Inside AICD

  • Date:01 Sep 2007
  • Type:CompanyDirectorMagazine
An outline of some of the issues addressed by AICD’s policy department, committees and taskforces over the last month.

Policy Update

Senate Standing Committee Hearing – Private Equity

Recently, AICD presented evidence to the Senate Standing Committee on Economics with CEO Ralph Evans and AICD’s Legal Counsel and Senior Policy Adviser Gabrielle Upton, in attendance. The Senate Committee was conducting its inquiry into Private Equity Investment and its Effects on Capital Markets and the Australian Economy. AICD had also lodged a submission with the Committee in April 2007, available on the AICD website.

One issue raised by AICD was that private equity investment has created the need for directors to be aware of their duties. Potential conflicts of interest can arise for boards and for boards vis-a-vis management in relation to private equity investment, but they are ones that can be managed with appropriate prior planning. Such issues are examined in an AICD paper on directors’ obligations during boom time activity, found on the AICD website. The recently released protocols in Takeovers Panel Guidance Note 19 also provide support (

In short, AICD considers that further regulation is not required as the current law provides adequate guidance on issues of conflict.

AICD has for some time expressed concern more generally about the impact of incremental regulation on public companies. Such regulation includes public reporting and governance requirements which do not apply to private companies. It is often said that this additional regulation and scrutiny makes private companies and private equity investment more attractive vehicles for maximising shareholder return.

AICD pointed out during the hearing that the role and circumstances of a director in private equity are different from those who sit on the boards of public companies. Typically in private equity, the direct representatives of most or even all shareholders sit around the board table, rather than directors who are the agents of shareholders at a distance. They engage closely in the way the company is run, typically devoting far more time to it and getting far more detailed information on its performance than public company directors. They do not have to report to anyone except the providers of the debt. As a consequence, the directors of companies held by private equity are able to make drastic changes to the business that may reduce its earnings in the short-term but add significantly to its value at the liquidity event. Many directors feel the public company has become excessively burdened by regulation and AICD considers that this is a chief source of opportunity for private equity.

Inquiry into shareholder engagement and participation

AICD has been invited to make a written submission to the Parliamentary Joint Committee on Corporations and Financial Services (PJC) inquiry on the engagement and participation of shareholders in the corporate governance of the companies in which they are part-owners.

The Terms of Reference can be found at: In particular the PJC is looking at:

1. Barriers to the effective engagement of all shareholders in the governance of companies;

2. Whether institutional shareholders are adequately engaged, or able to participate, in the relevant corporate affairs of the companies they invest in;

3. Best practice in corporate governance mechanisms;

4. The effectiveness of existing mechanisms for communicating and getting feedback from shareholders;

5. The particular needs of shareholders who may
have limited knowledge of corporate and financial matters; and

6. The need for any legislative or regulatory change.

Advocating on this issue is not new to AICD. The inquiry offers AICD an ideal opportunity to publicly reiterate some of the previous work undertaken in this area. This includes, but is by no means limited to:

  • The Shareholder Friendly Report
  • Principles of Good Communication with Shareholders
  • Involvement in IFSA roundtable on proxy voting issues
  • Dialogue with institutional investors
  • AICD publications – The Role of the Chairman and Evaluating Board Performance: A Guide for Company Directors
  • Joint BCA, AICD and CSA publication – Fresh Approaches to Communication between Companies and their Shareholders
  • Many AICD submissions prepared over the past 15 years

Engagement with shareholders is an issue in which directors are keenly interested. We encourage members to make a submission either personally or through their organisations. AICD also welcomes feedback from members. Feedback can be emailed to:

The closing date for submissions is 14 September 2007.

All AICD policies and submissions can be found at: under ‘Policy and Advocacy’.

If you wish to provide feedback, obtain further information or permission to reproduce this material, please contact Rob Elliott, general manager, Policy and General Counsel at:

FAQ of the month


What is a director’s letter of appointment and what information should be captured in it?


Periodically an organisation will have to appoint a new director. Generally, once a new director has been selected he or she gives signed consent to the company, as required by the Corporations Act 2001. The company then confirms the appointment with a letter signed by the chairman.

Sending a letter of appointment is not required by the Corporations Act. However it is considered to be good practice to do so. This is an opportunity for the board to formally communicate its expectations to the new director.

The terms suggested below should not conflict with legal requirements of the organisation’s constitution, the Corporations Act or other governing legislation, or the ASX Listing Rules, if applicable.

The size and type of organisation and the type of director will have a bearing on the contents of the letter. Suggested inclusions for non-executive directors are:

  • Duration of the appointment and opportunities for re-election or reappointment;
  • Role of the board in the organisation and extent of its powers;
  • Board’s expectations of the director;
  • Expected time commitment;
  • Standard time and location of board meetings and a statement that occasionally other meetings will be needed;
  • Induction process and requirements for continuing professional education
  • Participation in board committees;
  • Special duties relating to the director’s special knowledge and experience;
  • Outside interests and expectations regarding other directorships, including policies and procedures on conflicts and disclosure of interests;
  • Company shareholding requirements by directors and, for listed companies, a trading policy for company shares;
  • Performance reviews and appraisal;
  • Remuneration, including frequency of payment – for example, ‘paid quarterly in arrears’, and reimbursement of expenses;
  • Superannuation arrangements;
  • Access to independent advice;
  • Confidentiality;
  • Insurance arrangement; and
  • A copy of the constitution.

A sample letter is contained in the AICD publication, How to design and implement a board induction program by Geoff de Lacy, available through the AICD Bookshop.

Executive directors have additional responsibilities as employees of the organisation. They usually sign a service agreement which reflects this difference. The service agreement will outline appropriate rights and obligations of employment as well as terms and conditions for acting as a director.