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Board director demographics - Coggle Diagram
Board director demographics
Capacity
Fit and proper
External commitments
It is often the case that directors hold significant commitments on various other company boards
The maximum number of board-level positions should be no more than four
The number of directorships and increasing time expected has led to the issue of 'overboarding' where directors are too stretched in their boardroom commitments
Capability
Independence
According to agency theory, a NED must remain independent throughout their tenure to ensure that they appropriately represent external shareholders' interests
The UK Code Provision 10 lays out the seven considerations for a NED's independence
Is or has been an employee of the company or group within the last five years
Has or has had within the last 3 years, a material business relationship with the company, either directly or as a partner, shareholder, director or senior employee of a body that has such a relationship
Has received or receives additional remuneration from the company apart from a directors fees, participates in the company's share option or a performance related pay scheme or is a member of the company's pension scheme
Has close family ties with any of the company's advisers, directors or senior employees
Holds cross-directorships or has significant links with other directors through involvement in other companies or bdoies
Represents a significant shareholder
Has served on the board for more than nine years from the date of their first appointment
Professional capital
The criteria that a nomination committee draws up to advertise and then select new board directors is most likely to comprise factors that could be considered under the term 'professional capital' - these are the functional, industry and executive management experience as well as specific prior board directorship that an individual candidate might bring
While relevant industry experience is required across the board as a whole, individual board appointments may seek candidates from different sectors, industry or organisational backgrounds
Financial experience
Perhaps the most commonly requested expertise in board applications. The argument for financial expertise is that, from a business monitoring perspective, directors should at least have a good grasp of the basic mechanics and key financial reports provided by executive management
Technical expertise
An increasingly sought-after skillet is expertise in ESG issues
Commentators argue that members of the board of directors must have minimum knowledge of accountancy, law, their industry and governance practice and an increasing knowledge around risk and technology as well as it being preferable for them to have some years of experience in directing a company and a technical expertise relevant to the organisations current strategy
Diversity
The capability of a director to represent the board's various stakeholder groups, including those minority voices who may often find themselves underrepresented, is dictated by the diversity that each director brings to the board
At its simplest, a director will be seen as more capable and therefore more valuable, the more types of stakeholders that they are able to represent in the boardroom
Just because a director technically represents a group (their 'surface diversity'), this does not mean that they either actually represent diverse views or indeed that the board dynamic will enable these to be tapped into
Connections
A final aspect of an individuals directors demographics includes their personal connections, collectively known as their social capital
These might include their professional networks (including their specific board committee membership networks as well as broader work related links), their alumni networks (which are often exceptionally strong in the older educational establishments) and their social networks (which may include family, broader acquaintances and those within their class structure)