominee be absent from some parts of board meetings
consider dealing with stakeholder business matters in consultations between the public entity and the stakeholder outside the board process.