SECTOR NOTICE November 2012 DIRECTOR TRAINING AND QUALIFICATIONS DICO S EXPECTATIONS, ASSESSMENT METHODOLOGY AND SAMPLE IMPLEMENTATION STRATEGIES Purpose DICO has received several requests from institutions for additional information surrounding director training and qualifications. This Sector Notice clarifies DICO s expectations and assessment methodology regarding director training and qualifications requirements. It also provides a summary of implementation strategies being implemented by some institutions. Background The requirements in DICO s Guidance Notes: Director Training and Qualifications for Class 1 and Class 2 institutions (the Guidance Notes ) became effective for all directors elected or appointed on or after July 1, 2012. The Guidance Notes require institutions to develop and enhance sound governance practices through ongoing director development within a common framework. This framework incorporates a set of nine core competencies and competency levels that are established by each institution based on its size and complexity, subject to minimum requirements set out in DICO s Guidance Notes. DICO has held a series of webinars to review the requirements and provide an opportunity to address any issues and concerns. With the help of an industry working group, a number of sample tools were developed and published including a policy development guide, director self-assessment tool and director candidate information materials. DICO also published Application Guides that provide typical attributes of competency levels. Recordings of the webinars, the Guidance Notes, Application Guides and sample tools are available on our website at www.dico.com. Page 1
DICO s Expectations DICO expects institutions to be actively engaged in activities relating to director training and qualification requirements. Institutions are encouraged to develop an implementation plan identifying the steps, timelines and resources necessary to ensure that an appropriate initial framework and processes will be in place to meet director development objectives. A comprehensive implementation plan would address: policy development and approval o competencies, competency levels, time frames, assessment criteria, responsibilities director competency assessment process o methodologies, tools, testing, validation, frequency director self assessment and development requirements o competency gaps, training and development needs director competency matrix o director competency levels, competency requirements, time frames candidate information o competencies, commitment/undertaking for development and training, time frames review/revisions to framework, policy, processes, and self-assessment based on experience DICO s Assessment Methodology DICO recognizes this is a new initiative for many institutions that will take time to develop and fully implement, and will require on-going refinement and modifications to reflect experience and practices. PHASE 1 (2012-13) Initially, examiners will be looking to confirm that the institution has identified the necessary activities and priorities for effectively implementing the requirements. Larger institutions are expected to be further along in the process. DICO will review the institution s: implementation plan, activities and timelines policy or status of policy development adequacy and approach outlined in the policy progress on developing and implementing supporting processes DICO will not: Evaluate or assess the competencies of individual directors; Review results of any individual director self-assessments; and Test an individual director s knowledge or competency level Page 2
PHASE 2 (2014 onwards) As part of its on-going risk assessment and examination process, examiners will be looking at the effectiveness of the institution s director training and qualifications program. This will include a more comprehensive review of the process and practices in place and may include interviews with the Chair and other directors as appropriate. The interviews will be designed to ascertain the director s viewpoint of the institution s development and training policy and practices, and whether these have been effective in improving the director s skills and capabilities in the required competencies. DICO will assess: The adequacy of competency criteria and requirements Director assessment considerations, tools and practices Competency validation requirements and practices Director development plans and initiatives Board competency assessment processes and overall competency levels Sample Implementation Strategies There are many approaches that would meet the requirements set out in the Guidance Notes. Each institution should create a program appropriate for its size, complexity and risk profile. The Appendix provides an overview of strategies being implemented by members of the Director Training & Qualifications Working Group. Next Steps In the coming months, DICO plans to establish a director focus group to provide supplementary feedback on implementation issues and suggestions for refinements to supporting tools and best practices guidance. Contact Information Should you have any questions or comments on this initiative, or wish to participate on the director focus group, please contact Mr. Vineet Bapat, Assistant Manager, Policy & Research, Regulatory Affairs Division via e-mail at vbapat@dico.com or telephone at 416 325-8509 or toll free 1 800 268-6653 ext. 58509. Page 3
APPENDIX 1 DIRECTOR TRAINING AND QUALIFIACTIONS SAMPLE IMPLEMENTATION STRATEGIES EXAMPLE 1 POLICY Initial policy developed using template provided but with several additions Some modifications to competency levels proposed for key functions and tighter time frame for completion Revised policy based on Board feedback expected to be approved by year end Requires initial director selfassessments within 2 months of election EXAMPLE 2 Policy under development leveraging DICO s policy template and incorporating elements of previous Board Education and Development Policy. Policy expected to be approved by year-end Initial policy will address DICO minimum requirements. Future modifications to be considered some time after implementation including whether to establish higher competency levels EXAMPLE 3 Initial policy developed and approved using guidelines as reference Further refinements will be considered during first year of implementation EXAMPLE 4 Policy developed, approved and implemented EXAMPLE 5 Draft policy to be completed in October SELF-ASSESSMENT Excel version of sample self-assessment tool used (Scoring option 1) All directors completed independent selfassessment (scoring details suppressed) Results validated by a three member committee (Board Chair, Vice Chair, Corporate Secretary) Board competency matrix completed Individual Director development plans being updated Results reflect some inconsistencies and clarifications of certain questions need to be addressed Some edits and modifications expected on a go forward basis Excel version of sample self-assessment tool used Directors are in the process of completing their self-assessment on an individual basis (scoring details suppressed) Validation process under development Individual training plans to be developed based on the results of the self-assessments Global (Board) training and development opportunities to be assessed Customized self-assessment tool under development (similar to sample tool provided) Initial self-assessment to be completed in February 2013 followed by development of director s development and training plans. Initial self-assessments scheduled for January 2013 Once self-assessments completed, the Board plans on establishing a validation committee and director development plan Director self-assessment administered over the course of three Board meetings. Page 4
EXAMPLE 6 EXAMPLE 7 POLICY Draft policy completed with anticipated approval before year end. Policy includes a description of full competency in each of the core competencies based on the questions and considerations from the self-assessment. Policy also provides details of reference sources competency. Requires initial director selfassessments within 6 months of election Draft policy under development. Completion expected mid- November. Final policy by end of year. SELF-ASSESSMENT Self-assessment tool customized. Expert level removed and the number of questions reduced slightly to approximately 10-12 per competency. Final tool expected by October 31 st. with self-assessments completed by January 15 th. Completion expected by year end. Initial director assessments of existing directors will be completed by end of year using the sample tool provided. Modifications to the sample tool will be considered in 2013 where appropriate based on feedback. Full implementation will begin in 2013 EXAMPLE 8 Existing policy updated to include all new requirements including training Approval expected by year end Initial independent self-assessment completed Some modifications anticipated to resolve misunderstanding Results validated by Board Chair and Corporate Secretary Findings reviewed collectively by the Board to identify common areas of weakness and discuss potential in-house and external training requirements Customized version to be implemented by year end. May include additional criteria/ consideration and test questions for each competency level to validate individual responses. Page 5