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PRESENTED BY. RAJA ADEEL NASEEM TOQEER ABBASI MSBA-I (EVE) 04-OCT-2012
Definition
The Board of directors is the body of elected or appointed members who jointly oversee the activity of the company.
Ineffective Boards
Ineffective board are the those boards whos members are not fully aware of their responsibilities and work for the company.
I. Rubber stamp Board or Yes Men board. II. Good old boys board or country club boards. III. Paper board IV. Trophy board
3. Paper board
It exists only on paper and plays no role in the company e.g. wives and daughter of principal shareholder of the company.
4. Trophy board
It comprises of people who have a big name in the society ( trophies like major sports stars, film actors, politicians, etc. ) but have no acumen for conducting a company business.
Power of Board
The BOD of a company has absolute power to conduct the affairs of the company.
Power of Board
The BOD draws its power from the following sources
The Law
In case of Pakistan, this refers to companies act which provides a standard set of Articles in its Table A.
Functions of Board
The board of director of the company has three main functions. 1) Oversight 2) Directional 3) Advisory
This refers to provision of general guidance to the management keeping them informed of what is happing in the rest of the corporate world and offering specialized help in certain areas.
Composition of the board independence of the board. committees external help Government intervention
3. Committees
A board can form any number of committees to ensure that due intention is paid to the various matters that are brought before it. A committee may comprise wholly of directors or it may have members from outside the board is well. A committee can examine a matter in greater detail and come up with summarized report for the consideration of the board.
4. External Help
A board can seek assistance from external experts to ensure that they are able to take correct decisions. Example If board make the police related to the remuneration of employees, it is often deemed helpful to use the service of external HR expert to carry out a survey of salaries in the particular industry and draft recommendations in light-of.
5. Government Intervention
Board use governmental or society help in conducting is affairs. In Pakistan directors are often unwilling to seek assistance from the government for fear of inviting undue intervention. In some situation its necessary to chose government help.
Accountability refers to the requirement of having to explain and give an account of what has been done by a person or body.
i.e. (Shareholder can ask them Question regarding their performance)
Responsibilities of a Board
The board is responsible for its acts and accountable to the company and not to any other party . There are two types: 1. Collective responsibility 2. individual responsibility
Collective responsibility
There are four types: 1) Acting in the best interest of the company 2) Accountability to the owners 3) Statutory duties 4) Fiduciary or trustee-ship duties
c. Statutory Duties
Maintain proper Minutes of all meeting Send copy of Periodic reports to SECP. Director ensure that company maintain proper book or account and audit at proper time. If company listed at Stock Exchange the director may required to file certain document with the Stock Exchange at appropriate interval.
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Types of Boards
Classified according to composition 1. Unitary boards 2. Two-Tierd boards Classified according to tenure of members 1. Common tenure boards 2. Staggered boards
1- Unitary Board
A unitary boards does not have tiers or division. All member of the board are Equi-status participate in the deliberation of the board simultaneously.
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4- Staggered Boards
Under this arrangement only a part of board retires at the end of stated tenure while the duration of each director remain fixed. Example. If Total 8 director. Each director Tenure 4 years. After every 2 years 4 new director appointed. A,B,C,D appoint in 2002 and retire in 2006. then new 4 director Appointed and their tenure is (2006-2010) E,F,G,H appoint in 2004 and retire in 2008
Balance of representation
This means all the stakeholders should have a adequate holders representation on the board. With only shareholders allow to vote in directors, and controlling shareholders stage managing AGM in an orchestrated manner , Most companies in Pakistan lack a balance a representation.
This requires the presence the managerial , legal, financial , operational , social , marketing and industry specific technical experts on the board .
Balance of Power
This mean having an adequate number of truly independent non executive directors(INED) on a board who enjoy sufficient power to overturn the proposals by executive or representative non executive director. INED represent particular stakeholder and protect his interest.
Board Meetings
A boar of directors conduct its affairs through board meeting all their deliberation and decision are taken at board meeting law requires that meeting be held at suitable frequency and fully recorded .
Significant issues
These issues include: 1) Annual business plan, cash flow projection, forecast plan and long term plans, budgets, along with variance analyses. 2) Quarterly operating results of the listed company as a whole and in terms of its operating divisions or business segments. 3) Internal audit reports (cases of fraud or irregularities of material nature) and management letter issued by the external auditors.
Significant issues
4) Join venture or collaboration agreement. 5) Rules and regulation 6) Implication of law 7) Recover the loans and returns 10) instant of population and environment 11) Agreement with the labor union collective bargaining agents.
(A) The board should meeting regularly so as to ensure that the directors retain full and effective control of the company (B) it should monitor the performance of the executive management (C) clear lines if authority should be drawn between the management of the company and BOD certain decision should only be taken by the board.
(e) As for as possible post facto approval of actions already taken by the management should not given by the board (f) The decision about what is to be place on agenda should be taken by the chairman in the situation with the company secretary (g) If the board appoints any committee for a short period of time a special assignment or standing committee, it must clearly spell out its function terms of reference and powers in a suitable document approved by board
Responsible for management Company and its operations All Executive director or senior managers directly or indirectly report to him. He is answerable to board.
The company Law and article of association of most companies permit one person to hold both positions. The following benefit of this arrangement.
1) Speed up decision making process. 2) Save the cost. 3) Grater influence on company so conduct its affairs more effectively.
Appointment term
The appointment, remuneration , and terms and condition of employment of CFO, Company sectary, Head of internal audit of listed companies shell be determined by CEO with the approval of BODs