What is an independent director?
An independent director is a person appointed to the board of a PBC who is not a member or employee. They might be appointed because they have particular expertise or specialist knowledge in areas that are relevant to the business of the PBC such as corporate governance, accounting, risk management, cultural heritage or business planning.
Independent directors have the same obligations under the Corporations (Aboriginal and Torres Strait Islander Act) 2006 (CATSI ACT) as member directors of Aboriginal and Torres Strait Islander corporations (ORIC Oracle - Independent directors).
Benefits and risks of appointing independent directors
Independent directors can provide benefits to PBCs in bringing new skills, experiences and perspectives to the board. They can help PBCs to build governance capacity and bring increased credibility to a corporation’s governance model. They can offer an outsider perspective to problems, help to reduce tensions within a board and support dispute resolution. Independent directors can also bring access to new networks and contacts to connect PBCs with funding or partnership opportunities.
There are some potential risks which should be kept in mind when considering appointing independent directors. These could include independent directors being unfamiliar with local customs, membership and issues of local politics, and not understanding cultural differences in communication style such as confusing silence with agreement. Independent directors could potentially make other directors feel overpowered and interrupt the natural leadership of the board. Inexperienced boards and CEOs could also become reliant on the expertise of independent directors and neglect their own governance capacity development. It is therefore important for independent directors to be carefully selected.
How are independent directors appointed?
Before looking for an independent director a PBC must first ensure that this is allowed within their rule book. All PBC Directors must also be PBC members unless a PBC has changed their constitution to allow for the appointment of independent directors. The CATSI Act (ss 246-5(3) and 246-1 (3)) permits PBCs to choose directors who are not members of the PBC, but a specific rule must be included in the rule book to allow independent directors to be appointed. The ORIC rule book – condensed provides a template for how independent directors might be appointed:
The directors may appoint independent or specialist non-member directors by passing a resolution in a directors’ meeting. Before being appointed as an independent or specialist non-member director, the person must give the corporation their written consent to become a director.
Independent or specialist non-member directors are appointed for the term specified by the directors in their appointment. Independent or specialist non-member directors can be appointed for a term of one year, and they can be reappointed. (ORIC The Rule Book – Condensed)
This rule can be replaced, changed or deleted to suit a PBC’s needs.
If a PBC rule book allows for the appointment of independent directors there are options about the way they might function within a PBC and the specific details of how they are appointed. It is important that the rule book clearly outlines the roles and responsibilities of independent directors. Things to consider include:
- how independent directors will be chosen
- whether they have voting rights
- if they have a trial period
- if they are paid for their work.
It is up to the PBC to decide whether independent directors receive remuneration (and this must be included within the rule book). Some independent directors will volunteer at no cost to the PBC.
PBCs are also able to decide whether independent directors are given voting rights. Some PBC rule books state that independent directors are able to provide advice but not vote on issues. Others state that independent directors are able to vote on board matters.
Independent directors may be Indigenous or non-Indigenous. If a PBC decides that an Indigenous person would be best suited for the role as an independent director they can change their rule book to specify this.
How to find and choose an independent director
In selecting an independent director it is important to look at their capacity, development and performance in other positions to see if they have the right life experience, industry experience and skills to work well in a PBC. It is also important that they have the right personality to work effectively with other directors and staff. Further, the board must first ensure that the candidate is clearly independent from the PBC and the community so conflict of interest or agendas will not influence their decision-making.
Whilst the specific skills and experience required by PBCs may vary slightly depending on their needs, independent directors should:
- be able to work effectively with staff and other directors
- be of good character and business standing
- bring experience in one of the corporation’s business areas to the board table;
- have a network of relevant contacts that could be useful to the corporation;
- have an interest in sharing their particular skills with an Aboriginal or Torres Strait Islander corporation
- be prepared to question, challenge and critique; and to commit to the highest standards of corporate governance
- be financially literate
- possess leadership experience and qualities reflecting a proven record of accomplishment and the ability to work with others
- not have conflicting commitments
- have experience working with Aboriginal or Torres Strait Islander communities or knowledge of native title processes and/or Aboriginal or Torres Strait Islander heritage matters
- have an understanding of the time intensive nature of the role of independent director which might include travel to remote areas of Australia. (ORIC Oracle - Independent directors)
The Aboriginal Peak Organisations of the Northern Territory (APONT) Independent Director Guide recommends that candidates for independent director positions should be introduced to an organisation before they take on the role to see how the organisation operates. This could include candidates sitting in on board meetings, meeting with other directors and staff, seeing the community and even going out on country.
APONT also highlights the importance of new independent directors receiving a cultural orientation upon taking on their role so they have a good understanding about the culture, the community and the organisation. Formal director training for new independent directors may also be useful as is a good induction. Case studies from PBCs about their experiences with independent directors.
Case studies from PBCs about their experiences with independent directors
MG and independent directors
The Yawoorroong Miriuwung Gajerrong Yirrgeb Noong Dawang Aboriginal Corporation have two independent directors on their board. The independent directors are selected to provide specialist skills and corporate experience to help to advise and up-skill the other directors. Their role is to provide expertise, support the CEO and add diversity to the board. The MG Corporation have found that the independent directors increase the credibility of their governance model.
There are a number of qualities that the MG Corporation look for in their independent directors. The independent directors must have:
- shared values with the corporation
- an understanding of indigenous issues ‘on the ground’
- corporate experience
- business development
- Australian Institute of Company Directors (AICD) accredited
- networking skills and experience at a corporate and government level
- philanthropic experience
- capacity to devote time and energy.
PBC rule book examples of independent director rules
Yinhawangka Aboriginal Corporation RNTBC – Independent director rule
The rule book of the Yinhawangka Aboriginal Corporation RNTBC states that:
9.1. Number of Directors
(a) The Corporation must not have more than 12 Directors in total, including Independent Directors (if any).
(b) If the Corporation elects to have Independent Directors, it may have no more than 2 Independent Directors.
9.2.3. Eligibility for appointment as an Independent Director
A person is only eligible for appointment as an Independent Director is he or she satisfies all of the following requirements:
(a) is at least 18 years of age;
(b) is an Australian resident;
(c) is Independent;
(d) has completed a Director’s course approved by the Australian Institute of Company Directors (or does so within the first year of his or her term as a Director of the Corporation); and
(e) has never been disqualified from managing corporations.
9.4.4. Appointment of Independent Directors
The Member Directors are to appoint the Independent Directors (if any) by resolution. Before an appointment is made, the Member Directors must conduct a proper merit selection process to select an Independent Director, including, but not limited to, seeking independent advice on the selection process from an appropriately qualified and experienced party.
Gunggandji PBC Aboriginal Corporation RNTBC – Independent director rule
The rule book of the Gunggandji PBC Aboriginal Corporation RNTBC states that:
6.2. Number of Directors
There shall be a board of eight directors, comprising seven member directors and one independent non-member director appointed in accordance with rule 6.9.
6.9. How to become an independent non-member director
The directors must appoint at least one independent non-member director. They do not have a vote at directors’ meetings.
Non-member directors are appointed because they’re independent and have skills in financial management, corporate governance, accounting, law or a field relating to the corporation’s business or activities. They must not be a Gunggandji person.
Independent non-member directors must give the Corporation their written consent to become a director before being appointed. Independent non-member directors are appointed for the term specified by the directors in their appointment. Independent non-member directors can be appointed for a term of two years, and they can be reappointed.
The independent non-member directors must mentor the other directors and proactively seek to develop the skills of the other directors.
6.22. Resolutions of directors
Where a vote is required, each director, other than an independent non-member director appointed under rule 6.9, will have one vote. The chairperson has one vote, plus a casting vote.
Selecting and recruiting independent directors
The ORIC Independent Directory website is a free online service that connects Aboriginal and Torres Strait Islander corporations to independent directors. PBCs can add profiles to this website explaining what they are looking for in an independent director. People wanting to be independent directors can post a profile about themselves, their experience and qualifications. The ORIC Independent Directory also contains tips for selecting an independent director.
The Aboriginal Governance and Management Program (APONT) Independent Director Guide provides an outline of the advantages and risks of appointing independent directors as well as selection tips, orientation and induction processes, and other matters to consider such as remuneration and voting rights.
- Top Tips for Independent Directors on Traditional Owner Boards, Forum for Directors of Indigenous Organisations (FDIO), 2017
- Ten Tips for Recruiting an Independent Director for an Indigenous Corporation or Trust, FDIO, 2012
- Board induction checklist template, PBC website, 2020