5.3.

Board meetings & Board structures

5.3.1 Board meetings

A board meeting is a formal meeting of the board of directors of an organization and any
invited guests, held at definite intervals and as needed to review performance, consider
policy issues, address major problems and perform the legal business of the board and
presided over by a chairperson of the organization.

Board meetings take place at set intervals, often quarterly or biannually. They can happen
more frequently, depending on how your company works and how often your directors
want to meet to review processes and company progress. Board meetings shouldn’t be
longer than two to three hours. Meeting should be regular or at need and attendance
expected.

5.3.2 Board structures

Board structures are integral part of corporate governance. Board structures significantly
influence corporate growth and are governed and regulated by legal and regulatory
framework in order to protect shareholders rights and curb malpractices. There are two
kinds of board structure, unitary and two-tier (dual) boards.

The boards of most listed companies have between eight and twelve board members, and
there are four structures of unitary:
• The all executive director board
• The majority excecutive director board
• The majority non-executive director board
• The all non-excecutive director board

Unitary board:

Unitary board is a single body of directors that makes strategic decisions of a company. It
includes both executive directors and non-executive directors who are elected to work
together for long-term sustainable value of the company. In other words, the unitary
comprises of top management team (for example, Chief Executive Officer, Chief
Financial Oficer) whose role is to manage the company on a daily basis and non-
executive directors who are supposed to fulfill the oversight and monitoring functions.

The idea of one-tier board started from Anglo-Saxon model of corporate governance.
This is a system of supervision and control over the corporation, functioning in the
United States, Canada, Australia and the United Kingdom. The main feature of this
model is to rely on the capital market, as the place of control over the corporation.
Supervision is exercised mostly by investors who expressed theirs favour or disapproval
for the actions of management by the buying/selling shares of the company and voting
during the general meetings of shareholders. In this model, the management shall not be
subject to the strict control within the organization due to the high liquidity of the market.
The relationship between managers and shareholders are short-lived and official.

Advantages and disadvantages of one-tier board:

• An enhanced superior flow of information. The structure and small board size of
one tier system enhance excellent circulation of information. The board meetings
frequently and its housing of the various committees, with a clear majority of
experts within the executive and non-executivemembers, helps in promoting
individual relationships, in-depth knowledge of the business and aneffective
supervisory function of the Board.
• Faster decision making and reduced bureaucracy. The structure of one-tier board
enhancesfaster decision-makings because there is no separatesupervisory board.
Thus, the need for separat eapproval of decisions does not arise.
• Issues specific to the unitary board tend to relate to the role of NEDs.

Main role of NED in unitary:

• NED expertise: the implied involvement of NEDs in the running of the company
rather than just supervising.
• NED empowerment: they are as responsible as the executives and this is better
demonstrated by their active involvement at an early stage.
• Compromise: less extreme decisions developed prior to the need for supervisory
approval.
• Responsibility: a cabinet decision-making unit with wide viewpoints suggests
better decisions.
• Reduction of fraud, malpractice: this is due to wider involvement in the actual
management of the company.
• Improved investor confidence: through all of the above.

Two-tier board:

Two-tier board was created for two main reasons: codetermination and relationships.
Codetermination is the right for workers to be informed and involved in decisions that
affects them. Relationships - banks are frequently shareholders, and other shareholders
often deposit their shares and the rights associated with their banks.

Using Germany as an example, the right for workers to be informed and involved in
decisions that affects them. This is enshrined in the Codetermination Act (Germany)
1976. Banks have a much closer relationship with German companies than in the UK.
They are frequently shareholders, and other shareholders often deposit their shares and
the rights associated with them with their banks. This creates a backdrop to creating
structures where these parties are actively involved in company affairs, hence the two-tier
structure.

Two-tier board system is comprised of two separate boards, a management board (lower
tier) and a supervisory board (upper tier).

Management board meets frequently to deal with operational issues. Some contracting
decisions are strategic planning decisions may have to be approved by the supervisory
board.

Supervisory board is usually elected by the shareholders. It guides and monitors the
management board. Supervisory board may be involved in long term strategic planning,
selection, dismissal, and designation of the members in the management board, to ensure
the long term succession planning.

The structure of a two-tier board provides a natural balance which can play a vital role in
the outcome of effective decision-making. The mix of employees and independent
directors balances out aversion to risk and ensures that someone involved in the decision-
making process is representing the best interest of employees. Besides, two-tier system
prevents a CEO from serving dual role as the chairman of the supervisory board.
Removing the possibility of CEO duality also works in favor of dual boards.

On the other hand, two-tier board has a few drawbacks. Supervisory boards emphasize
the appointment of independent directors to supervisory boards. While these directors
may be appointed with the best interest of the company in mind, independent directors
often stand to benefit - both financially and in their industry reputations - from the
success of the company’s stock. While prioritizing stock market performance may be in
the company’s best interest, it’s not always in the best interests of its employees. Warping
a board member’s “independence” in this way also leads to more risk averse positioning,
often limiting the company’s growth.

Comparison of One-tier (Unitary) and Two-tier Governance Board Systems:

• One of the major differences between these structural board systems is the size.
The one-tier boards are usually smaller than the twotier boards regarding
members.
• Board Meetings: There are more frequent meetings in a one-tier structure than a
two-tier structure.
• The one-tier board system is aimed at protecting the rights and interests of the
shareholders, while the two-tier structure focuses on the benefit of all stakeholders.
• Two-tiered boards are representative in nature with network orientation, while
one-tiered boards are independent and more market oriented.
• The board compensation styles of both models are distinct to their governance
systems. In the USA, executive remuneration is worked out by the board in
 consultation with remuneration consultants. In Germany, the supervisory board
determines the management board’s compensation, but under statutory regulation.

5.3.3 Composition of the board

The board of directors are can be called the brain of the company. They are responsible
for taking all the big decisions and making policy changes. Section 149 of the Companies
Act states that every company’s board of directors must necessarily have a minimum of
three directors if it is a public company, two directors if it is a private company and one
director in a one person company. The maximum number of members a company can
assign as directors if fifteen. However, the company can pass a special resolution in a
general meeting to allow for assigning more than fifteen members to the board of
directors.

A typical board consists of at least three board positions:

Executive directors: directors who also have executive management responsibility in the
company. They are normally full-time employees of the company. The role of the
executive director is to design, develop and implement strategic plans for the
organization in a manner that is both cost and time efficient. The executive director is
also responsible for the day-to-day operation of the organization, which includes
managing committees and staff as well as developing business plans in collaboration with
the board. E.g., CEO, CFO.

Non-Executive directors (NEDs) are members of a company’s board of directors who is

not part of the executive team. NEDs typically do not engage in the day-to-day
management of the organization but is involved in policymaking and planning exercises.
NED’s responsibilities include the monitoring of the executive directors and acting in the
interest of the company stakeholders. Although NEDs are not part of the executive team,
they are equally liable for the success or failure of a business.

Independent directors: an independent director, they do not have any direct relationship
with the company. They have no link to a special interest group or stakeholder group and
no significant personal interest in the company such as a significant contractual
relationship of the company. They give expert advice to the board when required.