| The Board has an appropriate level of independence and diversity of thought and background in its composition to enable it to make decisions in the best interests of the company. |
This Principle sets out two important aspects regarding the composition of an effective Board:
- The presence of a sufficient number of Independent Directors (IDs) so that objectivity is brought to bear on Board decisions.
- A diverse range of Board members so as to avoid groupthink and encourage more rigorous decision-making.
To achieve these two objectives, the Provisions describe:
- The criteria for a director’s independence (Provision 2.1).
- The proportion of Independent Directors (IDs) on the Board to ensure an appropriate level of independence where the Chairman is not independent (Provision 2.2).
- The proportion of Non-Executive Directors (NEDs) on the Board (Provision 2.3).
- The appropriateness of Board size and Board diversity (Provision 2.4).
- The role of NEDs and IDs, and the need for them to meet without management (Provision 2.5).
Provision 2.1
An “independent” director3 is one who is independent in conduct, character and judgement, and has no relationship with the company, its related corporations4, its substantial shareholders5 or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgement in the best interests of the company6.
Provision 2.2
Independent directors make up a majority of the Board7 where the Chairman is not independent8.
Provision 2.3
Non-Executive Directors make up a majority of the Board.
Provision 2.4
The Board and Board Committees are of an appropriate size, and comprise directors who as a group provide the appropriate balance and mix of skills, knowledge, experience, and other aspects of diversity such as gender and age, so as to avoid groupthink and foster constructive debate.
Provision 2.5
Non-executive directors and/or independent directors, led by the independent Chairman or other independent director as appropriate, meet regularly without the presence of Management. The chairman of such meetings provides feedback to the Board and/or Chairman as appropriate.