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(1) Represent shareholders and create shareholder value. (2) Align the interests of management with those of shareholders while protecting the.

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Presentation on theme: "(1) Represent shareholders and create shareholder value. (2) Align the interests of management with those of shareholders while protecting the."— Presentation transcript:






6 (1) Represent shareholders and create shareholder value. (2) Align the interests of management with those of shareholders while protecting the interests of other stakeholders (customers, creditors, suppliers). (3) Define the company’s mission and goals. (4) Establish or approve strategic plans and decisions to achieve these goals. (5) Appoint senior executives to manage the company in accordance with the established strategies, plans, policies, and procedures. (6) Oversee the company’s performance by setting objectives, establishing short- term and long-term strategies to achieve these objectives, and assessing the performance of senior executives in fulfilling their responsibilities without micromanaging. (7) Approve major business transactions and corporate plans, decisions, and actions according to the bylaws. (8) Develop and approve executive compensation, pension, post-retirement benefits plan, and other long-term benefits, including stock ownership and stock options. (9) Review financial reports, including audited annual financial statements, quarterly reviewed financial statements, and other important financial disclosures such as management discussion and analysis (MD&A) earnings releases and reports filed with regulators (SEC) or disseminated to the public. (10) Review management’s report on the effectiveness of internal control over financial reporting.

7 (11) Provide counsel to the company’s senior executives, especially the CEO, on material strategic decisions and risk management. (12) Ensure the company’s compliance with applicable laws, rules, and regulations. (13) Approve the company’s major operating, investing, and financial activities. (14) Set the tone at the top by promoting legal and ethical conduct throughout the company. (15) Evaluate the performance of the board, its committees (e.g., audit, compensation, and nominating), and the members of each committee. (16) Hold the board, its committees, and directors accountable for the fulfillment of the assigned fiduciary duties and oversight functions. (17) Approve dividends, financing, capital changes, and other extraordinary corporate matters. (18) Oversee the sustainability of the company in creating long-term shareholder value and protecting interests of other stakeholders.


9 Duty of Due Care - determines the manner in which directors should carry out their responsibilities. Failure to uphold the set stipulations may constitute a breach of the fiduciary duty of care of expected directors. Duty of loyalty - requires directors to refrain from pursuing their own interests over the interests of the company. Breach of loyalty can occur even in the absence of conflicts of interest if directors consciously disregard their duties to the company and its shareowners. Duty of Good Faith – Its an important of directors fiduciary obligations, and any irresponsible, reckless, irrational or disingenuous behaviors or conduct can breach that fiduciary duty. Duty to promote success – directors should act in a good faith and promote the success of the company to benefit of its shareholders and other stakeholders. Includes: approving the establishment of strategic goals, objectives and policies that promote enduring shareholders value as well as protect existing value.

10 Duty to exercise due diligence, independent judgment, and skill - directors should be knowledgeable about the companies’ business and affairs, continuously update their understanding of the company activities and performance, and use reasonable diligence and independent judgment in making decisions. Duty to avoid conflicts of interests - potential conflict of interest may occur when director: receives a gift from a third party he is doing business with, either directly or indirectly enters into a transaction or arrangement with that company, obtains substantial loans from the company, or engages in backdated stock options. Fiduciary Duties and Business Judgment Rules - directors operate under a legal doctrine called “business judgment rules”. Under that law directors that make decisions in good faith, based on rational reasoning, and an informed manner can be protected from liability to the company’s shareholders in the ground that they appropriately fulfilled their fiduciary duty of care.


12 Audit Committee – composed of at least three independent directors; should be formed to implement and support the oversight function of the board, specifically in the areas related to the internal controls, risk management, financial reporting, and audit committees. Compensation Committee – composed of at least three independent directors; serves to design, review, and implement ‘directors’ and ‘executives’ compensation plans. Governance Committee - consist of both executives and nonexecutives directors; should be established to advise, review, and approve management strategic plans, decisions, and actions in effectively managing the company. Nominating committee – composed of at least three independent directors; should be formed to monitor issues pertaining to the recommendations, nominations and elections activities of directors. Disclosure committees – this committee is usually led by corporate counsel, CFO’s, or controllers. It is responsible for reviewing and monitoring the company’s 10-Ks, 10-Qs, and other SEC fillings, earning releases, materiality issues, conference call scripts, and presentations to the investors by senior management. Special committee – the board of directors may form a special committee to assist the board in carrying out its strategic and oversight function, including financing, budgeting, investment, mergers and acquisitions.

13 Modern Board Model Two- tier Model One – Tier Model


15 Board Leadership – The effectiveness of board meetings depends largely on the leadership ability of the chairperson to set an agenda and direct discussions. The board agenda is usually prepared by chairperson in collaboration with the CEO. CEO Duality – implies that the company’s CEO holds both the position of chief executive and the chair of the board of directors. The are pros and cons of that model, but investors usually prefer to separate the positions. If they don’t, then it is preferable that the company’s board consists of a ‘substantial’ majority of independent directors. Lead Director – demand for Lead Director increased because of the presence of CEO duality, resulting from growing concern that duality places too much power in the hands of CEO, which may impede board independence. Board Composition – in terms of ratio of inside and outside directors, and the number of directors influence the effectiveness of the board. A board size of nine to fifteen is considered to be adequately tailored to the number of board standing committees. Board Authority – is granted trough shareholder elections. SOX substantially expanded the authority of directors, particularly audit committee members, as being directly responsible for hiring, firing, compensating, and overseeing the work of the companies’ independent auditors.

16 Responsibilities – the primary responsibility of the board of directors that the companies assets are safeguarded and that managerial decisions and actions are made in a manner of maximizing shareholders wealth while protecting the interests of other shareholders. Resources – board of directors should have adequate resources to effectively fulfill its oversight functions. Resources available to the board consist of legal, financial, and information resources. Board Independence – implies that, to be independent director shouldn’t have any relationship with the company other than his or her directorship that my compromise the director’s objectivity and loyalty to the companies shareholders. Director compensation – best practices suggest that increases in stock ownership, reduction in cash payments, and charges in compensation should be aligned with shareholders long- term interest determined by board, approved by shareholders, and fully disclosed in public reporting.

17 Traditionally Have been using a plural voting system to elect corporate directors. It has been argued that a plurality vote system gives too much power to executive directors and management to influence the election of outside directors. Now There have been moves toward requiring majority vote election procedures for corporate directors. For example, the California Public Employees’ Retirement System (CalPERs) board adopted a three-pronged plan to advocate majority vote requirements.



20 (1) Create and open and engaging boardroom atmosphere (2) Maximize the value of the board’s time commitment by establishing clear roles and responsibilities within an appropriate structure (3) Determine the information the board needs and ensure it is delivered in a timely manner (4) Dedicate time to strategic issues (5) Create a transparent, explicit, and accountable executive pay process (6) Actively engage in CEO succession planning (7) Access the strength of the company’s management talent (8) Monitor the companies enterprise risk management system





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