You are on page 1of 5

Appendix 1

Sample board charter


Draft charter
Part 1 Interpretation appointing the CEO, setting the terms of the CEOs
In this charter: employment contract and, where necessary, terminating the
Act means the Companies Act 1993 CEOs employment with the company
Board means the board of directors of the company deciding on whatever steps are necessary to protect
Business means the business of the company the companys nancial position and the ability to meet
CEO means the chief executive ocer of the company its debts and other obligations when they fall due, and
Chair means the chair of the board ensuring that such steps are taken
Company means [name of the company] ensuring the companys nancial statements are true and
Company goals means the goals of the company as set out fair and otherwise conform with law
in part 2 ensuring the company adheres to high standards of ethics
Deputy chair means the deputy chair of the board and corporate behaviour
Management means the management personnel of the ensuring the company has appropriate risk management/
company regulatory compliance policies in place.
Management limitations means the limitations on the
In the normal course of events, day-to-day management of the
actions of management as set out in Part 4
company will be in the hands of management.
Members means members of the board
Secretary means the board secretary or the person normally The board will satisfy itself that the company is achieving the
exercising the functions of a board secretary company goals.
Shareholders means the shareholders of the company. The boards relationship with shareholders
The board will use its best endeavours to familiarise itself with
Part 2 Company goals
issues of concern to shareholders. The board will regularly evaluate
General
economic, political, social and legal issues and any other relevant
The purpose of the company is [purpose].
external matters that may inuence or aect the development
The capital and resources of the company will be allocated to of the business or the interests of shareholders and, if thought
those assets and activities which will enable it to achieve the appropriate, will take outside expert advice on these matters.
company goals in a manner best serving the interests of the
The boards relationship with other stakeholders
shareholders as a whole.
The board will use its best endeavours to familiarise itself
Part 3 Board governance process with issues of concern to all relevant stakeholders. The
Role of the board board recognises that the companys long-term survival and
The role of the board is to eectively represent, and promote prosperity are closely intertwined with the environments and
the interests of, shareholders with a view to adding long-term markets within which it operates and the extent to which the
value to the companys shares. Having regard to its role the company is seen as a responsible corporate citizen.
board will direct, and supervise the management of, the
Board procedures
business and aairs of the company including, in particular:
The conduct of members will be consistent with their duties and
ensuring that the company goals are clearly established,
responsibilities to the company and, indirectly, to shareholders.
and strategies are in place for achieving them (such
The board will be disciplined in carrying out its role, with the
strategies being expected to originate, in the rst instance,
emphasis on strategic issues and policy. Members will always
from management)
act within any limitations imposed by the board on its activities.
establishing policies for strengthening the performance
of the company including ensuring that management is Members will use their best endeavours to attend board
proactively seeking to build the business through innovation, meetings and to prepare thoroughly. Members are expected to
initiative, technology, new products and the development of participate fully, frankly and constructively in board discussions
its business capital and other activities and to bring the benet of their particular
monitoring the performance of management knowledge, skills and abilities to the board table. Members
unable to attend a meeting will advise the chair at the earliest
date possible and conrm in writing to the secretary.

220 The Four Pillars of Governance Best Practice Institute of Directors in New Zealand (Inc).
Board discussions will be open and constructive, recognising that review risk assessment policies and controls including
genuinely-held dierences of opinion can, in such circumstances, insurance covers and compliance with legal and regulatory
bring greater clarity and lead to better decisions. The chair will, requirements
nevertheless, seek a consensus in the board but may, where review the companys code of conduct and ethical
considered necessary, call for a vote. All discussions and their standards
record will remain condential unless there is a specic direction review shareholder, customer and supplier relations
from the board to the contrary, or disclosure is required by law. review donations and sponsorships
settle the following years board work plan.
Subject to legal or regulatory requirements the board will
Members are entitled to have access, at all reasonable times, to
decide the manner and timing of the publication of its decisions.
all relevant company information and to management.
Executive members attend board meetings to discharge
their board responsibilities. At board meetings, board Members are expected to strictly observe the provisions of
responsibilities supersede all executive responsibilities. the Act applicable to the use and condentiality of company
information. In making policy, the board will not reach specic
The board has sole authority over its agenda and exercises this
decisions unless it has considered the more general principles
through the chair. Any member may, through the chair, request
upon which they are founded, and in reaching other specic
the addition of an item to the agenda. The agenda will be set by
decisions the board will consider the policies against which the
the chair in consultation with the CEO and the secretary.
decisions are made.
The board will normally hold meetings in each month of the
Chair and deputy chair
year except January and will hold additional meetings as the
Each year the board will appoint from among the members a
occasion requires. At each normal meeting the companys
chair and deputy chair.
interests register will be updated as necessary and the board
will consider: Both the chair and deputy chair will be non-executive members.
an operational report from the CEO The deputy chair will deputise for the chair in his or her
a report from the chief nancial ocer absence or at his or her request.
reports on their activities from the companys individual The chair is responsible for:
business units representing the board to shareholders
specic proposals for capital expenditure and acquisitions ensuring the integrity and eectiveness of the governance
major issues and opportunities for the company. process of the board as set out in Part 3
In addition the board will, at intervals of not more than one maintaining regular dialogue with the CEO over all
year: operational matters and will consult with the remainder of
review the company goals the board promptly over any matter that gives him or her
review the strategies and operating plans for achieving the cause for major concern.
company goals The chair will act as facilitator at meetings of the board to
approve the annual budget ensure that no member, whether executive or non-executive,
approve the annual and half-yearly nancial statements, dominates discussion, that appropriate discussion takes place
reports to shareholders and public announcements and that relevant opinion among members is forthcoming.
approve the annual report The chair will ensure that discussions result in logical and
consider and, if appropriate, declare or recommend the understandable outcomes.
payment of dividends
review the board composition, structure and succession Board committees
review the companys audit requirements Board committees will be formed only when it is ecient
review the performance of, necessity for and composition of or necessary to facilitate ecient decision-making. Board
board committees committees will observe the same rules of conduct and
undertake board and individual member evaluations procedure as the board unless the board determines otherwise.
review members remuneration Board committees will only speak or act for the board when so
review the CEOs performance and remuneration authorised. The authority conferred on a board committee will
review remuneration policies and practices in general not derogate from the authority delegated to the CEO.
including superannuation and incentive schemes for The board has three standing committees, namely the audit,
management remuneration and nomination committees. Other committees
are formed for specic purposes and disbanded as required.

Institute of Directors in New Zealand (Inc). The Four Pillars of Governance Best Practice 221
The purposes and membership of the standing ensure a range of knowledge, views and experience. Generally,
committees are as follows: the number of members will be between six and eight of which
The audit committee consists of three members all of whom, the majority will be non-executive.
whenever possible, must be non-executive members. The Subject to any limitations imposed by shareholders, it is
committee provides a forum for the eective communication anticipated that non-executive members will hold oce
between the board and the external and internal auditors. initially for three years following their rst appointment (or, if
The committee reviews the annual and half-yearly nancial appointed by the board between annual meetings, from the
statements prior to their approval by the board, the date of the meeting next following the appointment), subject
eectiveness of management information systems and systems to any obligation to retire by rotation in accordance with
of internal control, and the eciency and eectiveness of the the companys constitution. Only executive members will be
external and internal audit functions. The chair of the board engaged on service contracts. In the event of an executive
should not be the chair of the audit committee. members service contract with the company terminating for
The remuneration committee consists of three non-executive whatever reason, the member is expected to resign from the
members. The committee reviews the remuneration packages board, although the board may, if it considers it appropriate,
of all members and senior management annually and makes and subject to shareholders approval where necessary,
recommendations to the board. The packages which consist reappoint the member as a non-executive member.
of base salary, fringe benets, incentive schemes (including Induction of new members
performance-related bonuses), superannuation, and Genuine potential members are encouraged to carry out due
entitlements upon retirement and termination, are reviewed diligence on the company before accepting an appointment
with due regard to performance and other relevant factors to the board. On their rst appointment, non-executive
including market relativity. members will have the benet of an induction programme
The nomination committee consists of the chair, deputy chair aimed at deepening their understanding of the company and
and CEO. The committee reviews the composition of the board the business and the environment and markets in which the
annually and makes recommendations to the board where company operates. As part of the programme, members will
considered necessary to ensure the board comprises a majority receive a folder of essential board and company information
of non-executive members with an appropriate mix of skills and and will meet key management. Members are expected to keep
experience. Where necessary, the committee seeks assistance themselves abreast of changes and trends in the business and
from external advisers in connection with the suitability of in the companys environment and markets and to keep abreast
applicants for board membership. of changes and trends in the economic, political, social and
legal climate generally.
Board composition and mix
The composition of the board will reect the duties and Members remuneration
responsibilities it is to discharge and perform as representative The board will determine the level of remuneration paid to
of the interests of shareholders, and in setting the companys members within any limitations imposed by shareholders.
strategy and seeing that it is implemented. Generally, the Non-executive members will be paid a basic fee as ordinary
qualications for board membership are the ability and remuneration and will be paid, as additional remuneration,
intelligence to make sensible business decisions and an extra fee as members of board committees, an extra
recommendations, an entrepreneurial talent for contributing to fee as chair of a board committee and an extra fee for any
the creation of shareholder value, the ability to see the wider special service as a member. The chair and deputy chair
picture, the ability to ask the hard questions, preferably some will be paid a level of fees appropriate to their oce. For
experience in the industry sector, high ethical standards, sound the chair this will generally be 200 percent, and for the
practical sense, and a total commitment to furthering the deputy chair 150 percent, of the basic fees paid to the
interests of shareholders and the achievement of the company other non-executive members. Remuneration will be
goals. Non-executive members will be active in areas which reviewed annually by the board after taking independent
enable them to relate to the strategies of the company and to advice. Executive members will receive no fees but will
make a meaningful contribution to the boards deliberations. be paid as employees of the company in accordance with
their contracts of employment with the company.
They will be independent of management and free from any
business or other relationship which could materially interfere Shareholdings by members in the company
with the exercise of their independent judgement. The size of Members are encouraged to hold shares in the company,
the board will be such that the common purpose, involvement, recognising that this has the capacity, in many cases, to
participation, harmony and sense of responsibility of the increase the focus of members on company performance
members are not jeopardised. It must be large enough to and share value and therefore be in the interests of all

222 The Four Pillars of Governance Best Practice Institute of Directors in New Zealand (Inc).
shareholders. When buying or selling shares members must The company secretary
strictly observe the provisions of the companys constitution, The appointment of the company secretary is made
the companys own internal rules and all relevant legislative on the recommendation of the CEO and must be
or regulatory procedures, and should follow any procedural approved by the board. The secretary is responsible
recommendations prescribed from time to time by the Institute for ensuring that board procedures are followed, that
of Directors in NewZealand (Inc). the applicable rules and regulations for the conduct of
Provision of business or professional services by the aairs of the board are complied with and for all
members matters associated with the maintenance of the board
Because a conict of interest (actual or perceived) may be or otherwise required for its ecient operation.
created, members should not, generally, provide business or All members, particularly the chair, have access to the advice
professional services of an ongoing nature to the company. and services of the secretary for the purposes of the boards
Notwithstanding the general rule, the company is at liberty to aairs and the business.
for the purpose of a special assignment, engage the services
Part 4 Board Management relationship
of any member having special expertise in the particular eld
Position of CEO
or engage the services of another member of a members
The board will link the companys governance and management
organisation, so long as the terms of engagement are
functions through the CEO. All board authority conferred on
competitive, clearly recorded and all legal requirements for
management is delegated through the CEO so that the authority
disclosure of the engagement are properly observed.
and accountability of management is considered to be the
Other board appointments authority and accountability of the CEO so far as the board
Any member is, while holding oce, at liberty to accept other is concerned. The board must agree to the levels of sub-
board appointments so long as the appointment is not in delegation immediately below the CEO. The board will agree
conict with the business and does not detrimentally aect the with the CEO to achieve specic results directed towards the
members performance as a member. All other appointments company goals. This will usually take the form of an annual
must rst be discussed with the chair before being accepted. performance contract under which the CEO is authorised to
Independent professional advice make any decision and take any action within the management
Any member is entitled to obtain independent professional limitations, directed at achieving the company goals.
advice relating to the aairs of the company or to his or her Between board meetings the chair maintains an informal link
other responsibilities as a member. If a member considers such between the board and the CEO, expects to be kept informed
advice is necessary the member shall rst discuss it with the by the CEO on all important matters, and is available to the
chair and, having done so, shall be free to proceed. CEO to provide counsel and advice where appropriate. Only
Subject to the prior approval of the chair, the cost of the advice decisions of the board acting as a body are binding on the
will be reimbursed by the company but the member will ensure, CEO. Decisions or instructions of individual members, ocers
so far as is practicable, that the cost is reasonable. or committees should not be given to the CEO and are not
binding in any event except in those instances where specic
Board and member evaluations
authorisation is given by the board.
The board will, each year, critically evaluate its own
performance, and its own processes and procedures to ensure Accountability of CEO to board
that they are not unduly complex and are designed to assist The CEO, in association with the chair, is accountable to the
the board in eectively fullling its role. Each year, individual board for the achievement of the company goals and the CEO is
members will be evaluated by a process whereby the board accountable for the observance of the management limitations.
determines questions to be asked of each member about At each of its normal monthly meetings the board should expect
him or herself and about each other including the chair, each to receive from or through the CEO:
member answers the questions in writing, and the responses the operational and other reports and proposals referred
are collected and collated by the chair who then discusses to above
the results with each member. The chairs own position is such assurances as the board considers necessary to
discussed with the deputy chair and/or the rest of the board. conrm that the management limitations are being
observed.
Indemnities and insurance
Subject to the companys constitution the company will Management limitations
provide members with, and will pay the premiums for, The CEO is expected to act within all specic authorities
indemnity and insurance cover while acting in their capacities delegated to him or her by the board. The CEO is expected
as members, to the fullest extent permitted by the Act. to not cause or permit any practice, activity or decision that

Institute of Directors in New Zealand (Inc). The Four Pillars of Governance Best Practice 223
is contrary to commonly accepted good business practice or
professional ethics. In allocating the capital and resources of
the company the CEO is expected to adhere to the company
goals. The CEO is expected to not cause or permit any action
without taking into account the health, safety, environmental
and political consequences and their eect on long-term
shareholder value.
In nancing the company, the CEO is expected to not cause
or permit any action that is likely to result in the company
becoming nancially embarrassed. The assets of the company
are expected to be adequately maintained and protected, and
not unnecessarily placed at risk. In particular, the company
must be operated with a comprehensive system of internal
control, and assets or funds must not be received, processed or
disbursed without controls that, as a minimum, are sucient to
meet standards acceptable to the companys external auditors.
One of the tools used as a framework is an asset management
plan for both on and o balance sheet assets.
In managing the risks of the company, the CEO is expected
to not cause or permit anyone to substitute their own
risk preferences for those of the shareholders as a whole
(for example, as expressed through a board approved risk
management plan). The CEO is expected to not permit
employees and other parties working for the company to be
subjected to treatment or conditions that are undignied,
inequitable, unfair or unsafe.

224 The Four Pillars of Governance Best Practice Institute of Directors in New Zealand (Inc).