DEVELOPING AN EFFECTIVE DIRECTOR INDUCTION PROCESS - TIPS AND TOOLS

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1 DEVELOPING AN EFFECTIVE DIRECTOR INDUCTION PROCESS - TIPS AND TOOLS 22 March 2016 Priscilla Bryans, Partner, , priscilla.bryans@hsf.com

2 OVERVIEW 1. Board appointment and succession. 2. Director induction. 3. Understanding the role of the Board. 4. Understanding the legal framework (including ACNC governance standards). 5. Further detail on directors and officers duties and liabilities. 6. Responsible decision making. 7. Risk management. 2

3 SIZE OF THE BOARD Companies have a board of directors. Associations have a committee of management. The ACNC calls both of these responsible entities or responsible persons. Constitution may prescribe minimum and maximum number of directors. Consider the size of type of organisation to determine appropriate number. 3

4 CHOOSING A NEW DIRECTOR - REQUIREMENTS A person who wants to be a director must meet the legal requirements for directors of charitable companies, which are that they: are at least 18 years old, and are not disqualified from being a director of a company or a responsible person of a charity under the Corporations Act or ACNC Act, unless they have been given permission to be a responsible person. Your organisation s Constitution may prescribe eligibility requirements in addition. Your organisation may have a process for nomination and election. Your charity has an obligation to notify the ACNC if there are any changes (appointment, removal or resignation) to the people on its Board. 4

5 CHOOSING A NEW DIRECTOR GAPS ON THE BOARD Directors bring a diversity of experience, skills and strengths to the Board. When looking for new director candidate identify gaps in the skills of the Board. A Board skills matrix may be a useful tool for identifying gaps. 5

6 PRE-APPOINTMENT STEPS Identify a candidate / review nominations. Undertake appropriate background checks (including ASIC and ACNC registers). Obtain signed consent from director. Obtain notification of interests and update Register of Interests. Prepare Appointment Letter (give relevant policies and codes). 6

7 INDUCTION ACNC Governance Standards 5 key requirements. Training can be for all directors or director-specific. Consider skills of director including in relation to gaps in Board skills. Provide any relevant training required to bring director up to speed. Prepare an induction pack including information such as the constitution, board charter and policies, strategic plan, financial statements, board minutes and annual reports. Consider organising meetings with key management (CEO, CFO). 7

8 UNDERSTANDING THE ROLE OF THE BOARD Company Constitution / Association s rules. Role of the Board. Role of management. Board Charter (if applicable). 8

9 OVERVIEW OF LEGAL FRAMEWORK Relevant statutes Australian Charities and Not-For-Profits Commission Act 2012 (ACNC Act). ACNC Governance Standards. Associations Incorporation Reform Act 2012 (Vic). Corporations Act Other federal and state legislation (WHS, trade practices, environment). Tax status Tax concession charity. Deductible gift recipient. Guidance ACNC s Governance for good - the ACNC's guide for charity board members. AICD S Good Governance Principles. 9

10 ACNC GOVERNANCE STANDARDS Standard 1: Purposes and not-for profit nature. Standard 2: Accountability to members. Standard 3: Compliance with Australian laws. Standard 4: Suitability of responsible entities. Standard 5: Duties of responsible entities. 10

11 DUTIES OF RESPONSIBLE PERSONS Under governance standard 5 responsible persons must: act with reasonable care and diligence; act honestly and fairly in the best interests of the charity and for its charitable purposes; not misuse their position or information they gain as a responsible person; disclose actual or potential conflicts of interest; ensure that the financial affairs of the charity are managed responsibly; and not allow the charity to operate while it is insolvent. 11

12 CONFLICTS OF INTEREST Conflict of interest A conflict of interest exists where loyalties of Board members are divided or may be perceived to be divided. A director of a company who has a conflict of interest in a matter that relates to the affairs of the company must give the other directors notice of the interest. These details must be recorded. Restrictions on voting and being present Best practice: a director of a company who has a conflict of interest in a matter that is being considered at a directors' meeting should not: - be present while the matter is being considered at the meeting; or - vote on the matter. 12

13 REGISTER OF INTERESTS 13

14 WHAT IS RESPONSIBLE DECISION MAKING? Responsible decision making by the Board is essential for compliance with the legal duties of a director and to ensure optimal performance of the charity. Responsible decision making should be promoted by: proper briefing, ensuring the directors are sufficiently briefed on the charity, their duties and their role; and attendance at, and involvement in, board meetings. Adequate reporting and internal monitoring. Delegation and reliance on others. See decision making checklist. 14

15 RISK MANAGEMENT The Board s role in risk management: Financial reporting. Accountability and reporting requirements. Positive duty to prevent insolvency. 15

16 USEFUL WEBSITES Justice Connect: Our Community: ACNC: ASIC: CAV: ATO: 16

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