Appointing a Chairperson to Your Board

When a company wishes to appoint a non-executive (or alternatively, a non-CEO) chairperson to oversee the board of directors, it is important to be cognisant of the guidelines set out in the the King Code on Corporate Governance for South Africa (The Institute of Directors in Southern Africa) September 2009 (otherwise referred to as "King III").

While Sections 30, as well as 66 to 78, of the Companies Act 71 of 2008 makes reference to Directors, the only reference to a chairperson is made in section 73(5)(e) which states, in relation to directors’ meetings, that –

(e) in the case of a tied vote-

     (i) the chair may cast a deciding vote, if the chair did not initially have or cast a vote; or

     (ii) the matter being voted on fails, in any other case.

As well as Section 73(8) which states that –

(8) Any minutes of a meeting, or a resolution, signed by the chair of the meeting, or by the chair of the next meeting of the board, is evidence of the proceedings of that meeting, or adoption of that resolution, as the case may be.

The Companies Act, other than in the above instances, does not make any further reference to Chairpersons. However, the King III code has quite a substantive portion of its contents, specifically chapter 2.38 to 2.46, directed at chairpersons, CEO’s, and the difference between the two.

In terms of the King III code chapters listed above, it is important to note that –

• The Board should elect a chairperson of the board whom is an independent non-executive director. The CEO of the company should not also fulfil the role of chairperson in order to be King-compliant.

• Similarly, the chairperson should not be the retired CEO unless a period of three complete years have passed since the end of the CEO’s tenure as an executive director. Any person appointed as the chair should be objectively and sufficiently independent from the company.

• The chairperson should be entirely independent and free of any conflict of interest. Should the independence of the chairperson ever be questionable, a lead independent non-executive director should be appointed.

• The chairperson’s role and functions should be formalised by agreement. These will be influenced by matters such as the lifecycle or circumstances of the company, the complexity of the company's operations, the qualities of the CEO and the management team, as well as the skills and experience of each board member.

• The King Code does make provision for the duties of the chairperson in chapter 2, specifically paragraph 40.1 to 40.17. These are stated as follows:

• Setting the ethical tone for the board and the company;

• providing overall leadership to the board without limiting the principle of collective responsibility for board decisions, while at the same time being aware of the individual duties of board members;

• identifying and participating in selecting board members (via a nomination committee), and overseeing a formal succession plan for the board, CEO and certain senior management appointments such as the chief financial officer (CFO);

• formulating (with the CEO and company secretary) the yearly work plan for the board against agreed objectives, and playing an active part in setting the agenda for board meetings;

• presiding over board meetings and ensuring that time in meetings is used productively. The chairman should encourage collegiality among board members without inhibiting candid debate and creative tension among board members;

• managing conflicts of interest. It is not sufficient merely to table a register of interests. All internal and external legal requirements must be met. The chairman must ask affected directors to recuse themselves from discussions and decisions in which they have a conflict, unless they are requested to provide specific input, in which event they should not be party to the decision. See section 75 of the Act;

• acting as the link between the board and management and particularly between the board and the CEO;

• being collegial with board members and management while at the same time maintaining an arm’s length relationship;

• ensuring that directors play a full and constructive role in the affairs of the company and taking a lead role in the process for removing non-performing or unsuitable directors from the board;

• ensuring that complete, timely, relevant, accurate, honest and accessible information is placed before the board to enable directors to reach an informed decision;

• monitoring how the board works together and how individual directors perform and interact at meetings. The chairman should meet with individual directors once a year about evaluating their performance. The chairman should know board members’ strengths and weaknesses;

• mentoring to develop skill and enhance directors’ confidence (especially those new to the role) and encouraging them to speak up and make an active contribution at meetings. The mentoring role is encouraged to maximise the potential of the board;

• ensuring that all directors are appropriately made aware of their responsibilities through a tailored induction programme, and ensuring that a formal programme of continuing professional education is adopted at board level;

• ensuring that good relations are maintained with the company’s major shareholders and its strategic stakeholders, and presiding over shareholders’ meetings;

• building and maintaining stakeholders’ trust and confidence in the company;

• upholding rigorous standards of preparation for meetings by for example, meeting with the CEO before meetings and studying of the meeting information packs distributed; and

• ensuring that decisions by the board are executed.

• The King III Code further requires that the chairperson’s performance be evaluated annually by a non-executive director from within the company.

• The code goes on to state that the chairpersons, together with the board, should carefully consider the number of outside chairmanships that she holds. The relative size and complexity of the companies in question should be taken into account. In this regard, chairpersons of boards and board committees should apply their minds in an intellectually honest manner and be satisfied that they have the ability and capacity to discharge their duties.

• It is also required that a succession plan be implemented in order to ensure that the position of chairperson is continuous and not dependant on a single individual.

• Finally, the chairperson should not be a member of the audit committee, the chair of the remuneration committee, or the chair of the risk committee.

When selecting a chairperson appropriate for your company, it is important to consider the above guidelines in order to ensure that the position is tailored towards the success of your business.