EXCEL PROFESSIONAL INSTITUTE CORPORATE STRATEGY, ETHICS AND GOVERNANCE-2.6

Transcription

1 EXCEL PROFESSIONAL INSTITUTE CORPORATE STRATEGY, ETHICS AND GOVERNANCE-2.6 BOARD ROLES AND RESPONSIBILITIES

2 Board structure and responsibilities Role of directors Executive remuneration

3 1. BOARD STRUCTURE AND RESPONSIBILITIES 1.1 Unitary Board Ghana operates the unitary board which I made of a mix of executive and non-executive directors All directors have the right to participate in board decision making. Advantages of Unitary Board Legal responsibility Disadvantage Objectivity of monitoring Inclusive decision making Questioning of action and decisions of executive directors Better relationship (single board promotes easier co-operation) Time requirement Seen as supporting divisions between managers and employees Shareholder relationships

4 Ghana s code of Best Practices in CG outlines the following objectives; Board to ensure that the corporate body is properly managed in order to protect and enhance shareholder value To meet the corporate body s obligations to; Shareholders Environmental Element The industry in which it operates Macro-environment To the law Industry or sector Competitors and market Basis of analysis PESTEL Key drivers of change Scenarios Five forces Cycles of competition Strategic groups Market segments CSFs The interests of other stakeholders are relevant as a derivative of the duty to shareholders The code clearly states that the responsibility for good corporate governance sits with the board of directors

5 Principal duties of the board will include; The strategic guidance of the corporate body in keeping with its business objectives Overseeing the management and conduct of the business Legal The identification of risk ad the implementation systems that manage risk Succession planning and the appointment, training, remuneration and replacement of senior management Overseeing of internal control systems Sociocultural Factors Maintenance of the corporate body s communications and information dissemination policy.

6 South Africa s King Report provides a good summary of the role of the board as follows; To define the purpose of the company To define the values by which the company will perform its daily existence To identify the stakeholders relevant to the business of the company. To develop a strategy combining all three factors and ensure management implements that strategy

7 The board should have a formal schedule of matters reserved to it for decisions such as; Mergers and takeovers (fundamental to the business) Acquisitions and disposals of assets of the company or subsidiaries The board must determine, all above a set size, Investments, capital projects, bank borrowing facilities, loans and foreign currency transactions. Determining the nature and extent of the significant risks that it is prepared to take as well as maintaining sound risk management and internal control systems

8 Other tasks the board should perform include; Monitoring the chief executive officer Monitoring risks and control systems Monitoring the human capital aspects of the company in regard to succession, morale, training, remuneration, etc. Ensuring that there is effective communication of its strategic plans, both internally and externally

9 Ethical values highlighted in the Kings Report Moral duties of individual directors (Kings Report) Responsibility: assuming responsibility for assets and actions, and maintaining an ethical and sustainable strategic path Accountability: justifying decisions to shareholders and stakeholders Fairness: fairly considering all legitimate stakeholder interests Transparency: disclosing information so that stakeholders can make an informed analysis of performance and sustainability Conscience: acting with intellectual honesty and independence of mind in the best interests of the company and its stakeholders, avoiding conflicts of interest Inclusivity: taking into account the legitimate interests and expectations of stakeholders Competence: having the knowledge and skills required to govern a company effectively Commitment: diligently performing duties and devoting enough time to company affairs Courage: having the courage to take the necessary risks and to act with integrity.

10 3. ROLE OF DIRECTORS 3.1 Attributes of Directors Directors need to have relevant skills and expertise in the industry, company, and in governance The board as a wholes needs to contain a mix of experience and show a balance between executive management and independent NEDs All directors should receive induction on joining the board. New and existing should have appropriate training to develop the knowledge and skill required All directors must be able to allocate sufficient time to that company to carry out their responsibility

11 All reports acknowledge the importance of having a division of responsibility at the head of an organisation. One way to do this is to require the roles of chairman and chief executive to be held by two different people

12 Running the board and setting its agenda Ensuring the board receives accurate and timely information Ensuring effective communication with shareholders Ensuring that sufficient time is allowed for discussion of controversial issues Taking the lead in board development Facilitating board appraisal Encouraging active engagement by all the members of the board Reporting in and signing off accounts

13 Upholds the highest standards of integrity and probity Leads board discussions to promote effective decision-making and constructive debate Promotes effective relationships and open communication between executive and non-executive directors Promotes the highest standards of corporate governance Ensure a clear structure of, and the effective running of, board committees, etc.

14 The CEO is responsible for running the organisation's business and for proposing and developing the group's strategy and overall commercial objectives in consultation with the directors and the board. The CEO is also responsible for implementing the decisions of the board and its committees, developing the main policy statements and reviewing the organisational structure and operational performance of the organisation A guidance note suggests that the major responsibilities of the CEO will be as follows: Business strategy and management Investment and financing Risk management Board committees

15 Division of responsibility is necessary to avoid one individual having unfettered control of the decision- making process The chairman and CEO responsibility should be separated for the following reasons; It reflect the reality that both jobs are demanding roles and ultimately, the idea that o one person would be able to do both jobs well The separation of roles avoids the risk of conflict of interest The board cannot make the CEO truly accountable for management if it is led by the CEO Separation of the roles means that the board is more able to express its concerns effectively by providing a point of reporting for NEDs

16 NEDs have no managerial responsibilities Role of NEDs Strategy Performance Risk Directors and managers remuneration, appointment, removal and succession planning Advantages of NEDs They may have external experience and knowledge which executive directors do not possess NEDs can provide a wider perspective than executive directors who may be more involved in detailed operations Good NEDS are often a comfort factor for third parties such as investors or creditors

17 NEDs may lack independence. NEDs may have difficulty imposing their views upon the board Limited time devoted to the role by NEDs High calibre NEDs may move towards the best-run companies, rather than companies which are more in need of inputs from good NEDs

18 Ghana s code states that the number of NED must be at least one third of the total membership of the board and not less than two people Independence of NEDs Safeguards to ensure that NEDs remain independent suggested by CG reports include; NEDs should have no business, financial or other connection with the company or its directors, apart from fees and shareholdings They should not take part in share option or performance-related pay schemes and their services should not be pensionable Appointments should be for a specified term and reappointment should not be automatic Procedures should exist whereby NEDs may take independent advice, at the company expense, where necessary

19 4.1 Need for guidance Greenbury Committee (UK) set out principles of what remuneration policy should involve; Directors remuneration should be set by independent members of the board Any form of bonus should be related to measurable performance or enhance shareholder value There should be full transparency of directors remuneration including pension rights in the annual accounts

20 Ghana codes state the following; Remuneration policy (considerations) Levels of remuneration in corporate bodies should be competitive taking into account industry practices Remuneration should focus on retaining management and be linked as far as possible to corporate and individual performance Stock options, employee share ownership schemes and other equity oriented plans should be considered as a means of linking management s interest to that of shareholders Remuneration of Executive and NED Remuneration levels of directors should reflect experience and level of responsibilities The board as a whole should determine the remuneration of NED (exclude individuals concerned) Remuneration of NEDs should be fixed at a level that will ensure commitment

21 Remuneration committee plays the primary role in establishing remuneration arrangements. In order to be effective the committee need to determine the organisation s; general policy on the remuneration of executive directors Specific remuneration packages for each director

22 END OF CHAPTER THANK YOU