Behind Directors Certification Programs: Key Points To Consider One of the best ways to demonstrate commitment to career growth is by obtaining industry- recognized certification. This is true for finance, accounting, insurance, and legal professionals, but is it also applicable to board directors? Certification programs trigger debates among corporate governance experts: some are strongly against it, saying nothing can replace real boardroom experience, while others see it as a valid method for improving the knowledge and skills of directors. In April 2013, we raised this question with over 70 director training organizations to better understand the benefits and challenges of certification and to compare experiences, including pioneering work in Brazil, the Caribbean, France, India, Mauritius, Morocco, New Zealand, Slovenia, South Africa, the United Arab Emirates, and the United Kingdom. Practice Brief December 2013 Our donor partners Background and Rationale Effective governance training programs can Sometimes training organizations will engage exponentially improve national capacity “accredited certification bodies” to certify their to achieve wider adherence to corporate training processes and outputs and evaluate governance best practices. In 2008, the their trainers against official standards. S chweizeris che Eidg enos s enschaf t IFC Global Corporate Governance Forum Conféd ération suis s e launched the Corporate Governance Board We are witnessing a growing demand for Confed erazione Sviz zera Leadership Training Resources (BLTR) to certification and accreditation coming from Confed eraziun s vizra strengthen the expertise and skills of corporate various sources: Sw is s Confed eration governance trainers, who in turn work directly Governments. Many of the recent Reports F ed eral Depar tment of Economic Af fair s, Educ ation and Res earch E A ER with company directors. To date, over 750 on the Observance of Standards and Codes State Secretariat for Economic Affairs SECO participants in 75 countries have successfully (ROSCs) produced by the World Bank have completed the BLTR Training of Trainers (ToT) recommended that governments encourage about the forum program. the establishment of directors institutes to The BLTR and other similar resources have build capacity and enhance skills of company IFC Global Corporate Governance Forum supports been used to develop both certificated and directors. Mauritius established its Institute of corporate governance reforms in emerging markets non-certificated training programs. However, Directors in 2008, and by 2013 it had gained and developing countries. The Forum develops advanced knowledge and training products it is important not to confuse certification more than 850 members. promoting good practices in corporate governance programs with non-certificated training Institutes often see certification as a good and facilitates capacity building of director training organizations engaged in implementing corporate programs, which imply a different objective, way to enhance directorship as a profession governance reforms. design, and mindset. and further promote sound corporate The Forum partners widely with international, Traditionally, many institutes deliver a governance. IoD Southern Africa established regional and local institutions, and draws on the “certificate of attendance” to participants who the “Chartered Director” designation, guidance of its global network of private sector advisors and academic research network. attended all sessions in the course. This is not “CD(SA),” to assess and credit the mastery of directors while enhancing their skills. This The Forum is part of the IFC Corporate Governance the same as actual certification. A certification Group, located in the Environment, Social and program is normally associated with verifying recognition is intended to result in better Governance Department. It is a donor- supported that the participant has acquired a certain level directors, better boards, and better business in facility, co-founded in 1999 by the World Bank and the interest of South Africa. the Organisation for Economic Co-operation and of knowledge, skills, or understanding. Development (OECD). What is the Corporate Governance Board subscribe to it. For example, the Slovenian Directors Association invites members who hold positions on supervisory boards of Leadership Training Resources (BLTR)? listed companies to become a “chartered supervisory board member” by passing an examination. All candidates who The BLTR is a five-part curriculum package that offers successfully complete the examination are listed in a national comprehensive content resources and teaching methods to register of supervisory board members. enhance corporate governance training. It comprises: 17 corporate governance modules that progress from the • basics to advanced techniques and practices Although there are benefits of becoming a certified “ • A Training Skills Guide with practical and user-friendly director, no published study has validated the correlation instructional tools and techniques between certification and higher performance on the board. However, the U.K. Institute of Directors’ unpublished study A Training Program Providers Manual to orient trainers and • of those directors who failed the certification identified that training organizations on the content, structure, and use of 18 months later over 50 percent of these directors were no BLTR materials longer on the board or the company no longer existed.” An in-depth case study to enhance learning and leadership • skills The Resource Kit has recently been supplemented with training Mature Director Training Institutes materials on Governing Banks, a number of customized country In recent years some of the more established director training and regional programs, multiple case studies. Corporate institutes, such as the New Zealand Institute of Directors and Secretaries training materials are currently under development. the U.K. Institute of Directors, have begun to rethink their role and change their image so that they are generally perceived as a professional institute rather than a membership organization. Directors. Many of the participants in director training programs A professional institute typically has the following features: have indicated that they would like to have had the opportunity  omposed of individuals with annual membership subscriptions •C to demonstrate their new skills and knowledge through an that focus on professional development needs, rather than of effective assessment framework. Does having certification mean corporations that use it for corporate lobbying purposes; that the director is a better director than a director who has not been certified? Not always. But it does enable directors to  n exclusive rather than an inclusive membership, with full •A demonstrate their commitment to professional development and membership typically associated with passing examinations; to benchmark their own knowledge against clearly established  roviding professional director development activities and •P standards of good practice. programs; Case study: Institute of Directors in New Zealand The IoD in New Zealand has over 6,250 members. The Chartered Director program is designed to transition the IoD from a membership organization to a professional body. The program will offer members meaningful recognition for their experience and expertise, and to the market it will assure the quality of IoD members. The program was developed after extensive consultation with members and stakeholders. The new structure of the professional body involves six categories; the three most relevant categories are: Participant discussion at the global workshop for board A ssociate—required to meet all current membership • leadership trainers in Sao Paulo, Brazil, 2009. requirements and subject to the IoD Code of Practice Member—nominated by a sponsor (experience guidelines, • Companies. Companies increasingly recognize the value that currently being developed, measure the quality of minimum board directors can provide to their organizations. In particular, experience levels using the IoD’s Director Competency some companies seek to identify current and aspiring directors Framework); must engage in continuing professional who proactively focus on improving their professionalism development through certification programs that demonstrate their knowledge and understanding and suggest the willingness Chartered Director—nominated by a sponsor and subject to a • for continual learning in what is an increasingly demanding higher level of experience guidelines; requires references and profession. In some markets the director training institute meeting with an interview panel. maintains a database of certified directors, and companies can •M  embership behavior requirements (normally involving a Newer Training Providers code of ethics or standards) with expulsion powers for those Some of the newer training providers, such Hawkamah in the directors who do not comply; United Arab Emirates, the Caribbean Institute of Corporate  eveloping thought leadership in the area of director activity •D Governance, and the Moroccan Institute of Directors (IMA), have and corporate governance in general; and begun to use the BLTR as a basis for developing certification •P  roviding continuing professional development services to programs. They do not have entrenched legacy programs so update the knowledge and skills of their members following can more swiftly respond to user demands. For example, IMA, qualification. which is only a few years old, conducted a feasibility study to determine the training preferences of its members: 88 percent of respondents thought that a fully-fledged chartered directors program would be useful, and 77 percent of companies that responded have a training budget for staff and board directors. Process and Key Points to Consider Code of Certification/ Criteria and Assessment conduct/ Purpose Market study accreditation selection methods quality infrastructure process control 1. The purpose of certification 2. Market study Different stakeholders are likely to have alternative expectations A rigorous market study is important from the outset to relating to a certification program (see Table 1). ascertain the potential appetite for a chartered directors program. The study should analyse the needs and the risk- Table 1: Expectations Relating to Program Certification related considerations as well as determine a pricing policy that is adequate to the market and demand. For example, responding Stakeholder Perspective to price sensitivities identified in its market research, Hawkamah Director’s • Recognition of the participant’s level of covered the voluntary examination in the course fee rather than perspective achievement at the end of the course establishing a supplementary fee. A process to diagnose strengths and weaknesses, • which can lead to remedial action or extended learning, if required • Consolidation of the learning so far Case study: The U.K. Institute of Directors Building confidence and credibility in the • participant’s likely future performance Over a decade ago, the U.K. Institute of Directors conducted • Determination of aptitude to perform the duties of a market survey of its members to learn whether they a board member were in favor of establishing examinations for the existing Regulator’s • Focus on the process of quality assurance and development training program. The results were narrowly in perspective conforming to the requirements that the external favor of having a voluntary examination: 51 percent for and 49 regulatory bodies have set percent against! Need for directors in the banking sector to pass • “fit and proper” tests evaluated by the regulator The members against the proposal were mainly experienced and successful directors who did not perceive any value to the Company’s • Professionalization of boards perspective qualification and expressed fear that, if the assessment were Identification of potential board directors and • assistance in searching for non-executive and rigorous, they might fail, which would be harmful to their independent directors reputation among their peers! Continuing professional aspect, which ensures • The members in favour of the proposal were mainly aspiring that the company’s directors are regularly being directors who felt that having evidence of their knowledge updated on current issues, trends, and practices levels of corporate governance and board matters would help IoD’s Evaluation of a participant’s progress • them obtain their first seat on a board. perspective during a course • Diagnosis of strengths and weaknesses of In addition, some of the tutors were against the proposal that the course the examination be voluntary, because they feared that it • Building a market and demand for would lead to an emphasis on “teaching to the exam paper” continual learning and that any topic not on the exam papers would not be • Leading to a higher recognized calibre of taught. director members 3. Development of a certification/accreditation infrastructure Many institutes have commented that once they decide to Examination Checklist go down the certification route they need to develop and Is there a conflict of interest concerning the trainers’ setting • build up their project management structure. Unlike regular the exam questions and thereby leaving themselves open to director training, certification programs that involve professional accusations of teaching to the exam paper? accreditation entail stricter organization and program management, for many reasons: 1) candidates are trained over Does there need to be an examination committee with • a long period—several months, sometimes more than a year; 2) responsibility for all aspects of accreditation? candidates are building comprehensive knowledge and skills on Do procedures need to be drawn up concerning organization • different corporate governance topics; 3) the program—course of the examination? For example, how to handle exam content and delivery across different cohorts or classes—must disruptions, cheating, and so on. be administered consistently; and 4) examinations need to be Should there be identity checks so the institute can ensure • standardized and subject to control. that the right person is taking the examination? Institutes must therefore develop, monitor, and control course Does an appeal process need to be designed to address any • content and delivery through different governance models participants’ grievances over results? and bodies. For example, IMA in Morocco set up a number of committees to manage the project: Do allowances need to be made for learning disabilities, such • as dyslexia? A project management committee’s principal duties include • identifying sponsors as well as education partners, approving Do examination centres have to comply with disabled rights • the course outline and certification methods, selecting the legislation? coordinators of each module, and assisting the management of • Is there any need for honorary awards? IMA in all activities related to program launch. Is there any need for “grandfather” provisions? • A pedagogical committee comprises each module’s coordinator • Are there any legal requirements to register accreditation • as well as representatives of partners and executives of IMA with regulatory bodies or ministries, such as the Ministry of and of the International University of Rabat. Its duties are to Education? review and approve the pedagogical content of each module as proposed by the module coordinators. Has the process been properly priced? For example, cost of • exam rooms, exam setters and markers, and so on. An admission committee is composed of executives of IMA, the • International University of Rabat, and the module coordinators. It is in charge of reviewing the application packages. The examination process itself requires defining a number of standards and monitoring measures, especially with regard to security and confidentiality. Often, institutes team up with an academic partner, such as a reputable university, to administer the exam and deliver the diploma. This partnership also allows the institute access to valuable logistical support (facilities, computers, Web-based applications, and management of the admission and exam process). IMA teamed up with the International University of Rabat, and eventually the university also became a partner for the administration of the chartered director program as a whole. Similarly, Certification award ceremony for French directors, September 2013. a consortium in India—involving Hunt Partners (an executive 5. Assessment methods search firm), PWC (the audit firm), and Board Evaluation Ltd An institute can opt for one or more assessment methods, (a specialist consultancy)—formed an alliance with S P Jain including multiple-choice questions, essays, and face-to-face University (a top-10 Indian Business School) to develop its interviews. For example, the U.K. Institute of Directors requires assessment processes. the prospective chartered directors to follow a three-step An existing curriculum may need to be developed or adapted process. First, the candidate takes a series of courses, backed to accord with certification requirements, and some institutes up by a set of e-learning modules (10 days total) and leading use this opportunity to introduce innovative elements into to a three-hour certificate examination with 60 multiple-choice their training. The French Institute of Directors (IFA) launched questions. Next, a candidate takes a three-day interactive course, its directors’ certification in 2010 in partnership with Sciences resulting in a diploma in company direction. Finally, the candidate Po and the CAS (Quebec). One module is a board simulation. undergoes a professional review, including an interview by two Following a case study, the participants are placed in a real peers drawn from an IoD panel consisting of chartered directors, board-meeting situation and play the directors’ and committee members, and fellows of the institute. members’ roles. These sessions are led by professionals, chief Several institutes recommended that the method of assessment executive officers, managing directors, and directors in office. take into account language skills and cultural issues (for instance, This “real situation” practice is considered particularly beneficial is the language that the assessment uses the second language for participants who do not have experience attending board of the participants?). Also, many directors are not enthusiastic meetings. The module, which occurs at the end of the program, about being tested via a formal and traditional examination. is the one that creates the greatest link between the participants One respondent noted that quite a few of the directors had and illustrates the issues of collegiality, the risk of conflict of not written anything more than a paragraph in the last decade, interest, and the need for board diversity and complementary so how could they be expected to complete a university-type skills and experiences among board members. written test lasting three hours? 4. Criteria and selection process For the participants’ ease, some institutes introduced online certification exams. Since 2009, the Brazilian Institute for The next step is for the institute to establish a clear set of criteria Corporate Governance offers online examinations twice a and a selection process. For example, the entrance criteria for the year. The exam is made up of 60 questions divided into four Chartered Director (South Africa) assessment requires that the themes—corporate governance, corporate finance, regulatory applicant: environment, and strategic management—of which 60 percent Has been a practicing director of a company or has held an • are technical questions and 40 percent are based on a case equivalent position for at least three years during the five years study. prior to application; 6. Development of a code of conduct and quality • Be a member of the IoDSA; control issues • Be at least 30 years old; A large number of institutes require their successful award • Demonstrate a certain minimum level of educational holders to comply with their code of conduct/ethics code. Failure achievement or be able to demonstrate experience of at least to comply can lead to revocation of membership as well as of the 10 years as a director; and certificate. • Be sponsored by two members of the IoDSA, acting as Many director training institutes have recognised this as a proposer and seconder. key quality control issue that needs to be carefully managed. Mature institutes have often found that significant additional An admission committee should be set up to review the monitoring is often required so as to identify whether each and application package to ensure that the minimum requirements every award holder is abiding by their commitment to keep up to are met. For example, the IMA admission committee awards date with new developments through the institute’s continuing suitable candidates places in a relevant cohort, depending on professional development scheme. In addition, some institutes the candidates’ profiles, to ensure diversity of skills, expertise, have recognised a need to develop an additional committee background, and gender in each cohort. As far as possible, no to deal with any complaints concerning an award holder’s more than two candidates sitting on the same board should professional behaviour and activities. So far, these committees be in the same cohort. Ideally, if applications from suitable have yet to deal with many complaints but this may be due to candidates from the same company are received, they are the fact that the numbers of award holders are still relatively distributed in different cohorts. low. Other professional bodies in the fields of law, accounting, According to many of the institutes, directors from outside of the and medicine report that dealing with professional misconduct listed sector presented a number of assessment and selection can require important resources such as the development of difficulties. In particular, directors from state-owned enterprises robust disciplinary procedures being in place (including a clearly (SOEs), nongovernment organizations (NGOs), and small and identified appeal procedure) before any complaints occur. medium enterprises (SMEs) often worked under different regulations and legislation. The curriculum and the assessment had to take this diversity of experience into account; otherwise the system would be seen as unfair, comparing directors of SOEs, NGOs, and SMEs unfavourably with directors in listed companies. Case study: New Zealand IoD offers a chartered professional director pathway encompassing three stages Mid-career Mastery Early career Broadly equivalent to Accreditation Broadly equivalent to Fellow Entry Pass 2 out of 4 IoD Essentials courses • Pass Company Directors’ course and • Pass a “Mastery” IoD course assessment • Thresholds and submission of “fit and proper” ethics assessments • Interview portfolio • Interview • Peer review Qualifying experience of 2 board years • • Peer review or Submission of “fit and proper” portfolio • Submission of “fit and proper” portfolio • Qualifying experience of 10 board years • Commensurate senior executive • experience • Qualifying experience of 4 board years on more than 1 type of entity Activity IoD Company Directors’ course or • IoD Chairing the Board course or • Service to the profession – e.g. • equivalent equivalent mentoring, participation in IoD working • IoD Ethics course • IoD Ethics course groups (SIG, etc.) Other tips for setting up a certification program Continuing education. Many institutes require their successful Membership engagement. Development of certification award holders to undertake continuing professional development provides an opportunity for greater member involvement, and (CPD) on an annual basis. This activity can provide an important membership engagement is generally regarded as a key to the regular stream of additional income for the institute. The U.K. success of an institute. Institute of Directors requires its chartered directors to undertake Benefits. There is a need to clearly articulate the value addition over 30 hours of CPD each year. of the assessment process, particularly in regions where Standards. To encourage less-confident and less-experienced assessments at the director level are unheard of. directors to start on the development pathway, institutes should Directors database. For institutes just starting in the field of not place the certification bar too high initially. Once the critical certification, the certified-directors database is an important number of certified directors has been reached, the bar can be tool to attract suitable candidates. Making the database freely raised. Continuing professional development allows the institute available to the public may not be the best option, as it might to raise standards gradually over time. “trivialize” the database and make it difficult to track the use of Demand side. There is a tendency for institutes to focus solely the information. Other possible options include 1) offering fee- on the supply of certified directors. Equal effort needs to be based access; 2) providing free access to the database through a made to get companies to hire them. registration process; 3) signing protocols with large institutional investors and executive search firms, giving them “privileged” Networking opportunities. In addition to obtaining access to the database; or 4) setting up reciprocity agreements knowledge and accreditation, certified directors will expect to with other institutes to give certified directors access to potential be able to connect with their peers and feel that they are part employers in other markets. of a “club.” Follow-up networking and learning events targeted specifically at certified directors will add value to the certification program. We are grateful to all the institutes of directors and corporate governance organizations that took the time to complete the survey and provide us with the insights and information to write this paper. We might not have surveyed all existing programs and similarly not each survey example is cited herein, but all responses were instrumental in building the rationale and key thinking points for the paper. 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