Chapter 4 The Board of Directors -the governing body elected by the stockholders that exercises the corporate powers

of a corporation, conducts all its business and controls its properties. 5 Board Functions 1. To hire, evaluate and perhaps even fire top management, with the position of CEO being the most important to consider; 2. To vote on major operating proposals (e.g. large capital expenditures and acquisitions); 3. To vote on financial decisions (e.g. large of stocks and bond, dividend payments, and stock repurchases); 4. To offer expert advice to management; and

5. To make sure the firms activities and financial condition are accurately reported to its
shareholders. The Boards Legal Duties o o The Model Business Corporation Act Business judgement rule 1. Fiduciary duty 2. Duty of loyalty and fair dealing 3. Duty of care 4. Duty of supervision Board Committees 1. Executive Committee 2. Financial Committee 3. Community Relations committee 4. Corporate governance committee

Most Common Subcommittees Audit committee Compensation committees

Nomination committees Stock option committees

Board Structure Regulations NYSE and NASDAQ- requires that their listed firms have an audit committee and compensation committee consisting of independent directors. Sarbanes-Oxley Act/ Public Company Accounting Reform and Investor Protection Act Of 2002

More Attention on Directors 2 Rules Adopted by SEC in 1992 1) Additional disclosure of executive compensation 2) Shareholders pressure the directors What Is A Good Board? Independent Boards Small Boards Vs. Large Boards

Potential Problems with Todays Boards o The boards chairman is also the firms CEO The boards chairman is not the same with the CEO but have some sort of business or personal tie Directors do not have significant vested interest in the firm They might be too busy and they might not have the expertise to carry out their obligations.

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International Perspective-Boards in Western Europe Two-Tier Boards Management board and a supervisory board

Board Regulations on Independence

U.K.S Combined Code On Corporate Governance The Cadbury Committees Code Of Best Practice Belgiums Corporate Governance Act

Italys Corporate Governance Code Of 2002 Spains Aldama Report Of 2003