Essential Criteria for Appointment of Non-Executive Directors to the Board

This memo discusses the essential criteria for the appointment of non-executive directors to the board of a company as per the Corporations Act, 2001 (Cth) and Corporate Governance Principles laid down by the ASX Corporate Governance Council. It emphasizes the need to assess the current board's competencies and qualities, develop a selection criterion, and obtain the candidate's consent. The memo also highlights the process of passing a resolution for appointment and the contents of the appointment letter.

Corporate Governance

MEMO
TO: Board of Directors
FROM: Management Consultant
DATE: 19th July 2018.
RE: Essential criteria for the appointment of the non-executive directors to the board
The company is required to abide by the requirements as stated in the Corporations Act, 2001
(Cth). In addition to this, the company being the listed company falls within the framework of
Corporate Governance Principles, laid down by the ASX Corporate Governance Council and
the related recommendations (Lester, Yoon and Lovells, 2017). Appointment of non-
executive directors is a sign of good governance (Australian Institute of Company Directors,
2018a).
As the non- executive directors are appointed to strengthen the board of the directors in terms
of independent management, diligent policy formulation and planning; the current board’s
competencies and qualities must be assessed (Australian Institute of Company Directors,
2018b). This should be followed by developing a selection criterion for the individual in
terms of education, experience, and diversity policy. The candidate should also give his or
her consent for the said appointment.
The directors or the shareholders must pass the resolution appointing the non-executive
director (Du Plessis, Hargovan and Bagaric, 2011). In case the directors pass the resolution,
the same is required to be confirmed by the shareholders through a resolution in the next
annual general meeting of the company. The term of the appointment would be maximum of
three years.

The letter of the appointment of the non-executive director must be signed and should clearly
state the terms of appointment, remuneration as determined by the shareholders and the ratio
for distribution as decided by the directors; the duties, and the functions as comprised in the
board charter (Australian Government Federal Register of Legislation, 2018).

References
Australian Government Federal Register of Legislation. (2018). Corporations Act 2001.
[online] Available from: https://www.legislation.gov.au/Details/C2018C00275 [Accessed:
20/07/18].
Australian Institute of Company Directors. (2018a) Role of non-executive directors. [online]
Available from: https://aicd.companydirectors.com.au/-/media/cd2/resources/director-
resources/director-tools/pdf/05446-1-11-mem-director-tools-bc-non-executive-
directors_a4_web.ashx [Accessed: 19/07/18].
Australian Institute of Company Directors. (2018b) The differences between executive and
non-executive directors. [online] Available from:
http://aicd.companydirectors.com.au/resources/all-sectors/the-differences-between-executive-
and-non-executive-directors [Accessed: 19/07/18].
Du Plessis, J. J., Hargovan, A. and Bagaric, M., (2011) Principles of contemporary corporate
governance. Port Melbourne: Cambridge University Press.
Lester, T., Yoon, J., and Lovells, H. (2017) Corporate governance and directors' duties in
Australia: overview. [online] Available from: https://uk.practicallaw.thomsonreuters.com/1-
502-9743?
transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1#co
_anchor_a382470 [Accessed: 19/07/18].