The Board-Management

Relationship
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What lie on whos part?
The power to operate the company de jure lies
to the board and de facto it lies in the
management.
The board is ultimately responsible for the
activities of the company.
The power used by the management of the
company is delegated by the board.
CEO as a leader of the management is
responsible for the use of the power delegated
by the board.
CEO and his management team always need to
be accountable to the board.
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Role of the Board
In this relationship, role of the board can
be point out in following way.
To understand and approve the strategy and
plan of the CEO.
To monitor the execution of the plans.
To evaluate the result periodically.
If necessary, to decide whether, when and
how it should intervene.
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Key functions of the Board
Reviewing and guiding corporate strategy,
major plans of action, risk policy, annual
budgets and business plans.
Setting performance objectives.
Monitoring implementation and corporate
performance.
Overseeing major capital expenditures,
acquisitions and divestitures.
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continued.
Monitoring and managing potential conflicts of interest of
management, board members and shareholders,
including misuse of corporate assets and abuse in
related party transactions.
Ensuring the integrity of the corporations accounting and
financial reporting systems, including the independent
audit, and that appropriate systems of control are in
place, in particular, systems for risk management,
financial and operational control, and compliance with
the law and relevant standards.
Overseeing the process of disclosure and
communications.
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The Chairman
Chairman is appointed by the board of director
among the member of the board.
It is the provision of the memorandum and article
of association which determines the status of
chairman either executive or non executive.
In case of executive chairman there is no
question of appointing the CEO.
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CG Principles on Chairman
CG principles do not ignore both status of
the chairman i.e. executive and non-
executive.
In case of executive chairman the majority
number of independent directors is
recommended.
In case of non-executive chairman
minority presence of independent directors
is acceptable.
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Role of the Chairman
To lead the board.
To formulate necessary policies for the
achievement of the objectives of the company.
To provide strategic guidelines to the company.
To conduct board meetings.
To chair the general meeting.
To implement the decision of the board and
general meeting.
To answer the question of the shareholders.

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Appointment of the CEO
The power to appointment of the CEO is comes
under the jurisdiction of the Board.
Board can do it in the recommendation of the
nomination committee.
The board of directors can appoint the CEO
among its members (Section 96).
The rights and duties of the CEO shall be as per
the provision of article or memorandum of
association or as determined by the board.
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Succession Planning
Board shall prepare the succession
planning of the CEO.
The outgoing CEO can contribute or
influence the succession planning.
Necessary precaution shall be taken for
emergency succession.
It is the board which can decide about the
successor either insider or outsider.
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Benefits of Having Insider
Well known to the decision makers.
Probably managed his/her carrier path
with the top spot in mind.
Predictable in behaviour and attitude.
Groomed to some extent by predecessors.
Possess substantial knowledge of working
environment of the corporation.
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Shortcomings of having
Insider
A narrow perspective than outsider.
Problem of adjustment with external
changes.
Lack of dynamism.
Probability of loosing trained managers.
Conflict with the other probable candidates
during the work.

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Benefits of having Outsider
Independent functioning
Standard in performance
Dynamism
Optimistic
Broader perspective
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Shortcomings of having Outsider
Lack of understanding.
Uncertainty in competency and leadership.
Problem regarding adjustment.
Absence of good relationship with
stakeholders.
State of conflict.


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Selection
It is the duty of the board to select proper and
competent person for the post of the CEO.
CEO can be hired from three different areas viz.
among the board members themselves, from
insiders or from outsiders.
Nomination committee is recommended for the
selection of proper candidate for the CEO.
The outgoing CEO can also contribute for the
selection of new CEO.
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Role of the CEO in selection
process
The out going CEO can make both positive and
negative role in selection of the new CEO.
Some contribute for this by grooming the
subordinate for the post.
Some dont want to involve in the process.
Because of their personality some CEOs are
often less than spectacular judges of leadership
capabilities of others, especially their
subordinates.
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Selection of the new candidate
shall be based on
Experience, age and other considerations
Qualification
Personal Attribute
Character and the emotional quotient
Technical competency in the industry
Administrative skills
Interpersonal skills

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Qualities of Ideal Candidate
Have had demonstrable, meaningful exposure to
general management responsibility.
Have exhibited a specific ability to deal with the
key general management challenges that are
currently facing by enterprise.
Have a strong functional understanding of the
industry.
Have a track record of unequivocal
accomplishments in prior positions.
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Rights and Duties of the CEO
Operating the corporation
Strategic planning
Annual operating plans and budgets
Selecting qualified management and
establishing an effective organizational
structure
Identifying and managing risks
Good financial reporting
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Performance evaluation of the
CEO
Board is responsible for the evaluation of
CEO.
Performance evaluation process shall
focus the overall result of the company
and the achievements for the
shareholders/stakeholder.

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Pre-requisites of performance
evaluation
The interest of the CEO and of the
company must be aligned.
There must be mutually agreed-upon
goals, standards, and time frames for the
result.
Accurate and timely measures of the key
indicators of success.
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Compensation
CEO and Management compensation
must reward strong current performance
and simultaneously provide incentives for
similar future result.
The compensation should be structured to
avoid paying premiums for average or
poor performance.
Arrangements like golden parachutes shall
be avoided.
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Relating Compensation with
Performance
What constitute good performance?
Does management make a difference in
performance?
Does compensation make a difference in
getting good management?
How much, if any, of managements
compensation should be at risk?
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Component of CEO
Compensation
Current
Base salary
Fringe benefit
perquisite
Cash bonuses
Long term
Cash bonuses
Stock options
Stock grants
Stock ownership plans
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What is Strategy?
Strategic is the conduct of drafting, implementing
and evaluating cross-functional decisions that
will enable an organization to achieve its long-
term objectives. It is the process of specifying
the organization's mission, vision and objectives,
developing policies and plans, often in terms of
projects and programs, which are designed to
achieve these objectives, and then allocating
resources to implement the policies and plans,
projects and programs.
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Strategy formulation versus
implementation
Strategic planning process begins from the
decisions regarding the companys goals
and objectives.
CEO formulate the strategies for the
attainment of the goals and objectives of
the company.
Plans to execute strategies effectively also
need to be made.
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continued.
Before endorsing the strategies and plans,
board need to scrutiny it either they are
matching with the objective of the company or
not.
Probability of execution is other fact which needs
care of the board.
The mutual understanding of the strategies and
plans by both board and the CEO can make
good environment for execution.
The assumption upon which the strategies and
plans are based also need to tracked to assess
the relevance and validity.
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Search for a sustainable
competitive advantage
The board and the CEO always need to remain
with their vigil eye for search of sustainable and
competitive advantage of the company.
They always need to be ready to adopt new
changes.
The market and other environment can compel
to take step both forward or backward.
So strategies are always in changing nature.
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Changing nature of Strategies
The first movement in seventies and eighties
focused on
Diversification
Decentralization
In second half of the last century, concept was
changed and pressure for focus was started.
Development of science and technology
basically electronics and information technology
changed all existing trend.

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Current Strategic Issue
Restructuring via merger and acquisitions
Knowing the results of the company
became the oversight responsibility of the
board.
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When the board should
intervene?
Based on past events
Based on view of future
After loss of confidence.
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Any Questions?



Thank You
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