The Board under

the Spotlight

Notre Dame of Dadiangas University

Business College – Accountancy Program
Module Prepared by: Prof. Jon Leo J. Licayan, CPA
The Board, defined
Title III, Section 23 of the Corporation Code of the Philippines
provides that:
“… the corporate powers of all corporations formed under this
Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board
of directors or trustees..”
Board of Directors vs. Trustees
BOARD OF DIRECTORS BOARD OF TRUSTEES

Public or private companies Non-stock, non-profit or charitable

Institutions

Affiliation to the entity is through No shares issued; Affiliation to the

ownership of shares. entity is through membership.

Elected from among the holders of Elected from among the members.
stocks

Any director who ceases to be the Trustees of non-stock corporations

owner of at least one (1) share of the must be members thereof.
capital stock of the corporation of which
he is a director shall thereby cease to
be a director.
Roles and Responsibilities of the Board
As primarily responsible in Corporate Governance of a company,
collectively, the board has to:
1. Promote the success of the company.
2. Provide leadership and direction for the company.
3. Manage risks and instituting the appropriate systems of
internal controls.
4. Supervise lower levels of management and employees.
5. Set the strategic goals and targets of the company.
6. Ensure that the necessary financial and human resources are
in place.
7. Review management’s performance.
 Unitary vs. Two-Tier Board
Unitary (One-tier) Board
Composition Single body board composed of
Executive (Management) and Non-
Executive Directors (Independent
External Directors).
Segregation of No clear separation of duties as both
Roles the executive and non-executive
directors sit on the same board
Decision- Making Decision making is faster.
Leadership The CEO of the Company sits as a
member of the board but not
necessarily its Chairman.
Two-Tier Board
A Supervisory Board is elected by the
Shareholders, composed of Non-Executive
Directors (NEDs) who will be responsible in
overseeing the Management Board,
composed of Executive Directors.
Two different boards are present, with one
clearly responsible for undertaking
management roles and the other for the
purposes of check and balance and policy
making
Decision making makes more bureaucratic
as decisions of Management Board needs
to be approved by Supervisory Board
Supervisory Board is led by the Chairman,
while Management Board is led by CEO
 Responsibilities of Chairman vs. CEO
Chairman of the Board of Directors Chief Executive Officer
Provide leadership to the board, ensuring its effectiveness Provide leadership to the business, ensuring the
and setting its agenda. effectiveness of business operations and setting strategy.
Ensure the board receives accurate and timely Provide accurate and timely information.
information.
Ensure effective communication with shareholders and Communicating effectively with significant stakeholders.
that their views are communicated to the board as a
whole.
Facilitate effective contribution from NEDs, and ensure Facilitate effective implementation of the board decisions.
constructive relations between Executive and NEDs
Take the lead in providing an induction programme for Cooperate in the induction and CPD.
new directors and continuing professional development
program for the board
Meets with the NED without Executives present. Cooperate by providing any necessary resources

Facilitate board appraisal Cooperate in board appraisal

Encourage active engagement by all members of the Cooperate with all members of the board
board
Executive vs. Non-Executive Directors
Executive Directors
• Directors who have executive management responsibilities.
• Normally full-time employees of a company.
Non-Executive Directors (NEDs)
• Directors who do not have any executive management
responsibilities.
• They are not employees of the company, nor working with
them full-time.
Roles of Non-Executive Directors
1. Contribute to, and challenge the direction of, strategy.
2. Scrutinize the performance of management in meeting goals and
objectives, and monitor the reporting of performance.
3. Satisfy themselves that the financial information is accurate and
that financial controls and systems of risk management are
robust.
4. Responsible for determining the levels of remuneration for
executives, and are key figures in the appointment and removal of
senior managers and in succession planning.
Key Issues in Board Membership
1. Size
• The balance needs to be struck between the benefits of having
varied views and opinions, alongside the need for coherence of
decision-making.
2. Inside/ Outside Mix
• The split between the executive and non-executive directors in
the membership of the board should reflect that their views
carry significant weight.
3. Diversity
• Consideration should also be made as to the necessity of
having a good mix of directors with varied gender, ethnicity,
background, experience, etc.
Induction Program of New Directors
The Company The People Build Relationships

Culture and Values

Meet Senior Management Meet Auditors

Products and Services

Visit Company Sites Meet Major Customers

Organizational Structure

Major Risks and Risk

Management Strategy Participate in Board’s Meet Major Suppliers
Strategy Development
Key Performance Indicators

Briefing on Internal Meet Major Shareholders

Regulatory Constraints Procedures
Continuing Professional Development
Program of the Board
Strategic Planning

Audit Practices and Financial

Procedures Management

Training and
Development
Legal and Regulatory HR Management and
Issues Development

Corporate
Risk Management
Governance

Framework by BPP Learning Media. Approved by ACCA

Appraisal Criteria to Evaluate a
Director’s Performance
Independent and
Innovative Thinking

Familiarity with
Continuous professional
Business and Industry
development
Information

Director’s Appraisal
Criteria

Contribution towards Active Participation in all

business development Business

Positive and
enthusiastic committee
work

Framework by BPP Learning Media. Approved by ACCA

The Board Committees
Board Committees are set-up by the board, consisting of selected
directors (both executives and NEDs), to monitor, report and
provide feedback on particular aspect of the company’s affairs for
which the board has reserved the power of decision-making.

Remuneration Nominations
Committee Committee

Risk Committee Audit Committee

Remuneration Committee
Committee Responsible in recommending the remuneration of
Executive Directors and Senior Managers.

Key Points for Remuneration Committee:

1. Remuneration of Directors should be linked to company’s performance, as
much as possible.
2. Level of remuneration should be sufficient to attract, retain and motivate
directors to perform, but it should not be more than what is necessary.
3. There should be distinct and transparent procedure for developing policy
on executive remuneration and for fixing the remuneration package of
individual directors.
4. No director should be involved in deciding his/ her own remuneration.
5. Contracts of Service should be limited to, ideally, one year.
6. The committee should be made up of independent NEDs.
Nominations Committee
Responsible in identifying and recommending individuals for
appointment to the board and management. The committee also
plays active role in succession planning.

Succession Planning is the process for identifying and

developing new executives who can replace incumbent
executives when they leave, retire or die.
Risk Committee
Committee Responsible in assessing risks of the organization,
including business/ strategic risk, and risk of errors, fraud, losses,
breakdown, etc, and ensuring that are appropriate internal controls
are in place to mitigate them.
Key Roles of Risk Committee:
1. Agree the Company’s Risk Management (RM) strategy.
2. Receive and review RM reports from all operational departments.
3. Monitor overall exposure and specific risks.
4. Assess the effectiveness of the RM strategy.
5. Provide guidance to the Board on Risk.
6. Work with Audit Committee in designing and monitoring Internal Controls.
7. Assist in determining the Company’s Risk Appetite.
Audit Committee
Committee that will serve as “check and balance” for the internal audit
function and liaison with external auditors. It usually consist of at least
three NEDs one of whom must be “financial expert.”

Key Roles of Audit Committee:

1. Hire and fire external auditors.
2. Ensure that external auditors are completely independent, and that they are working in
the best interest of the shareholders.
3. Ensure that the company complies with all laws and regulations applying to it, and that
the necessary reports are filed with authorities.
4. Review and discuss with the management and external auditors the effects of changes
in accounting standards, and the implications of the proposed changes.
5. Acts as mediator between the management and auditors when there are differences in
opinion.
Directors’ Remuneration
Purposes:
1. To attract qualified people to the company, however it should
not be more than necessary.
2. It should provide incentive for the director. The amount that
the company will pay will depend upon:
a. What other companies are paying, and
b. How many suitable candidates are available.
Corporation Code’s Requirement
Sec. 30. Compensation of directors. -
In the absence of any provision in the by-laws fixing their
compensation, the directors shall not receive any compensation,
as such directors, except for reasonable pre diems:
Provided, however, That any such compensation other than per
diems may be granted to directors by the vote of the
stockholders representing at least a majority of the outstanding
capital stock at a regular or special stockholders' meeting.
In no case shall the total yearly compensation of directors, as
such directors, exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding year.
Components of Directors’ Remuneration
Basic Salary
• This should be in accordance with the terms of the directors’
contract of employment of the Director.
• Determined by the experience of the director and what other
companies might be prepared to pay for the director’s service.
Performance Related Bonuses
• A common example for this is cash bonus for good
(accounting) performance computed based on a fixed
percentage of salary or pay.
• Another type of Remuneration is “Transaction Bonuses”
wherein the CEP get a bonus for acquisitions, regardless of
subsequent performance.
Components of Directors’ Remuneration
Share and Share Options (Share Scheme)
• Provided as a long-term incentive for executives to have
personal interest in the performance of the company’s share
price over a period of time.
Loyalty Bonuses
• Provided to directors to motivate them to stay with the
company over a period of time.
Benefits in Kind
• May include transportation (e.g. car), health and life insurance,
holidays, expenses and loans.
Pension Benefits
• On top of basic salary, several companies provide pension
contributions for directors and staff.