Appointing an independent director? Here’s what you need to know

13 December 2021

For member-based organisations, there are some unique considerations when appointing an independent director to your board. Independent directors can bring expertise to a board where there are identified skill gaps, as well as diversity in mindset, but this need must be balanced with the principle of member governance. We invited Geoff Curran (Sydney Practice Leader for Gerard Daniels) to share insights on the value that independent directors can bring, and how to appoint the right independent director to your board. Here’s what he had to say.

The value of independent directors for co-ops and mutuals

For good board composition you need to bring the right mix of skills, experience and perspective to the boardroom table. But achieving this can be challenging for the boards of co-ops and mutuals, where the skills and experience required changes as the business grows and evolves.

Appointing an independent director to your member-based organisation could provide a unique opportunity to enhance the composition of your board. With growing regulatory requirements, this type of appointment can also be a great way to bring in the diversity of specialist skills and experience that you need.

How to approach appointing an independent director

As with any key appointment, finding the right fit for the role requires careful consideration. Here are some pointers on how to approach the appointment of an independent director to your board.

1. Have a clear brief and selection criteria

To choose an independent director that will deliver value to your business and your board you must develop detailed selection criteria, and be very clear on the purpose of the appointment. Before actively looking to appoint an independent director for your board:

• Outline a clear strategic plan for the organisation
• Know what the future challenges and demands on your board and your business will be
• Look objectively at your existing board composition – define your collective skills and experience
• Have a good understanding of the future skills and experience that you will need to navigate these challenges and deliver on your strategic plan.

2. Look in the right places, for the right talent

To find the right independent director for your board, start by looking in the right places.

• Don’t be afraid to look beyond the people that you know to find the talent your board needs. A respected member of your professional network, community or industry may have good skills and experience, but they may not have the right skills and experience to meet the modern demands on your board.
• Assessing only one candidate before making an appointment can be limiting. To find an independent director with a valuable contribution to make to your board, develop a shortlist of talent to be vetted by a rigorous selection process.
• Where you should look to find an independent director is also determined by the level of experience that your board needs. Are you looking for an existing director with a board portfolio or someone who has recently stepped out of a CEO or other C level role? Will the fresh thinking of a first time independent board member bring more value than the experience of a seasoned director?

3. Consider suitability for a member-based organisation

While the boards of listed organisations must satisfy their shareholders, co-ops and mutuals have greater emphasis on decisions that serve the interests of members, employees and communities. This makes being an independent director on the board of a mutual or co-op quite different to performing this role for other non-member based organisations.

To find the right candidate ample consideration must be given to the ability to identify with and relate to the vision and purpose of a member-based organisation. This mindset is critical for a candidate to be a good fit.

4. Make it a collaborative process

Appointing an independent director is an important decision for any organisation to make, and one that requires broad consensus from the board. To make a successful independent director appointment this process needs to be a collaborative one. The selection committee or chair must consult and communicate with the other board members during the process to ensure collective buy-in.

5. Don’t underestimate the value of independence

To be a successful board member and make a valuable contribution a director must be someone with the capacity for independence, and have a genuine interest in helping your organisation to succeed.

Independence brings the necessary balance of accountability to the organisation, ideas and a willingness to challenge boardroom discussions. And while a candidate may be a renowned and respected subject matter expert, without the willingness to challenge and engage, and the capacity to bring independent thought and perspective, they may not be able to act in the best interests of your board and your organisation’s members.

As an associate BCCM member Gerard Daniels can connect you with a deep and diverse network of new and emerging executive talent. We can also assess and optimise your board composition and advise you on remuneration strategies for your independent directors. Visit www.gerard-daniels.com to find out more.