GTA National
Due Diligence
Checklist
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THE DIRECTOR INDUCTION AND DUE DILIGENCE KIT
FOREWORD
In late 1998 Group Training Australia commenced a corporate governance
development programme for member companies. Corporate governance
workshops were held throughout the country. The Director Induction and Due
Diligence Kit is a continuation of this programme. The kit is available on GTA’s
website for use by member companies, along with a number of corporate
governance updates that will appear throughout 2000 and 2001.
GTA sees the Director Induction and Due Diligence Kit as an evolving tool for use
by member boards. Your experience in implementing it and the feedback received
will help to keep it up-to-date and practical. It is quite detailed and comprehensive.
GTA does not apologise for this. The role of company director has become more
onerous in recent years while at the same time the demands placed on companies
by key stakeholders to perform to the highest standards has also increased. Group
Training companies are not immune from these pressures. Boards of directors are
at the forefront of company accountability and it is thus imperative that the board
and individual directors can demonstrate excellence in the task of governing.
Recruiting the right people and providing them with a comprehensive induction is
the starting place for achieving such a standard.
INTRODUCTION TO THE DIRECTOR INDUCTION PROCESS
Whereas most boards expect their CEO to ensure that all new staff members
joining the Group Training Company undergo a thorough induction into the
company, it is less common for the board to apply the same expectations and
processes to new directors joining the board. The Director Induction and Due
Diligence Kit addresses this gap.
The purpose of the induction process
Directors of companies, whether not-for-profit or corporate, carry considerable
responsibility and liability. It is important therefore that every director, new or
longstanding, has a clear picture of the operating position of the company. This is
especially so for incoming directors who should firstly be given the opportunity to
determine whether or not they are willing to join the board and thus accept its
ongoing commitments and liabilities. Once agreement is reached to join the board
the new director needs to be inducted into the board’s processes and procedures
so that, from the outset, he/she can make a sound contribution.
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The Director Induction and Due Diligence process in this kit has four components:
1. A Due Diligence Checklist to be completed by the Group Training company and
forwarded to the prospective director.
2. A meeting between the new director and the Chairperson of the board.
3. A meeting between the new director and the CEO.
4. A short induction session with the full board at the first board meeting attended
by the new director/s.
1.
The Due Diligence Checklist
What is Due Diligence?
Due diligence is the process by which an individual or a company gathers vital
business information about another company or organisation they intend to
purchase, merge with, or join, e.g. as a director.
Shouldn’t an intending director design his/her own due diligence questions?
Yes, it might reasonably be expected that an intending director should design
his/her own due diligence questions and put these before the board prior to
accepting an invitation to become a director. However the reality is that most
directors intending to join a not-for-profit board will not know the wide range of
questions needing to be asked, neither will they have access to a standard due
diligence checklist. The Due Diligence Checklist assists both the new director and
the board to be clear about the main issues directors should be concerned about
when newly joining a board.
Is it unusual for the board to lead this process?
Yes, it probably is, but one way or another, the board will be required to inform an
intending director about the governance practices and systems of the board. We
suggest that the board take the initiative and assist the intending director/s to be
absolutely clear about what they are taking on. After all, new and longstanding
directors all share the same responsibilities and liabilities, and it is important that
everyone on the board understands what they are, or will be accountable for.
Should the board complete the Checklist only if it can show a perfect score?
Absolutely not. The Checklist is not for the board’s purposes (although it may well
serve these as well) but rather is a means for providing the incoming director/s with
information necessary to make an informed decision. We urge that you be
scrupulously honest when you complete the Due Diligence Checklist. There is little
to be gained and much to be lost by painting a less than accurate picture of the
board.
The questions in the Due Diligence Checklist are standard due diligence questions,
the answers to which should reasonably allow any intending director to determine
whether or not he/she is willing to take on the responsibilities of directorship in your
company.
2.
The meetings with the Chairperson and CEO
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These sessions are designed to allow the new director/s the opportunity to meet
with these two key organisation members and to become familiar with governance
and management processes prior to attending their first board meeting.
The suggested processes and the issues outlined for these two meetings provide a
framework for this portion of the induction process.
3.
The induction session at the board meeting
The session should not necessarily require more than an hour to complete and is a
rounding-off of the overall induction process. We have made a number of
suggestions about what might take place at this session.
Boards should not take shortcuts in this process.
We strongly urge that boards do not attempt to shortcut this process. Each section
deals with a different set of issues, all essential for the successful induction of new
director/s. Both the new director/s and the board will benefit enormously from
undertaking in full the recommended process, providing benchmarks for personal
and group performance.
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THE DUE DILIGENCE CHECKLIST
Questions 1 – 65 should be filled in by the board, preferably the
Chairperson. Prior to this form being sent to the intending
director all board members should agree with the assessment.
The intending director should complete Questions 66 – 72.
Structural
1. The organisation is incorporated as:
 An incorporated association
 A company limited by guarantee
 Other, please specify
2. The Constitution/Articles were last reviewed:
 In the last year
 1 – 5 years ago
 6 – 10 years ago
 More than 10 years ago
3. Composition of board:
Name of director
Special governance contribution, e.g.
Chairperson, Treasurer, financial skills
etc where relevant
Length of time on
the board
(continous)
4. There is a Director Retirement/Term in Office policy.
 Yes  No
5. The maximum term in office a director can hold is 2 years from this current
election
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6. The board has a set of Governance Policies that make clear the board’s and
individual director’s roles and responsibilities; specifically:
Policy
Yes
No
7. There is a clearly defined CEO Instrument of Delegation or policy that makes
clear the nature and extent of the board’s delegation to the CEO.
 Yes  No
8. There is adequate directors’ liability insurance.
 Yes  No
Size of cover $
9. Have there been any legal claims against the company in the last three years or
are there any outstanding or pending claims that may result in board liability?
No
Yes – Type of claim and outcome/impending claim
10. The CEO is a voting board member.
 Yes  No
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11. Do any board members provide services to the company?
 Yes  No
Who?
What services?
12. There is a procedure for removing directors for non-performance or any other
reason?
 Yes  No
13. Directors are paid.
 Yes  No
If so, how much? __________
How often? __________
On what basis?
 meeting by meeting  annual payment
14. The board has the following committees:
 Audit Committee
 CEO Remuneration and Performance Committee
 Other – please specify
15. New directors are provided with a formal induction to the board and to the
organisation.
 Yes  No
16. There is a Directors’ Resource book/manual containing documentation
appropriate to the role.
 Yes  No
17. The board has a written code of ethical practice and monitors its own and its
members’ actions against this at least annually.
 Yes  No
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Financial
18. The company’s cash position over the previous 13 months has generally been:
 Very sound and predictable
 Generally sound but not always predictable
 Not very sound but predictable
 Not very sound and unpredictable
 Very unsound
 Threatening to our financial viability
19. The CEO regularly presents cash flow analysis and forecasts to the board.
 Yes  No
20. The company is confident, based on regularly reviewed financial data, that it
can meet all of its debts and liabilities, including contingent liabilities, as they fall
due, within the coming 12 months.
 Yes  No
21. Long-term borrowings, e.g. mortgages over buildings, are adequately secured?
 Yes  No Not Applicable
22. The board has an Audit Committee.
 Yes  No (If ‘No’, go on to number 25)
Its members are: (Names)
Do they have strong financial skills – Yes/No
23. The Audit Committee meets and carries out its duties:
 Once a year
 Twice a year
 Three times or more a year
24. During the last two years, the Audit Committee has expressed concern to the
board about financial matters, e.g. state of finances management:
 Never
 Once or twice
 Many times
25. The company’s external auditor is
26. Do they provide other general consulting services to the company?
 Yes  No
27. Length of this relationship
28. The company has an independent external financial advisor.
 Yes  No
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29. The company has an internal audit programme.
 Yes  No
30. The CEO has clearly stated financial delegation and limitations documented in
a policy or in some special document.
 Yes  No
31. The board is satisfied that it has sound financial systems.
 Yes  No
32. There are board-developed financial policies in key areas such as
Remuneration and Benefits, Financial Management, Protection of Assets,
Financial Reporting.
 Yes  No
33. These policies are reviewed by the board:
 Annually
 Once every two years
 Less frequently than every two years
 Never
34. The CEO’s financial reporting to the board is:
 Comprehensive and typically meets all the board’s requirements
 Could be improved
 Unsatisfactory at this stage
35. Typical financial reports to the board include: (tick more than one if appropriate)
 Balance sheet and P & L account to date
 Comparisons with previous year’s accounts and reports
 Financial ratio reports against board determined benchmarks
 Trend charts
 Narrative/written interpretation as appropriate
 A budget report to date
36. The company’s banker is Westpac
37. The company has reserves that are secured.
 Yes  No
38. The board has an Investments Policy, e.g. with level of risk stated.
 Yes  No
39. The board has an overdraft arrangement with the bank.
 Yes  No
40. The overdraft is used:
 Rarely
 Occasionally
 Regularly
 N/A
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41. The company’s cheques are signed by:
 The CEO and National Project Manager
 The CEO and one or more designated directors
 Only designated directors
42. The following have authority to purchase major capital items:
 The CEO but only within budgeted parameters
 The CEO at his/her discretion
 The CEO only with approval of the board
 The board
43. Day-to-day financial management is carried out by:
 The CEO
 A dedicated financial manager
 An external (outsourced) agent
44. Financial reports for the last five years are available.
 Yes  No
Assets
45. The board has a Protection of Assets Policy .
 Yes  No
46. It was last reviewed:
 Within the last year
 Within the last 2 years
 More than 2 years ago
47. What are the main asset categories and what are their asset values.
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Board
Meetings
48. Board meetings are held:




Monthly
Bi-monthly
Four times a year
Less than four times a year
49. A typical board meeting lasts for:
 1 hour or less
 1 – 2 hours
 2 – 3 hours
 More than 3 hours
 More than 5 hours
50. What other expectations will there be of me as a director, e.g. committee
membership:
51. The focus of board meetings is on: (tick more than one if relevant)
 Financial monitoring and CEO reporting
 Operational decision-making
 A mix of monitoring (compliance and strategic) and strategic discussions
 Policy making and review
 Discussing operational matters/concerns with the CEO and giving approval
for action
52. The average attendance by directors at board meetings is:
 Always 100%
 Most directors attend most meetings
 There are always a few absent
 Some directors are regular non-attenders
53. The agenda is developed by:
 The board as a whole
 The CEO
 The chair of the corporate governance committee
 The Chairperson
54. Board papers, including all relevant papers and reports, are sent to directors at
least a week in advance of board meetings:
 Always
 Mostly
 Only sometimes
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Strategic Plan
55. The company has a strategic plan/corporate plan.
 Yes  No
56. If ‘Yes’, it was last reviewed:
 Within the last year
 Within the last two years
 More than two years ago
57. The status of achievement of the strategic goals in the plan is:
 Most goals are mostly achieved
 Some are achieved, a few not yet achieved
 The plan is too new for any assessment of achievements
 We have struggled to achieve our goals
58. The CEO reports on the achievement of the strategic goals:
 At every board meeting
 At least twice a year
 Annually
 Less regularly
59. The board holds an annual strategic retreat:
 Yes  No
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CEO/Personnel
60. The qualifications and experience of the CEO are:
61. He/she has been in the role: (length of time)
62. The board carries out a structured appraisal of the CEO’s performance.
 Yes  No
63. If so, this takes place:
 Once a year
 Twice a year
 More than twice a year
64. Who does this?
The board has the following governance-level personnel operational policies:
(tick all that apply)
 Appointment/recruitment procedures and criteria for senior staff
 Occupational Health and Safety
 Internal grievance processes
 Senior staff succession planning
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Personal Commitment (To be completed
by the intending director)
65. I am satisfied that I have all the information I need before accepting/declining
directorship of this board.
 Yes  No
66. I am fully aware of my potential legal liabilities as a director.
 Yes  No
67. I believe that I will be able to work constructively with this board and this
company.
 Yes  No
68. I am satisfied that the company has a sound reputation in the community.
 Yes  No
69. I am satisfied with the abilities of the Chairperson.
 Yes  No
70. I am sure that I have time to make the level of commitment required to be an
effective director on this board .
 Yes  No
71. I will accept the invitation to join the board.
 Yes  No
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GTA National
New Director
Induction
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INDUCTING NEW DIRECTORS ONTO THE BOARD
The intending director/s, having read through the Due Diligence form, will by now
have made a decision as to whether or not they want to proceed with the invitation
to join the board. They are now ready to be formally inducted onto the board. The
next steps involve the following three components:
(a)
(b)
(c)
A meeting with the Chairperson
A meeting with the CEO
A formal session at the first board meeting after joining.
As preparation for the induction process the new director/s should have the
following:
A copy of the board’s resource handbook including:






Governance policies, Articles/Constitution and other relevant legal/governance
documentation
Current and recent meeting papers
An organisational chart
Contact details for other board members and key staff
A glossary of key terms, definitions and acronyms
The current year’s meeting schedule and the annual agenda.
New directors should be asked to familiarise themselves with these documents
prior to the meetings with the Chairperson and the CEO and attendance at their
first board meeting.
THE DUE DILIGENCE CHECKLIST
As was mentioned earlier, the Due Diligence Checklist offers new directors the
opportunity to ‘check out’ GTA National Ltd so that acceptance of directorship is
accompanied by the full knowledge of what is being taken on. Given that new
directors accept a share of the legal liability for the company and its operations, it is
essential that they understand the workings of the company.
For the company, the Due Diligence Checklist might serve as a board review, the
completion of which might cause the board to ask serious questions about its
processes and current situation.
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We suggest that while all board members should have a copy of the Checklist, it
should be completed by one person, preferably the Chairperson. We recommend
that prior to the completed Checklist being given to the prospective director/s, it
should be made available to all directors so that everyone can see the
Chairperson’s assessment of the company’s position. We strongly recommend that
this step should not be left out. Not only should all directors have the opportunity to
verify the accuracy of the Chairperson’s assessment, also it could bring to the
notice of all directors certain shortfalls in board processes, should these exist, of
which directors are unaware.
The checklist will benefit both the board and intending directors and to this end we
urge that it be completed and given to intending directors, no matter how many
issues it may raise.
Intending directors should be told of the Checklist and advised that they should not
accept the invitation to join the board until the Checklist has been received. Their
attention should be drawn to the final section that addresses the director’s
readiness and preparedness to accept the role and responsibilities that accompany
directorship.
Once the Checklist has been read and analysed, the intending director might
advise the board of his/her willingness to accept the invitation to join, or may
decline. Assuming that they decide to join and assuming board confirmation, the
next two steps, a meeting with the Chairperson and a meeting with the CEO, can
go ahead.
THE MEETING WITH THE CHAIRPERSON
The Chairperson should be ready to answer any questions the new director/s may
have about the Due Diligence Checklist.
The Chairperson should also be prepared to answer any questions about the
various documents sent out, especially the relevance of the board’s policies.
In addition, the Chairperson and the new director/s might discuss:
1. How decisions are reached by the board e.g. voting, consensus etc.
2. The culture of the board.
3. How meetings are structured and run.
4. The board’s role so there are no misplaced assumptions about the contribution
and expectations around that role.
5. How the board implements the Conflict of Interests policy. The new director/s
should have the opportunity to declare any conflicts or to ask questions about
conflicts that other directors have and how these are managed.
6. If the board has governance policies, the new director should be made aware of
how these work.
7. Possible special areas of special contribution that the new member may fill.
8. How the committees work and who is on them.
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9. The legal liabilities of directorship.
10. Major issues before the board at this time.
11. Sensitive issues that the new director should know about.
12. The board’s view of the CEO’s performance.
13. How the CEO is appraised and how performance expectations are set in the
first place.
14. Director performance expectations, e.g. full preparation for each meeting,
incidental questions to be put to the CEO or Chairperson prior to the meeting,
regular attendance, full participation on all matters, take an occasional
leadership role in facilitating strategic discussion among board members etc.
THE MEETING WITH THE CEO
This should be arranged at a mutually suitable time during the working day. At this
meeting some or all of the following might occur:
1. The CEO might inform the new director of significant management issues, that,
although not necessarily brought to the boardroom table for direction, are
nonetheless significant in terms of achievement of strategic goals and are
indicative of matters “for information” in the CEO’s report.
2. The new director might be introduced to senior staff, or in a smaller
organisation, to all staff.
3. In addition to meeting key staff the CEO might arrange site visits to familiarise
the director with the various facilities and work sites used by the organisation in
its work.
4. The CEO might arrange for the director to meet with a small number or trainees
or apprentices in order to gain an appreciation of the work done by the
company and a general familiarisation with client issues and perspectives.
5. The CEO might arrange for the new director to meet with one or more host
businesses to hear their requirements and issues.
6. The CEO might discuss operational initiatives designed to achieve the board’s
strategic goals, informing the director of programmes and services the results of
which will, at various times, be reported to the board.
7. The CEO might choose to provide the new director with his/her personal views
on the working relationship between him/herself and the board. The CEO might
make suggestions that, in his/her opinion, could enhance the working
relationship or the effectiveness of the board.
8. The CEO might bring the director up-to-date with any or all issues that, in
his/her opinion, the director should know about.
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AT THE BOARD MEETING
We recommend that the board should design into its annual agenda a formal new
director induction session. This should take around one hour. Normally this would
be scheduled in the first board meeting following the AGM at which the new
directors were confirmed/appointed. At this meeting most or all of the following
might take place:
1. Existing and new directors formally introduce themselves to each other,
covering the following ground:

A declaration of the special skills, experience or expertise that each brings to
the role.

What each director, existing and new, wants to achieve through membership of
the board. This is a very important matter. Misplaced expectations can lead to
disappointment and frustration if these are not cleared up early in the life of a
new director.

Personal hopes and expectations for the board in the coming year.
2. The induction discussion provides a good opportunity for the board to reflect
briefly on key strategic issues. We suggest that about 30 minutes be set aside
for a discussion around these. The CEO might be asked to prepare a short
presentation traversing progress towards the achievement of the board’s
strategic goals. Bearing in mind that CEO reporting and board monitoring of
strategic goals should be an ongoing element of the board’s programme, this
section should be more in the nature of a summary than an extensive review.
3. The new director/s should have the opportunity to ask the board any questions
resulting from their meetings with the CEO and Chairperson and their reading
of the documentation.
Once the due diligence process has been completed, the governance
documentation read and the meetings with the CEO and Chairperson and the
board held, the new director/s should now be thoroughly inducted into the board,
ready to make a considered and informed contribution.
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