A. Explanation

This Provision sets out the key disclosures and guidance on the selection, appointment and re-appointment of directors.

As good directors are the foundation of an effective Board, it is important that investors understand the process that the Board has undertaken to find, qualify and select the right directors.

In particular, emphasis is placed on the search and nomination process for a director. This is because many Boards still rely on the “old boys’ network” to identify candidates. The Practice Guidance encourages Boards to go beyond their immediate circle of contacts, including using wider channels (such as third-party search firms and institutions) and looking at a broader range of candidates.

The Practice Guidance suggests that to facilitate investors’ understanding of its nomination process, the Board should disclose the following:

1. the channels used in searching for appropriate candidates, whether through search services or personal networks; and
2. the criteria used to identify and evaluate potential new directors, including whether only experience and skill sets relevant to the company’s business are considered, or whether broader search criteria such as diversity and technological expertise are also included.

In addition, MR 720(6) and CR 720(5) specify the key information about directors that should be provided with the resolution for their appointments or re-appointments.

B. Practice Guidance

•  Practice Guidance 4: Board Membership.

C. Related Rules and Regulations

• MR 704(7) and CR 704(6): Appointment or Cessation of Service.
• MR 720(5) and CR 720(4): Directors and Management.
• MR 720(6) and CR 720(5): Directors and Management.
• MR Appendix 7.4.1 and CR Appendix 7F: Announcement of Appointment.

D. CG Guides

• NC Guide 3.6: Nomination Process [Nomination and Appointment Process].
• NC Guide 3.7: Use of Third Parties [Nomination and Appointment Process].
• NC Guide 3.8: Appointment and Election of Directors [Nomination and Appointment Process].
• NC Guide 3.9: Board Renewal and Continuity [Nomination and Appointment Process].
• NC Guide 8.1: Introduction [Disclosure Requirements].
• NC Guide 8.2: Disclosure Requirements [Disclosure Requirements].

E. Related Articles

• “The search for independence” by Lim Chin Hu. (446KB)
• “The nominating committee and its role in identifying directors for renewal and new appointments’ by Kala Anandarajah. (112KB)