The role is deemed so important that it is a key feature of the regulation imposed via the Central Bank’s Corporate Governance Code and the Fitness and Probity Regime.
The Code calls for a majority of the board to be independent non-executive directors, this differs in the case of subsidiaries but, in all cases, there are limits placed on the number of directorships that an INED can hold in the sector in order to be deemed independent and capable of devoting sufficient time to each position.
The Code itself specifies that the independent non-executive director represents a key layer of oversight of the activities of the institution and it is essential that they bring an independent viewpoint to the deliberations of the board.
Those seeking to be appointed to the board of a regulated financial services company need to be aware of the rigorous process involved, with candidates being assessed by the Central Bank under fitness and probity, and prior approval of the Central Bank needed before a director can be appointed.
Assessing independence and suitability
When assessing the independence of a non-executive director, the board should take into account everything from previous and, where relevant, current employment, to business relationships and other directorships. Ensuring that there is no potential for conflict of interest should be a crucial element of the selection process.
Non-executive directors should have relevant boardroom experience, with specific professional knowledge (such as accounting, auditing or risk management) also called for by the Central Bank. Independent non-executive directors should always be selected on the basis of their skills, experience and expertise and the board should consider how any new appointee will fit with the existing dynamic of the board. Importantly, they must be able to commit the necessary time and effort to fulfil their responsibilities. Holding a professional qualification or specific training for the role is also recommended.
It is vital that the board devotes sufficient attention to selecting an appropriate independent non-executive director and to ensuring that the candidate meets the fitness and probity requirements before being put forward to the Central Bank for consideration.
For their part, the independent non-executive director should consider the following questions:
- Do you fully understand what the role involves and what is expected of you under regulation?
- Do you have the appropriate professional experience and have you undertaken relevant training for the role?
- Do you have the appropriate mix of skills which will allow you to think strategically?
- Do you have the personal characteristics that will facilitate robust interaction with fellow board members who may have different views to you?
- Will you be able to devote sufficient time to your role?
- What is your motive for seeking an appointment as an independent non-executive director and are you sufficiently independent to contribute effectively?
Remember that accepting a non-executive directorship is a two-way process and it as important for the INED to assess whether they are suitable, as it is for the board which is making the appointment. An independent non-executive director should not accept an appointment without a full understanding of their obligations under the Central Bank’s regulations.
The independence of the role is deemed to be of the utmost importance and it is crucial that the independent non-executive director exercises sound and objective judgment and constructively challenges decisions made by management, so as to serve the interests of the company and its shareholders.
The IoD’s Boardroom Centre has a panel of highly experienced independent non-executive directors available for positions in the financial services sector. The Boardroom Centre can also advise on the process involved in appointing an INED to a regulated entity.
For further information on the role or to source an independent non-executive director for your board, contact Thora Mackey, Head of the Boardroom Centre at the Institute of Directors in Ireland.
