Você está na página 1de 68

THE BOARD OF DIRECTOR

PRESENTED BY. RAJA ADEEL NASEEM TOQEER ABBASI MSBA-I (EVE) 04-OCT-2012

CLASS. PRESENTED DATE.

Definition
The Board of directors is the body of elected or appointed members who jointly oversee the activity of the company.

Board as the principal instrument of Governance


Shareholders own the company but dont run it. Management run the company but does not own it. BOD lies between Share Holder and Management. Board of directors elected by shareholders and board hire the management to run the company. They work as a bridge between these two groups.

Board Role as Principle Instrument of Corporate Governance


Provide Entrepreneurial leadership. Set strategic. (long term objectives and plan to Implement). Arrange resources to Implement Strategic plan. Review the performance of management. Set company values and standards.(mission, vision, values statement, code of conduct for Mgt and employees)

Ineffective Boards
Ineffective board are the those boards whos members are not fully aware of their responsibilities and work for the company.

Types of ineffective boards

I. Rubber stamp Board or Yes Men board. II. Good old boys board or country club boards. III. Paper board IV. Trophy board

1. Rubber stamp Board or Yes Men board


That simply approves whatever proposal or resolution is put forward by the executive directors, or more particularly, the chairman of the board

2.Gold old boys board or country club board


These are old friends of the chairman who simply meet at exotic places for board meetings but only talk about good old days rather than conduct the company business.

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

1) The company Constitution 2) The Law 3) Resolution Passed by Shareholder

The company Constitution


In case of Pakistan, this means the Articles and Memorandum of association of the company which clearly lay down. The power of directors and how may be exercised.

The Law
In case of Pakistan, this refers to companies act which provides a standard set of Articles in its Table A.

Resolution Passed by Shareholder


In certain cases shareholder may grant such powers to the directors that were not previously available to the directors by passing a special resolution to that effect

Delegation of power by the board


Board may delegate one or more of its collective power to an individuals or a committee who may or may not be the member of Board. Instrument that give power to board like
o Company Act o Article of Association Will also allow to delegate power to other. continue...

Delegation of power by the board


Delegation of power can be done by passing resolution with majority. Example Board authorize Finance director to Negotiate loan terms and sign all necessary documents. The company will be responsible for loan and board will be accountable to shareholders.

Delegation of power by the board


Board pay due attention to following when delegating power. 1) Is necessary to delegate this power 2) Method use for delegation is appropriate.(passing proper resolution, TOR) 3) Board will also ensure that the Power will not miss use.

Functions of Board
The board of director of the company has three main functions. 1) Oversight 2) Directional 3) Advisory

1. The Oversight function of the Board


Approving and monitoring company strategic plan. Approving annual budgets and plans. Engaging external auditor and liaising with them. Ensuring the integrity and reliability of company annual reports Review of major operational activities.

2. The Directional Function of the Board


1) Setting of the company mission statement vision statement value statement and formal code of conduct. 2) Appointment of CEO and other senior executive of the company. 3) Planning for these secession of these senior executives. 4) Appointing various committees like audit committee executive committee and remuneration committee.

3. The Advisory function of the Board

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.

Tools Available to a Board

(1) (2) (3) (4) (5)

Composition of the board independence of the board. committees external help Government intervention

1. Composition of the board


If the individual directors are competent person they ensure the function of the board are performed in a satisfactory and professional manners. In the other side if the directors are in bulk, old country club guys or unqualified persons they are not able to meet up the challenges of an effective board.

2. Independence of the board.


In order to perform effectively, a board must be independent. They should not be dependent on any particular shareholders, stakeholders, external party, investor or organization. They should be free to take the decisions for common good of company.

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.

Responsibility and Accountability


Responsibilities refers to act and duties that must be performed by a person or body.
I.e. (BOD present annual report to shareholder)

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

1. Acting in the best interest of the company


Director are collectively required to act in the best interest of the company. i.e. They work for the achievement of collective interest of all stakeholder. They should refrain form taking any decisions which harm company overall interest, financial position and performance

b. Accountability to the Owners


The director are required to present an account of their conduct to the owners of the company. In formal terms Directors issue Periodic report like quarterly reports, half year reports or annual reports to shareholder Shareholder have right to ask question and board must have to answer. In Informal communication they issue newsletter, special report etc.

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.

d. Fiduciary of trustee-ship Duties


The law consider the board of director to be the trustees of the company. Trustee is a person who has been given something in trust and who is expected to look after that thing in the interest of the giver. Assets and resources of company belong to Shareholder. BOD are responsible for best use of resources for the interest of shareholder.

Continue

Fiduciary of trustee-ship Duties


The following represent a test of how a board may handle its fiduciary duties.
1) The board should approve only those transactions that appear reasonable incidental to the business of the company. 2) All transaction should be approved and undertaken in good faith, believing them to be beneficial to the company. 3) If any member of board has any conflict of interest, he should disclose it to board.

Borrowing power of the Board


One of the power that a board of directors has is to borrow funds on the behalf of the company. The company act does not place any limitation on the amount of borrowing that a company can make . The prudential regulation issue by SBP restrict the amount of loan. Borrowing is often and attractive form of financing new projects. Board has to create balance between borrowing and Equity financing.

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.

2- Two tier boards


A two tiers has two distinct tiers. Upper tier called supervisory board and lower tier is called management board. The supervisory board comprise entirely of non executives directors. Management board comprise of executive director. Chairman of company is the chairman of both the boards and himself a Non-Executive Director.
Continue

Two tier boards


All matters discussed at management board first. Management board authorize to make recommendations and send proposal to Supervisory Board. Supervisory board discuss issues and take decisions.

Continue

Two tier boards Principal Advantage


1) Provide grater power to Non-executive director by placing Management board under Supervisory board. 2) It allows for better and more comprehensive representation of various stakeholders. 3) Clear division of work B/W the supervisor and management tiers. 4) Decision making improved.
Continue

Two tier boards Problems


Large size. In GERMANY avg size of board is above 20. Difficult to handle Large boards will weak the effect of batter directors. Slow decision making.

3- Common Tenure Boards


All the directors in such a board have the same tenure. They are elected at the same time and retired at the same time at the end of their tenure

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

Staggered Boards Advantages


The board enjoy a degree of stability as the entire board does not go out at any one time.

Frequent re-election infuse new members.

Second half of the presentation


Toqueer Abbasi

Balance on the Board


The key to success of a board is to have a balance board A board is said to be balanced if it has the right bland and proportion of different attributes needed its members. It is felt that each board of directors should be balanced in four respects . 1) Representation 2) Talents 3) Power 4) Attitudes

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.

Balance of Talents or Abilities


This mean having the blend all the necessary talents and technical expertise needed to lead a company.

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.

Balance of Attitude or Views


This mean having diversity of views at the board that ensure presence of a wide range of moral and managerial attitudes of directors . If all majority of the directors are aid complying sort of individuals with no courage to stand up to the chairman the of board become a rubber stamp board similarly the majority of directors are with no one to mitigate the impact of there adventurous spirit the company can land on more trouble then it can handle.

Causes of absence of balance in a Board


The prime cause of Poor Governance in Pakistani listed companies is Unbalanced boards. An boards in absence of sufficient numbers INEDS who have: 1) The knowledge and talent to participate meaningfully in board proceedings. 2) An understanding of the individual interest of all stakeholders and are willing their protection. 3) The independence and courage to differ with the management where it is necessary 4) The power to over-rule the representative directors where the collective interest of all stakeholder so demanded.

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 .

Frequency and preparation of meeting


The meeting between board of directors should be held at least once in every quarter in every financial year A meeting notice shall be delivered to directors at least seven days prior to the board meeting except in case of emergency meeting. The chairman of the company should direct the meeting of board of direction he shall be responsible for the recording of minutes and shall deliver to officers and directors no later then 30 days . Upon failure of this case in the form of statement to SEC of Pakistan.

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.

Cadbury code for Board of Directors

(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.

Good Board Room Practices


(a) All the directors particularly non executives directors should be able to contribute effectively to the decision making process (b) there should be written procedure for the conduct of board meeting and compliance to these procedure should be monitored by an appropriate committee of the board (c) each director on first appointment should be given sufficient in formation about the company and his role in the board so that he is able to contribute meaningfully to board proceedings (d) all directors should be given the same information and the same quantum of the consider it before the meeting

(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

Role of Chairman of the Board


Chairman Function Include. (a) Running the board, chairing all its meeting, setting its agenda, conducting its proceeding, and leading all discussions at board and Shareholder meeting. (b) Ensuring that directors get adequate and timely information. (c) Acting a bridge between the board and shareholders (d) Evaluating the performance of the board as a whole and of each of its individual members (e) Act as an arbiter for any issues between different members of the board or management.

Role of Chief Executive Officer (CEO)

Responsible for management Company and its operations All Executive director or senior managers directly or indirectly report to him. He is answerable to board.

Duties of Officer: Chairman and CEO

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 and Approval of key Officials


Two important officials of the company have considerable influence on its governance. 1. CFO 2. Company secretary The code of corporate Governance issued by SECP states the following regarding these two officials. Appointment term Qualification for CFO and Company Secretary Requirement of attending the board meeting

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

Qualification for CFO and Company Secretary


CFO should be a member of recognize body of professional accountants; or he should be a recognized university graduate having 5 years experience in relevant field. Same condition for Company Sectary.

Requirement of attending the board meeting


CFO and Company Sectary should attend the meeting of BODs. They will vote at the meeting only if they are elected directors.

Você também pode gostar