Corporate Governance

Transcription

1 Corporate Governance WEBINAR PRESENTED BY MAINE VENTURE FUND JANUARY 25, 2017

2 This webinar is being recorded Participants are on mute Webinar Introduction Use chat function to ask questions anytime Questions will be answered during Q&A Presentation available on maineventurefund.com This is our first in a series of webinars 2

3 About Maine Venture Fund 3 The Maine Venture Fund is a professionally managed venture capital fund that invests exclusively in Maine companies that demonstrate a potential for high growth and public benefit. John Burns Managing Director

4 Webinar Agenda 4 Corporate governance overview (20 min) Dan Boxer MVF Board Director CEO perspective (10 min) Practical next steps (10 min) Q&A (10 min) Des FitzGerlad Founder, Ducktrap Farms

5 Corporate Governance Overview 5 DEFINING GOVERNANCE WHY HAVE A BOARD? IMPORTANCE OF INDEPENDENCE KEY ELEMENTS OF GOVERNANCE DUTIES & BEHAVIORS

6 6 No universal definition How an organization runs It s fluid What is it?

7 Definitions of Corporate Governance Organization for Economic Cooperation and Development System by which corporations are directed and controlled. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, and spells out the procedures for making decisions. It provides the structure through which the company objectives are set, attained and monitored. 7 Editor of Directors and Boards Magazine Corporate governance is gathering together a group of smart, accomplished people around a board table to make good decisions on behalf of the company and its stakeholders.

8 The best-governed companies significantly out performed the worst-practice companies on 13 financial measures, including return on investment, and net profit margin. Study of +5,000 US companies by Institutional Shareholder Services. Boards Are Good for Business 8 Better decision making through group process Protect stakeholders from CEO/ mgmt overconfidence, conflicts, and bias Helps management make tough decisions Brings specialized expertise and networking Meets investor expectations External focus

9 9 Capital providers, especially those who invest other people s money, cannot place unverified trust on founders Investors monitor, question, probe and oversee the business using board expertise independent of management Capital providers require it

10 10 Management pay Option awards CEO performance Succession planning M&A, IPO events Conflicts between management and shareholders need to be managed

11 A Board which is not predominately independent from management will not provide the prior discussed benefits. All public companies must have a majority of independent directors. Key Independence Concepts 11 An employee can never be an independent director Not all outsiders can be independent Independent directors cannot received compensation from, or have business dealings with the company Business, family or close social ties can impair independence

12 Can Investors Be Independent? The key here is independent of management Owning shares in the company does not preclude a person from being independent Still has to meet the key concepts of independence however However, depending on circumstances, directors who are also shareholders cannot be considered disinterested 12

13 Independent vs. Disinterested 13 Independent Defined based on the director s relationship with company management Disinterested Situational, defined by having interest or not in a particular situation Commonly M&A transactions

14 Players in the Governance of an Organization 14 Shareholders Grant providers State & Federal legislative and regulatory bodies Suppliers Environment Community Board of Directors CEO Management Staff

15 Defining Governance Roles 15 Understanding the roles and responsibilities of all players is a crucial element of Governance Sorting out, prioritizing and mediating the conflicting needs of players is the role of the board Governance Nuts and Bolts Key documents (policies, procedures, bylaws, agendas ) Roles of CEO, Board, Chairman Financial reporting and oversight Board committees Board leadership structure Format of meeting materials Pay and incentive plan

16 16 It s not just about policies and procedures Dysfunction includes: Board chair and CEO don t get along CEO doesn t share information Egotistic personalities

17 Good Governance Beyond Policies How players understand their relationships and roles Whether or not good competent people are in place Organizational culture is set and communicated Behavioral psychology is considered Board and management dynamics are critically reviewed 17

18 1. Strategy understanding and approval 2. Operational oversight 3. Risk assessment, understanding and monitoring 4. Financial and accounting reporting 5. Significant transaction oversight Duties of the Board Compliance, ethics, culture 7. Hiring executives, compensation and performance 8. Succession planning 9. Board operational assessment 10. Advice, mentoring of management

19 19 Review, approve and monitor management s proposed strategy Monitor progress Assure appropriate metrics and ways to measure success Operational oversight using approved and performance indicators Strategy and Operational Oversight

20 20 Assess, prioritize and monitor major internal and external risks Risk list is updated and shared with Board Understand and approve management s process of risk identification, oversight and communication Risk Monitoring

21 21 Review, approve and monitor: Management s annual plans, budget, and accounting policies Financial performance Significant transactions and expenditures Financial and Accounting

22 Review, approve and monitor: Legal compliance Corporate ethics Culture 22 Social responsibility Reputation Sustainability Compliance, Ethics, Culture

23 23 Set, monitor and evaluate CEO and sr. executive performance Set performance based compensation and incentive policies Succession planning HR development Hiring CEO, Executive Compensation, Performance

24 24 Provide ongoing wisdom, guidance and encouragement Help to open doors and network Support, but also challenge and probe Advice, Counsel and Mentoring

25 Legal Considerations of Board Service The prior section provided overview of what activities directors perform but it s also important to note how directors are legally required to perform them. The law imposes 2 key duties: q Duty of Care q Duty of Loyalty 25 Basically, directors have legal protection for reasonable business judgment made in good faith, after appropriate inquiry and in the absence of any conflicts of interest or self dealing.

26 Des FitzGerald 26 A CEO S PERSPECTIVE Founder, Ducktrap Farms & MVF Entrepreneur-in- Residence

27 27

28 We will be helped in reaching our stated goals by fielding the best and most effective Board of Directors in the State of Maine. 28

29 29

30 G.R.P.I. Model 30 Goals Are the missions and goals of the team clear? Do people understand and accept the team s primary tasks? What are the team s priority objectives? Do all agree? Do they feel committed to those objectives?

31 Roles and Responsibilities G.R.P.I. Model 31 Are the roles and responsibilities clearly described, understood and accepted? Do the defined roles support the team goal fully? Do the team members have the right competence and resources to fulfill their responsibilities? What do the team members expect of each other? Have these expectations been shared? Do they match? Do individual objectives fit with the team s overall objectives?

32 Process and Procedures G.R.P.I. Model 32 Are the processes and procedures operating in the group. understood and accepted? supportive to the group goals and roles? How are decisions made? Are authority levels clear? Are communication processes across the team working? How are problems and conflicts resolved? How is activity coordinated? Are reporting procedures understood and adhered to?

33 Interpersonal relationships G.R.P.I. Model 33 Is there a healthy level of trust, openness and acceptance in the group? How do team members treat and feel about each other? Are people s individual needs recognized and respected? Does the team climate allow for open debate and sharing of concerns? Do the team and the leader encourage feedback on the team and individual performance?

34 34

35 Practical Next Steps 35 WHAT MAKES A BOARD ADD VALUE AND BE SUCCESSFUL? CULTURE PROCESS BOARD COMPOSITION

36 How Does Your Board Culture Stack Up? q Seek constructive criticism q Conduct board and director evaluations q Address problems head on and openly q Dissenting opinions are given voice 36 q Disagreements are handled constructively q Roles are well defined, understood and honored q Board directors and management are held accountable q Discuss and promote best practices

37 Do You Have the Right Board Processes? q Tailored to your company q Open communication q Agreement on timing, frequency and content of communication q Effective chairman 37 q Effective committees q Meeting follow-up and To-do tracking q Executive sessions q Feedback on board member and CEO performance

38 The CEO Manages the Company, The Chairman Manages the Board. 38 Why separate CEO/ Chairman? Chairman Roles Eliminates conflicts Allows CEO to focus on what s most important Distinguishes roles of board vs. management Streamlines communication Sets meeting agenda Facilitates meetings Serves as single point of contact and buffer Oversees committees and board process

39 Are the Right People in the Right Seats? q Right skills, contacts and expertise q Give investors confidence q Fills identified needs, not just handpicked by founder q Diversity of experience and ideas 39 q Not friend, family or business associates q Majority independent of management q Have necessary time to add-value q Available between board meetings for consults

40 Additional Resources from MVF 40

41 Questions and Answers 41