The Board of Director

7/30/2019 The Board of Director

1/68

THE BOARD OF DIRECTOR

PRESENTED BY. RAJA ADEEL NASEEM

TOQEER ABBASI

CLASS. MSBA-I (EVE)

PRESENTED DATE. 04-OCT-2012


2/68

The Board of directors is the body of elected orappointed members who jointly oversee the activityof the company.

Definition


3/68

Board as the principal instrument ofGovernance

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.


4/68

Provide Entrepreneurial leadership.

Set strategic. (long term objectives and planto Implement).

Arrange resources to Implement Strategicplan.

Review the performance of management. Set company values and standards.(mission,

vision, values statement, code of conduct for

Mgt and employees)

Board Role as Principle Instrument of

Corporate Governance


5/68

Ineffective board are the those boards whos

members are not fully aware of theirresponsibilities and work for the company.

Ineffective Boards


6/68

I. Rubber stamp Board or Yes Men board.

II. Good old boys board or country clubboards.

III. Paper board

IV. Trophy board

Types of ineffective boards


7/68

That simply approves whatever proposal orresolution is put forward by the executivedirectors, or more particularly, the chairmanof the board

1. Rubber stamp Board or Yes Menboard


8/68

These are old friends of the chairman whosimply meet at exotic places for boardmeetings but only talk about good old daysrather than conduct the company business.

2.Gold old boys board or country clubboard


9/68

It exists only on paper and plays no role inthe company e.g. wives and daughter ofprincipal shareholder of the company.

3. Paper board


10/68

It comprises of people who have a big namein the society ( trophies like major sportsstars, film actors, politicians, etc. ) but haveno acumen for conducting a company

business.

4. Trophy board


11/68

Power of Board The BOD of a company has absolute power to

conduct the affairs of the company.


12/68

Power of Board

The BOD draws its power fromthe following sources

1) The company Constitution

2) The Law

3) Resolution Passed byShareholder


13/68

In case of Pakistan, this means the Articlesand Memorandum of association of thecompany which clearly lay down. The powerof directors and how may be exercised.

The company Constitution


14/68

In case of Pakistan, this refers to companies

act which provides a standard set of Articlesin its Table A.

The Law


15/68

In certain cases shareholder may grant such

powers to the directors that were notpreviously available to the directors bypassing a special resolution to that effect

Resolution Passed by Shareholder


16/68

Board may delegate one or more of its collective powerto an individuals or a committee who may or may notbe 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


17/68

Delegation of power can be done by passing

resolution with majority.Example

Board authorize Finance director to Negotiate loanterms and sign all necessary documents. The company

will be responsible for loan and board will beaccountable to shareholders.



18/68

Board pay due attention to following when delegatingpower.

1) Is necessary to delegate this power

2) Method use for delegation is appropriate.(passingproper resolution, TOR)

3) Board will also ensure that the Power will not missuse.



19/68

The board of director of the company has three

main functions.1) Oversight

2) Directional

3) Advisory

Functions of Board


20/68

Approving and monitoring company strategic

plan. Approving annual budgets and plans.

Engaging external auditor and liaising withthem.

Ensuring the integrity and reliability ofcompany annual reports

Review of major operational activities.

1. The Oversight function of theBoard


21/68

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 committeeexecutive committee and remuneration committee.

2. The Directional Function of theBoard


22/68

This refers to provision of general guidance

to the management keeping them informedof what is happing in the rest of thecorporate world and offering specializedhelp in certain areas.

3. The Advisory function of the Board


23/68

(1) Composition of the board

(2) independence of the board.

(3) committees

(4) external help

(5) Government intervention

Tools Available to a Board


24/68

If the individual directors are competent person they

ensure the function of the board are performed in asatisfactory and professional manners.

In the other side if the directors are in bulk, oldcountry club guys or unqualified persons they are

not able to meet up the challenges of an effectiveboard.

1. Composition of the board


25/68

In order to perform effectively, a board must be

independent. They should not be dependent on any particular

shareholders, stakeholders, external party, investoror organization.

They should be free to take the decisions forcommon good of company.

2. Independence of the board.


26/68

A board can form any number of committees to

ensure that due intention is paid to the variousmatters that are brought before it.

A committee may comprise wholly of directors or itmay have members from outside the board is well.

A committee can examine a matter in greater detailand come up with summarized report for theconsideration of the board.

3. Committees


27/68

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 remunerationof employees, it is often deemed helpful to use the

service of external HR expert to carry out a survey ofsalaries in the particular industry and draftrecommendations in light-of.

4. External Help


28/68

Board use governmental or society help inconducting is affairs.

In Pakistan directors are often unwilling to seekassistance from the government for fear of invitingundue intervention.

In some situation its necessary to chose governmenthelp.

5. Government Intervention


29/68

Responsibilities refers to act and duties thatmust be performed by a person or body.

I.e. (BOD present annual report to shareholder)

Accountability refers to the requirement ofhaving to explain and give an account of whathas been done by a person or body.

i.e. (Shareholder can ask them Question regardingtheir performance)

Responsibility and Accountability


30/68

The board is responsible for its acts and

accountable to the company and not to anyother party .

There are two types:

1. Collective responsibility

2. individual responsibility

Responsibilities of a Board


31/68

There are four types:

1) Acting in the best interest of the company2) Accountability to the owners

3) Statutory duties

4) Fiduciary or trustee-ship duties

Collective responsibility


32/68

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 refrainform taking any decisions which harm company

overall interest, financial position and performance

1. Acting in the best interest of thecompany


33/68

The director are required to present an account of theirconduct to the owners of the company.

In formal terms Directors issue Periodic report likequarterly reports, half year reports or annual reports toshareholder

Shareholder have right to ask question and board musthave to answer.

In Informal communication they issue newsletter, specialreport etc.

b. Accountability to the Owners


34/68

Maintain proper Minutes of all meeting

Send copy of Periodic reports to SECP.

Director ensure that company maintain proper bookor account and audit at proper time.

If company listed at Stock Exchange the director may

required to file certain document with the StockExchange at appropriate interval.

c. Statutory Duties


35/68

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 theinterest of the giver.

Assets and resources of company belong to Shareholder. BOD are responsible for best use of resources for the

interest of shareholder.

d. Fiduciary of trustee-ship Duties

Continue


36/68

The following represent a test of how a board may handleits fiduciary duties.

1) The board should approve only those transactions thatappear reasonable incidental to the business of thecompany.

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.

Fiduciary of trustee-ship Duties


37/68

One of the power that a board of directors has is to borrowfunds on the behalf of the company.

The company act does not place any limitation on the amountof borrowing that a company can make .

The prudential regulation issue by SBP restrict the amount ofloan.

Borrowing is often and attractive form of financing newprojects.

Board has to create balance between borrowing and Equityfinancing.

Borrowing power of the Board


38/68

Classified according to composition

1. Unitary boards 2. Two-Tierd boards

Classified according to tenure of members 1. Common tenure boards

2. Staggered boards

Types of Boards


39/68

A unitary boards does not have tiers or division.

All member of the board are Equi-status participatein the deliberation of the board simultaneously.

1- Unitary Board


40/68

A two tiers has two distinct tiers.

Upper tier called supervisory board and lower tier iscalled management board.

The supervisory board comprise entirely of nonexecutives directors.

Management board comprise of executive director. Chairman of company is the chairman of both the boards

and himself a Non-Executive Director.

2- Two tier boards

Continue


41/68

All matters discussed at management board first.

Management board authorize to makerecommendations and send proposal to SupervisoryBoard.

Supervisory board discuss issues and take decisions.

Two tier boards

Continue


42/68

1) Provide grater power to Non-executive director byplacing Management board under Supervisoryboard.

2) It allows for better and more comprehensiverepresentation of various stakeholders.

3) Clear division of work B/W the supervisor andmanagement tiers.

4) Decision making improved.

Two tier boardsPrincipal Advantage

Continue


43/68

Large size.

In GERMANY avg size of board isabove 20.

Difficult to handle

Large boards will weak the effect of

batter directors. Slow decision making.

Two tier boardsProblems


44/68

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

3- Common Tenure Boards


45/68

Under this arrangement only a part of board retires at theend of stated tenure while the duration of each director

remain fixed.Example.

If Total 8 director. Each director Tenure 4 years. Afterevery 2 years 4 new director appointed.

A,B,C,D appoint in 2002 and retire in 2006. then new 4director Appointed and their tenure is (2006-2010)

E,F,G,H appoint in 2004 and retire in 2008

4- Staggered Boards


46/68

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.

Staggered BoardsAdvantages


47/68

Second half of the presentation

Toqueer Abbasi


48/68

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 andproportion of different attributes needed its members.

It is felt that each board of directors should be balanced infour respects .

1) Representation

2) Talents3) Power

4) Attitudes

Balance on the Board


49/68

This means all the stakeholders should have a

adequate holders representation on the board. Withonly shareholders allow to vote in directors, andcontrolling shareholders stage managing AGM in anorchestrated manner ,

Most companies in Pakistan lack a balance arepresentation.

Balance of representation


50/68

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 Talents or Abilities


51/68

This mean having an adequate number of trulyindependent non executive directors(INED) on a

board who enjoy sufficient power to overturn theproposals by executive or representative nonexecutive director.

INED represent particular stakeholder and protect

his interest.

Balance of Power


52/68

This mean having diversity of views at the board that

ensure presence of a wide range of moral and managerialattitudes of directors .

If all majority of the directors are aid complying sort ofindividuals with no courage to stand up to the chairmanthe of board become a rubber stamp board similarly the

majority of directors are with no one to mitigate theimpact of there adventurous spirit the company can landon more trouble then it can handle.

Balance of Attitude or Views


53/68

The prime cause of Poor Governance in Pakistani listedcompanies is Unbalanced boards.An boards in absence of sufficient numbers INEDS who have:

1) The knowledge and talent to participate meaningfully inboard proceedings.

2) An understanding of the individual interest of allstakeholders and are willing their protection.

3) The independence and courage to differ with the

management where it is necessary4) The power to over-rule the representative directorswhere the collective interest of all stakeholder sodemanded.

Causes of absence of balance in aBoard


54/68

A boar of directors conduct its affairs through board

meeting all their deliberation and decision are takenat board meeting law requires that meeting be held atsuitable frequency and fully recorded .

Board Meetings


55/68

The meeting between board of directors should be held at leastonce in every quarter in every financial year

A meeting notice shall be delivered to directors at least sevendays prior to the board meeting except in case of emergencymeeting.

The chairman of the company should direct the meeting ofboard of direction he shall be responsible for the recording ofminutes 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.

Frequency and preparation ofmeeting


56/68

These issues include:

1) Annual business plan, cash flow projection, forecastplan and long term plans, budgets, along withvariance analyses.

2) Quarterly operating results of the listed company as awhole 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 bythe external auditors.

Significant issues


57/68

4) Join venture or collaboration agreement.

5) Rules and regulation6) Implication of law

7) Recover the loans and returns

10) instant of population and environment

11) Agreement with the labor union collective bargainingagents.

Significant issues


58/68

(A) The board should meeting regularly so as to ensure

that the directors retain full and effective control ofthe company

(B) it should monitor the performance of the executivemanagement

(C) clear lines if authority should be drawn between themanagement of the company and BOD certain decisionshould only be taken by the board.

Cadbury code for Board of Directors


59/68

(a) All the directors particularly non executives directorsshould be able to contribute effectively to the decision

making process(b) there should be written procedure for the conduct ofboard meeting and compliance to these procedureshould be monitored by an appropriate committee ofthe board

(c) each director on first appointment should be given

sufficient in formation about the company and his rolein the board so that he is able to contributemeaningfully to board proceedings

(d) all directors should be given the same information andthe same quantum of the consider it before the meeting

Good Board Room Practices


60/68

(e) As for as possible post facto approval of actionsalready 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 withthe company secretary

(g) If the board appoints any committee for a short

period of time a special assignment or standingcommittee, it must clearly spell out its function termsof reference and powers in a suitable documentapproved by board


61/68

Chairman Function Include.

(a) Running the board, chairing all its meeting, setting itsagenda, 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 Chairman of the Board


62/68

Responsible for management Company and its

operations All Executive director or senior managers directly or

indirectly report to him.

He is answerable to board.

Role of Chief Executive Officer (CEO)


63/68

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 affairsmore effectively.

Duties of Officer: Chairman and CEO

A i t t d A l f k


64/68

Two important officials of the company haveconsiderable influence on its governance.

1. CFO

2. Company secretary

The code of corporate Governance issued by SECPstates the following regarding these two officials.

Appointment termQualification for CFO and Company Secretary

Requirement of attending the board meeting

Appointment and Approval of keyOfficials


65/68

The appointment, remuneration , and terms and

condition of employment of CFO, Company sectary,Head of internal audit of listed companies shell bedetermined by CEO with the approval of BODs

Appointment term

Q lifi ti f CFO d C


66/68

CFO should be a member of recognize body ofprofessional accountants; or he should be a

recognized university graduate having 5 yearsexperience in relevant field.

Same condition for Company Sectary.

Qualification for CFO and CompanySecretary

Req irement of attending the board


67/68

CFO and Company Sectary should attend the

meeting of BODs. They will vote at the meeting only if they are elected

directors.

Requirement of attending the boardmeeting


68/68

Documents

The Board of Director