A well-structured Board Charter is more than a document – it’s a blueprint for effective corporate governance, a compass guiding decision-making, and a beacon of transparency that ensures the interests of stakeholders are diligently safeguarded.
A Board Charter, by definition, is a formal document that outlines the roles, responsibilities, and operating principles of a company’s board of directors. It serves as a foundational guide that establishes the framework within which the board operates, makes decisions, and carries out its duties. The Charter helps define the board’s relationship with the company’s management, shareholders, and other stakeholders, while also providing a clear understanding of the board’s governance structure and processes.
In this article, we’ll explore the essential components that comprise an effective Board Charter, that aligns with your business’s size and complexity. We’ll also examine how each section contributes to building a resilient foundation for your corporate journey.
Introduction
Your Board Charter should commence with a concise introduction, outlining the purpose of the document. If your company maintains a Constitution, ensure to highlight that the Charter should be read in conjunction with it. For instance, “Aligned with the best interests of the Company, shareholders, and stakeholders, the Board is resolutely committed to upholding corporate governance obligations. Each Director pledges adherence to this Charter, which is meant to be read alongside the Company’s Constitution.”
Board responsibilities and delegations
General: Provide a comprehensive overview of the Board’s role, which is to “guide, govern, and advance the Company while safeguarding its interests and those of stakeholders.” Delineate the Board’s functions from those of senior management.
Authority of the Board: Clearly define the areas of decision-making entrusted to the Board beyond statutory mandates. This encompasses the Board’s composition, CEO appointment and appraisal, Chairperson selection, strategic direction, performance benchmarks, legal compliance oversight, annual budget approval, shareholder reporting, risk management, and more.
Delegations to Management: Allocate specific responsibilities and authority to the CEO for efficient Company management, operations, and administration, as well as the execution of the Strategic Plan. This authority may extend to the CEO’s delegation of specific responsibilities to senior management.
Board Committees: Empower the Board to establish committees vested with delegated powers, aiding the fulfillment of the Board’s responsibilities. Examples include the Remuneration Committee or the Audit and Risk Committee.
Training and Advice: Highlight ongoing educational resources accessible to directors during their tenure on the Board.
Meetings: Outline the regular meeting schedule for the Board, indicating the timing of document circulation and availability of Meeting Minutes post-session.
Responsibility for Business Risks: Affirm the Board’s ultimate accountability for identifying business risks, with support from the Audit and Risk Committee where applicable.
Statement of Board composition
Principles: Define the guiding principles behind Board composition determination, stipulate the Board’s definition of independence, and articulate the considerations governing director independence assessment.
Board Composition: Specify where information regarding Board composition can be sourced, such as the company’s Annual Report or official website.
Appointment and retirement of directors
Appointment and Retirement: Enumerate the factors the Board considers when selecting new Board members, specify the number of directors retiring annually, and outline information shareholders need for informed decisions regarding director election or re-election.
Chairperson: Detail the requirements for electing the Board’s Chairperson, along with the associated responsibilities.
Committees
Committee Identification: Enumerate established committees and their mandates, supporting the Board’s decision-making through reporting, advice, and recommendations on specific matters.
Indemnity and insurance
Indemnity Arrangements: Enlist the execution of deeds concerning indemnification, insurance, access to Company documents, and provision of independent legal counsel, individually for each director.
Conflicts of interest
Conflict Resolution: Present the process for addressing directors’ conflicts of interest.
Access
Information Access: Specify the channels through which Board and Committee members can access further information on company-specific matters.
Administration
CFO Responsibilities: Detail the Chief Financial Officer’s tasks in supporting Board effectiveness. This includes overseeing policy adherence, advising on governance matters, ensuring statutory reporting and record-keeping, maintaining governance systems, and more.
Performance evaluation
Board’s Responsibility: Enumerate the Board’s duties in assessing its performance, along with those of its Committees, individual directors, and key executives. Identify parties responsible for the CEO and Chairperson evaluations.
Performance Review and Evaluation: Identify individuals accountable for setting evaluation criteria and the evaluation process for the Board, Committees, and directors. Highlight consequences for unsatisfactory Board member behavior.
Remuneration
Executive Remuneration: Outline the structure of management remuneration and specify that details of director and executive remuneration will be disclosed in the company’s Annual Report.
Non-Executive Director Remuneration: Define how non-executive directors are remunerated, often through set annual fees.
Equity Related Incentives: Acknowledge the company’s potential provision of equity-related incentives to employees, directors, and key stakeholders.
Review of Charter
Charter Review: State responsible parties for reviewing the Charter, frequency of reviews, and the process for making amendments.
While this guide offers valuable insights and context, it’s important to note that its content is of a general nature. Specific information and tailored advice are essential, and we strongly recommend seeking professional guidance from our trusted KMT advisers to tailor your Board Charter according to your unique needs.
About our adviser: Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 40 years. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance with governance planning.
Learn more about how we can help with Advisory Board and Governance Planning services.
This is general advice only and does not take into account your financial circumstances, needs and objectives. The article should not be relied upon as specific information or advice without obtaining appropriate professional advice after a detailed examination of your particular situation from a qualified KMT adviser.
