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The Board of Directors-Cooperative Goverance-Lecture Slides, Slides of Cooperative Governance
This lecture was delivered by Sir Mubashir Ansari at Quaid-i-Azam University for Cooperative Governance course. It includes: Board, Directors, Regulators, Corporate, Governance, Role, Entrepreneurial, Leadership, Strategic
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1
The Board of Directors
Dr Safdar A Butt
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Importance of the Board
It is often believed, by stakeholders, social
scientists and the regulators alike, that the key togood corporate governance lies in the hands of acompany’s Board.
But:
How does a Board become good?Is a good Board born or made?Is a Board free to be good?
3
The Board’s Role
Provide entrepreneurial leadership
Set strategic objectives of the company
Arrange for resources needed to achieve thestrategic objectives
Review management performance
Set the company’s values and standards
Act as a bridge between stakeholders
4
‘Yes-men’ Board
Different Board Types: The Good, Bad, and Ugly
‘Rubber Stamp’
Board
‘Country Club’
Board
‘Good Old Boys’
Board
‘The Real Thing’
‘Paper’Board
?
‘Trophy’ Board
5
Powers of the Board
Sources of Power
Company’s Articles of Association
The Law
Resolution passed by shareholders
Sometimes, industrial practice.
By and large, absolute powers vest in the directors
Collective powers: may be delegated
The issue of collective and individual powers
Executive Directors
Non-executive Directors
Members of Board Committees
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Functions of a Board
Oversight
Directional
Advisory
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Oversight Function
Approving and monitoring strategic plans.
Approving and monitoring annual plans,operational and capital budgets
Engaging external auditors
Ensuring integrity of annual report
Review of major operational activities
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Directional Function
Setting company’s mission statement, visionstatement, value statement, etc.
Appointment of CEO and other seniorexecutives
Planning for succession of senior executives
Appointing various committees like audit,remuneration, executive, etc.
9
Advisory Function
Guidance
What else is happening in the world
Different perspective
Specialized input on specific areas
10
Tools Available
Composition of the board
Independence of the board
Committees
External help where necessary
Governmental intervention
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Board’s Responsibilities
Collective responsibilities of the board
Individual responsibilities of each director
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Collective Responsibilities
Acting in the best interest of the company.
Accountability to owners
Statutory duties:
Keeping minutes of all meetings
Filing periodic reports and financial statements
Stock exchange updates
Fiduciary / Trusteeship Duties
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Test of Fiduciary Duties
Transactions are reasonably incidental tocompany’s business
Good faith, believing the transactions to becorrect.
Disclosure of conflict of interest
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Delegation of Powers/Duties
Law permits delegation
But does the responsibility remain withdirectors? (Governance Issue)
Issues in Delegation:
Was it properly delegated.
Was it properly supervised.
The system of oversight and accountability overdelegates.
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Borrowing Powers
How much can a Board borrow?
Is it only a lenders’ problem, or should the otherstakeholders also have a say?
Regulatory constraints on lenders (e.g.Prudential Regulations of SBP)
What if the company borrows from non-formalsector?
Tax implications
16
Types of Boards
Composition:
Unitary
Two-tiered
Tenure
Common tenure
Staggered
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Balance on the Board
Balance of representation
Balance of talents / abilities
Balance of power
Balance of attitudes or views
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Consequences of Imbalance
Board can be misguided by the executives
Interest of only one stakeholder is served
Poor decision making
Status quo mentality
Lack of communication
Things start getting fixed
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Cadbury Code Guidelines
Regular meetings
Monitoring executive performance
Draw clear lines of authority
Good board room practices
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Board Room Practices
Every one should participate
Formalized written procedures
Induction program for directors
Each director should get the same informationat the same time
No post-facto approvals
Chairman decides the content of the agenda
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Role of Chairman
Running the board, chairing its meetings
Ensuring all directors get timely and completeinformation
Acting as bridge between the board andshareholders / stakeholders
Evaluating the performance of individualdirectors
Arbiter in event of internal disputes
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Responsibilities of CEO & Senior
Management
Operating the company in an effective and ethicalmanner according to policies set by the Board
Drawing the strategic plans
Drawing annual plans and budgets
Selection of managerial and other staff
Identifying business risks
Financial reporting
Internal Controls
Code of Conduct for all staff
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Duality of Office:Chairman & CEO
Speeds up decision making
Quick action
Saves cost: often only one salary
More effective due greater powers:
Within the company
Dealing with outsiders
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Separation of top offices
Provides an extra layer of answerability
Lesser chance of cover-ups
NE chairman not member of management
NE chairman provides better option formonitoring
NE chairman is closer to stakeholders
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Thank you
Dr S A Butt