One of the more contentious recommendations of the ASX Corporate Governance Council’s draft principles and recommendations is Recommendation 2.5, which stipulates that: “A listed entity should have and disclose a statement as to the mix of skills and diversity that the board is looking to achieve in its membership.” (see HERE)
The commentary around this recommendation emphasises that this information about proposed skill mix and diversity is “useful … for investors and increases accountability for the board on both matters.”
However, there is also a downside associated with publicly disclosing such potentially sensitive information.
A Board Skills Matrix is a widely used tool for developing a ‘master plan’ for the recruitment and professional development of directors and planning of board succession, but listed companies have typically elected not to include such documents on the corporate governance sections of their websites, often for good reason.
A well-constructed, up-to-date Board Skills Matrix is closely aligned to the company’s strategy, future growth scenarios and current challenges, and will often clearly signal the direction that the organisation is heading in the future. In many cases, such a document will signal to the market how the company is planning to respond to future challenges or opportunities, via the future ‘shape’ of its board. The Board Skills Matrix would therefore be considered ‘commercial-in-confidence’ and it might not be prudent to share it with competitors or indeed with the general market.
Thus the difficulty with the wording of Recommendation 2.5 is the focus on future skill mix and diversity, as it states, “a listed entity should have and disclose a statement as to the mix of skills and diversity that the board is looking to achieve in its membership”.
While the extent to which boards have adequately developed a skills matrix varies widely, those that have done it well (often with assistance from an external facilitator) have a detailed document that is like a road map to realising a strategy. So how should you approach compliance with this recommendation if you are concerned about disclosing commercially sensitive information to the market?
The first option is to include a statement that the Board Skills Matrix includes information that is commercial-in-confidence and that the board has made a decision not to disclose it at this time. The board could also decide to disclose that it does have a statement as to the mix of skills and diversity that it is looking to achieve, and describe the process it adopted to develop the skills matrix.
This option would thus partially satisfy the requirements of Recommendation 2.5, in that it satisfies the requirement to “have a matrix” but not to “disclose a statement…”.
The second option is to disclose the mix of skills and diversity represented by the board at present, and include a broad statement about potential skill or diversity changes required in the future, excluding any reference to commercially sensitive areas. The board could also disclose that this is how it has elected to respond to the requirements of Recommendation 2.5, and that it has elected to exclude any sensitive information for commercial reasons.
In conclusion, then, it is recognised that whilst there may be some improvements in accountability and benefits to investors in understanding the mix of skills and diversity that a board is seeking to achieve, some boards may need to balance this governance objective against commercial reality.© Guerdon Associates 2024 Back to all articles