The Higgs Review of the Role and Effectiveness of Non-executive Directors was released in the UK recently, and while it takes a softer approach than the United States Sarbanes-Oxley Act, it does include important new recommendations. While the report adopts a comply or explain approach rather than tick the boxes, Higgs nonetheless includes a number of recommendations that limit the role and definition of an independent non-executive director. There are also some recommendations about the role of the company secretary, many of which CSA would welcome.

While some of these proposals are already best practice in Australia, many are not and would significantly affect Boardrooms here if Australia were to follow the UK lead.

1. A full time executive director should not take on more than one non-executive directorship, nor become chairman, of more than one major company. Do you support this rule?

Yes 83%
No 17%

No running a company as a CEO is a full-time job and no Directorships should be taked
No Executive Directors should not hold Directorships in another company
Yes but appropriate for ASX top 150 however may not be appropriate for small companies

2. A chairman of one company should not hold the same position in another major company. Do you support this rule?

Yes 39%
No 52%
Unsure 9%

OK for up to two as long as there is no conflict and sufficient time available to be devoted to both roles
Yes a Chairman needs to be available and too many chairmanships would limit availability
No depending on the Chairman the individual may well have the capacity to fulfil another role as Chair
No although there should be some restrictions perhaps 2 or 3
No up to 2 companies are acceptable
No up to 2 companies are acceptable
Yes and there should also be a limit on the number of directorships of major trading companies

3. The report contains a definition of independence to be met by non-executive directors which overrules any other guidelines suggested by industry bodies. Do you agree with having one detailed definition in Australia that must be met by all listed companies?

Yes 65%
No 35%

No does not allow for flexibility
Yes a single definition would avoid confusion

4. In the Higgs definition, the following circumstances would preclude a non-executive director from being independent. Please indicate which ones you agree are reasonable.

Tick ONLY the ones with which you AGREE:

within five years of employment with the company 56%
holds cross-directorships or has significant links with other directors through involvement in other companies or bodies 56%
has close family ties with any of the companys advisors, directors or senior employees 78%
represents a significant shareholder or 52%
has served on the board for more than ten years 39%

5. Non-executive directors should be able to take part of their remuneration in shares, but not share options. Do you agree with this?

Yes 74%
No 26%

Yes otherwise short-term interests may outweigh longer-term planning
No the form of security should not be a determinant of eligibility to participate. The terms are what are crucial
No provided the shares are purchased on the market and not issues separately by the company to the Directors

6. The report recommends that the company secretary should be accountable to the board as a whole, through the chairman, on all governance matters. Do you agree?

Yes 83%
No 13%
Unsure 4%

Should be accountable to both CEO and Chairman
No this should be up to the Directors the Directors should be accountable
Yes someone has to be accountable and the Company Secretary would be ideal with the CEO responsible for the growth of the business
Yes but the Company Secretary should not be the only one accountable it should be all of senior management

7. The report states that both appointment and removal of the company secretary are a matter for the board. Do you agree?

Yes 87%
No 9%
Unsure 4%

Yes promotes independence from management

8. The review says that ideally, the chairman, supported by the company secretary, should assess what information is required to present to non-executive directors. The executive directors should then assemble it and be ready to validate its accuracy, reliability and compliance with laws and standards.

(a) Does this reflect the process in your company?

Yes 22%
No 78%

Yes broadly. Typically the Chairman and CEO would agree on the agenda and a member of the senior management team would prepare the paper for review by the CEO prior to distribution to the Board. It is management that validates the papers accuracy.

(b) If no, do you think it would be better than your current practice?

Yes 22%
No 78%

Yes at least the Directors would have a better idea of how the company was operating.

Tim Sheehy
CHIEF EXECUTIVE