The Board of Directors

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 Importance of the Board
It is often believed, by stakeholders, social
scientists and the regulators alike, that the key
to good corporate governance lies in the hands
of a company’s Board.
But:
How does a Board become good?
Is a good Board born or made?
Is a Board free to be good?
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 The Board’s Role
 Provide entrepreneurial leadership
 Set strategic objectives of the company
 Arrange for resources needed to achieve the
strategic objectives
 Review management performance
 Set the company’s values and standards
 Act as a bridge between stakeholders

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 Different Board Types:
The Good, Bad, and Ugly
‘Yes-men’ Board
‘Rubber Stamp’ ‘Good Old Boys’
Board Board

‘The Real Thing’

‘Country Club’
‘Paper’
Board
Board
‘Trophy’ Board

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 Powers of the Board
 Sources of Power
 Company’s Articles of Association
 The Law
 Resolution passed by shareholders
 Sometimes, industrial practice.
 By and large, absolute powers vest in the directors
 Collective powers: may be delegated
 The issue of collective and individual powers
 Executive Directors
 Non-executive Directors
 Members of Board Committees

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 Functions of a Board
 Oversight
 Directional
 Advisory

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 Oversight Function
 Approving and monitoring strategic plans.
 Approving and monitoring annual plans,
operational and capital budgets
 Engaging external auditors
 Ensuring integrity of annual report
 Review of major operational activities

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 Directional Function
 Setting company’s mission statement, vision
statement, value statement, etc.
 Appointment of CEO and other senior
executives
 Planning for succession of senior executives
 Appointing various committees like audit,
remuneration, executive, etc.

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 Advisory Function
 Guidance
 What else is happening in the world
 Different perspective
 Specialized input on specific areas

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 Tools Available
 Composition of the board
 Independence of the board
 Committees
 External help where necessary
 Governmental intervention

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 Board’s Responsibilities
 Collective responsibilities of the board
 Individual responsibilities of each director

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 Collective Responsibilities
 Acting in the best interest of the company.
 Accountability to owners
 Statutory duties:
 Keeping minutes of all meetings
 Filing periodic reports and financial statements

 Stock exchange updates

 Fiduciary / Trusteeship Duties

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 Test of Fiduciary Duties
 Transactions are reasonably incidental to
company’s business
 Good faith, believing the transactions to be
correct.
 Disclosure of conflict of interest

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 Delegation of Powers/Duties
 Law permits delegation
 But does the responsibility remain with
directors? (Governance Issue)
 Issues in Delegation:
 Was it properly delegated.
 Was it properly supervised.

 The system of oversight and accountability over

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 Borrowing Powers
 How much can a Board borrow?
 Is it only a lenders’ problem, or should the
other stakeholders also have a say?
 Regulatory constraints on lenders (e.g.
Prudential Regulations of SBP)
 What if the company borrows from non-formal
sector?
 Tax implications
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 Types of Boards
 Composition:
 Unitary (single tier board)
 Two-tiered

 (upper tier is supervisory board)

 (lower tier is management board)

 Tenure
 Common tenure
 Staggered

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 Balance on the Board
 Balance of representation
 Balance of talents / abilities
 Balance of power
 Balance of attitudes or views

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 Consequences of Imbalance
 Board can be misguided by the executives
 Interest of only one stakeholder is served
 Poor decision making
 Status quo mentality
 Lack of communication
 Things start getting fixed

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 Cadbury Code Guidelines
 Regular meetings
 Monitoring executive performance
 Draw clear lines of authority
 Good board room practices

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 Board Room Practices
 Every one should participate
 Formalized written procedures
 Induction program for directors
 Each director should get the same information
at the same time
 No post-facto approvals
 Chairman decides the content of the agenda

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 Role of Chairman
 Running the board, chairing its meetings
 Ensuring all directors get timely and complete
information
 Acting as bridge between the board and
shareholders / stakeholders
 Evaluating the performance of individual
directors
 Arbiter in event of internal disputes
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Responsibilities of CEO & Senior
Management
 Operating the company in an effective and ethical
manner according to policies set by the Board
 Drawing the strategic plans
 Drawing annual plans and budgets
 Selection of managerial and other staff
 Identifying business risks
 Financial reporting
 Internal Controls
 Code of Conduct for all staff

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 Duality of Office:
Chairman & CEO
 Speeds up decision making
 Quick action
 Saves cost: often only one salary
 More effective due greater powers:
 Within the company
 Dealing with outsiders

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 Separation of top offices
 Provides an extra layer of answerability
 Lesser chance of cover-ups
 NE chairman not member of management
 NE chairman provides better option for
monitoring
 NE chairman is closer to stakeholders

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 The Corporate Sins
 Sloth (unwillingness to take initiative,
laziness)
 Greed (self over company)
 Fear (cowardice, lack of integrity)

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Thank you

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