Evaluating Board Skills

A board skills matrix can be a useful governance tool and is valuable to investors

Investors are focusing on board composition to evaluate whether directors possess the skills, knowledge and experience necessary to oversee the business in line with the company's strategy. Disclosure of a board skills matrix can help investors make such evaluations and reassure them that the board has a robust process in place to assess the mix of skills and diversity it currently has and/or is looking to achieve.

The skills matrix typically represents a visual snapshot of experience and qualifications for the directors to be appointed at the upcoming annual meeting. Although director biographies include individual qualifications, the skills matrix is becoming more common and a more efficient tool to depict the overall expertise and help assess boards.

Key disclosure item

Morrow Sodali's latest Institutional Investor Survey shows that the board skills matrix is viewed as a key disclosure item by investors representing $18 trillion of assets under management - 78% of respondents - when voting on director elections.

It is not only useful for investors to determine whether the board comprises the necessary skills and expertise to deliver long-term value, but is also useful for companies when evaluating the merits of a new board member. Although the topic of diversity initially started with a focus on gender, the discussion has now evolved to an overarching belief that there should also be diversity of skills and expertise.

"A skills matrix helps to identify the current skills, knowledge, experience and competencies of the board" There is no doubt that the best examples of skills matrix disclosure are offered by US companies, which consider Securities and Exchange Commission requirements, and Australian companies, for which the corporate governance code has suggested disclosure of a skills matrix since 2014. In the same year, the Council of Institutional Investors surveyed its members for examples of what they considered best-in-class disclosure of director nominee qualifications and skills from 2013 US proxy statements, and why, and published a best practice market sample.

There is no standard for skills matrices and companies providing such disclosure use different forms, such as schematic tables, which name and list relevant director skills, and short narrative descriptions of each director's skills.

Integration tool

The board skills matrix can be used as an...