Directors Responsibilities- Corporate Governance

Transcription

1 Directors Responsibilities- Corporate Governance By Kendrick K. Christie CA, CFE At The Bahamas Institute of Financial Services Seminar Sandals, Cable Beach May 17, 2006

2 Corporate Governance- A definition OECD- Corporate Governance deals with the rights and responsibilities of a company s management, its board, shareholders and various stakeholders. Good corporate governance is essential for companies that want access to capital and for countries that want to stimulate private sector investment.

3 Before Enron/ After Enron

4 Background Scandals Worldcom, Enron etc. -35 Billion Cost to the US Economy Local misperception regarding auditor role e.g. prepare financial statements, pass audit entries, reconcile etc. Audit Firms and Turnover of Staff Management override of controls

5 Background Insufficient skepticism on part of Board/ Audit Committee Tight deadlines (impossible) Deficiency in internal controls and Client accounting records

6 Korn/Ferry International Survey- Survey Board Members Feb 23,2006 Americas Are Boards More Cautious? 72% Should SOX be repealed? 58% Japanese UK 72% 67% 61% 58% 37% 28% Turned down a Board Seat 59% 59% N/A N/A 62% Hours Per Month Devoted to Board 62% 16 to 25Hrs 21% > 25Hrs 26% >25Hrs

7 Quote Time In Pawns or Potentates: The Reality of America s Corporate Boards, author Jay Lorsch quotes two directors of large NYSE companies: Directors today don t t want colleagues like the old ones who rubber-stamped management s s decisions. You don t want to share responsibilities or or liabilities with people who don t t pull their own weight or do their Homework.

8 Quote Time Directors are more forward nowadays. There s s no more of the good-old old-boy club meeting atmosphere, because of the directors responsibility and liability. They don t t assume something is correct simply because the CEO said it. They want proof he s s right.

9 Julian Francis July 24, 2004 Directors are taking a more active role in the affairs of the institute. We are seeing that Directors are requesting more quantative and qualitative information from management. We are seeing that matters are being followed through with greater zeal.

10 Central Bank Guidelines- Guidelines for the Corporate Governance of Banks and Trust Companies Licensed to do business within and from within the Bahamas Duty to perform functions with diligence and care and such competence as can be reasonably expected from persons with their knowledge and experience Duty to ensure that the risks that are of necessity undertaken by b the licensee in the conduct of its business are managed in a prudent manner

11 Central Bank Guidelines- Guidelines for the Corporate Governance of Banks and Trust Companies Licensed to do business within and from within the Bahamas Duty to independently assess and question the policies, processes and procedures of the licensee with intent to identify and initiate management action on issues requiring improvement Directors should have basic knowledge and understanding of the conduct of the business and laws, regulations, guidelines, other regulatory requirements

12 Central Bank Guidelines- Guidelines for the Corporate Governance of Banks and Trust Companies Licensed to do business within and from within the Bahamas Duty to ensure that management provide them with adequate, appropriate and substantive information on the activities and operations

13 Central Bank Guidelines- Guidelines for the Corporate Governance of Banks and Trust Companies Licensed to do business within and from within the Bahamas Act with honesty, integrity and good faith with view to best interest of the entity Exercise due diligence and skill Act on a fully informed basis Act only in the scope of their authority Recognize and act against conflict of interest

14 Board Duties The Board is responsible for: the strategic direction of the Company, the strategic direction of the Company, approving budgets and other performance indicators, approving budgets and other performance indicators, reviewing performance against them and initiating reviewing performance against them and initiating corrective action when required,

15 Board Duties ensuring compliance with applicable laws, ensuring that there are adequate systems and procedures to identify, assess and manage risks, ensuring that there are appropriate policies in place and ensuring that there are appropriate policies in place and systems to ensure compliance, ensuring that the Board structure and composition is ensuring that the Board structure and composition is effective,

16 Board Duties fostering an appropriate corporate culture, approving the remuneration of the CEO and remuneration policy and succession plans for the CEO and senior management, and ensuring that there is an appropriate focus on the interests of all stakeholders.

17 The Chairman of The Board 1. Is a member of the Board 2. Serves as the Chief Volunteer of the organization (nonprofit only) 3. Is a partner with the Chief Executive in achieving the organization's mission 4. Provides leadership to the Board of Directors, who sets policy and to whom the Chief Executive is accountable.

18 The Chairman of The Board 5. Chairs meetings of the Board after developing the agenda with the Chief Executive. 6. Encourages Board's role in strategic planning 7. Appoints the chairpersons of committees, in consultation with other Board members. 8. Serves ex officio as a member of committees and attends their meetings when invited.

19 The Chairman of The Board 9. Discusses issues confronting the organization with the Chief Executive. 10. Helps guide and mediate Board actions with respect to organizational priorities and governance concerns. 11. Reviews with the Chief Executive any issues of concern to the Board.

20 Board Members The following description was adapted from materials from BoardSource. 1. Regularly attends board meetings and important related meetings. 2. Makes serious commitment to participate actively in committee work. 3. Volunteers for and willingly accepts assignments and completes them thoroughly and on time.

21 Board Members 4. Stays informed about committee matters, prepares themselves well for meetings, and reviews and comments on minutes and reports. 5. Gets to know other committee members and builds a collegial working relationship that contributes to consensus. 6. Is an active participant in the committee's annual evaluation and planning efforts.

22 CG Case Study

23 Bank Of The Bahamas Board members required to complete self assessment of the board on an annual basis Branches, Operations, Accounts required to submit In Control document to Executive Board

24 Bank of The Bahamas Publication of Actual Letter-2005 to Central Bank of The Bahamas Re Corporate Governance Certification Publication of Attendance record at Board Meetings Established Corporate Governance Committee in 2005

25 Bank of The Bahamas Board materials must be handed out 3 to 5 days in advance of a meeting Chairman and Managing Director prepare the agenda for each meeting. Directors can request that certain items be added to the agenda

26 BICA Professional Practice Note- Corporate Governance Checklist The Checklist incorporates questions and work from various issuances including: Central Bank Corporate Governance Guidelines The King Report on Corporate Governance (South Africa); The Business Roundtable - Principles of Corporate Governance (USA) OSFI Corporate Governance Guidelines (Canada)Review Relevant local legislative requirements (i.e. The Banks & Trust Companies Acts and Regulations, The Companies Act, common law issues, etc.) ISA 800 The Auditor s s Report on Special Purpose Audit Engagements

27 BICA Professional Practice Note- Corporate Governance Checklist Is a Checklist designed to assist board in meeting Central Bank Corporate Governance Certification and/or assessing Corporate Governance Issued in 2004 and is an Agreed Upon Procedures Engagement, no assurance provided to the Board

28 BICA Professional Practice Note- Corporate Governance Checklist Part 1 Board Questionnaire Part 2-2 Interviews and Testing Issuance of Factual Findings and Discussion with Board of Directors

29 BICA Professional Practice Note- Corporate Governance Checklist Evidential Documents Interviews Board Responsibilities Board Composition Board Committees Board and Director Evaluation Audit Committees Internal Audit

30 BICA Professional Practice Note- Corporate Governance Checklist Risk management Competency of Senior Management Business and Operating Performance

31 Who Wants to Be a Director?

32 Board Responsibilities Has the Board established and implemented corporate governance processes? Has the Board implemented a standard of business conduct and Code of Ethics as part of its Corporate Governance? Does the Board have an orientation programme to familiarize incoming directors with the institution s operations, and to induct them in their fiduciary duties and responsibilities?

33 Board and Director Evaluation Does the Board regularly review its mix of skills and experience and other qualities to ensure effectiveness of the Board as a whole? Does the Board have an assessment process for directors individually and the Board as a whole? Is the process formally documented and communicated?are the issues raised out of the assessment process formally dealt with and documented? A system of control self-assessments can be used in the evaluation of directors and the Board

34 Board and Director Evaluation Is there a formal process for board papers and minutes? Is there a procedure agreed by the Board for directors in the furtherance of their duties to take independent professional advice if necessary, at the company s expense? Are there set criteria for Board membership? Is the board the right size?

35 Board Responsibilities Does the Board receive briefings on relevant new laws and regulations and changing commercial risks? Does the Board have full and effective control over the company by monitoring management and ensuring the implementation of the Board s plans and strategies? Is the company complying with all the relevant laws, regulations and prudential norms?

36 Board Responsibilities Does the Board appoint the chief executive officer? Does the Board oversee and participate in the appointment of other senior executives? Does the Board set performance-based compensation policies, programs, goals and standards for senior management and review the compensation programs establish by senior management for other management and staff?

37 Board Committees Does the Board have formally determined terms of reference for its sub-committees, with agreed reporting procedures and written mandates? Has the Board appointed independent/non-executive executive directors to those committees? Does the Board have at a minimum an audit and nomination/remuneration committee? Particularly where a potential for conflict of interest exists.

38 Competency of senior management Does the Board assess and ensure the experience, integrity, technical and managerial competence of management? Does the Board oversee and actively participate in the appointment of senior executives?

39 Competency of senior management Does the Board set performance based compensation policies and standards for senior management? Does the Board effectively supervise and evaluate management s s performance? Has the Board developed and regularly update a management succession plan?

40 Thank You For Listening!