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Welcome to part 4

Balance of power
on Board

The board
It is a collection of
individuals , each
with his or her own
views, interests
and concerns.
However, the

Leadership
The essence of corporate
governance is to prevent
the emergence of
autocratic leadership in
the board. Autocracy
allows one person to
dominate the board.

Board suitability
The concept of
suitability refers to
soundness of character,
breadth of experience,
skills ,and psychological
wellbeing.

Board qualities
Individual directors
should possess
personal qualities
admired by investors.
Such qualities
include, honesty,
inegrity,emphathy,pro

Role of the board


To promote the success of
the company by directing
and supervising its affairs.
To promote
entrepreneurial
leadership.

Role of the board(cont).


To set the strategic aims
of the company and to
ensure that enough
resources are made
available.
To review management
performance.

Role of the board (cont).

To set the companys


standards and values.
To ensure that the
companys
obligations to the
shareholders are
understood and met.

BOARDROOM
PRACTICES
The guidelines for good
boardroom practice are
provided by ICSA. The
code for directors and
company secretaries
includes the following
provisions:

Boardroom practices(cont).

There should be a
written procedure for
the conduct of board
business.
Each director on
appointment should
be given sufficient

Boardroom practice
All directors should
be given the same
information and
should be given
sufficient time to
consider it.

Boardroom practice(cont).

All material
contracts should be
referred to the
board for approval
before the
company is legally

Boardroom practice(cont).

Decisions about the


agenda for a board
meeting should be
taken by the
company chairman,
and company

Boardroom
practice(cont).
The board should give its
prior approval for the
membership, terms of
reference, and powers of
any committee of the
board that is established.

Boardroom practice(cont).

The company
secretary should be
present at and
prepare minutes for
board meetings,
board committee
meetings and general

Boardroom practice(cont).
Minutes of board
committees of the board
should be circulated to all
board members before
the next meeting.

Role of Chairman
The chairman of the
company is responsible
for the function of the
board of directors. He or
she calls for board
meetings, sets the agenda
and leads the meeting.

Role of Chairman
The chairman also leads
general meetings of the
company and is the most
prominent face of the
company in its dealings
with shareholders and
investment institutions.

Specific roles
Provide leadership to
the board, supplying
vision and
imagination, working
closely with the chief
executive.

ROLE OF BOARD(CONT).
determines the composition
and structure of the board,
assesses the size of the
board, balance between
executive and non-executive
directors, interaction,
harmony and effectiveness of
the directors.

Role of board (cont).


Sets the boards
agenda and plans
board meeting.
Chair all board
meetings, direct
debate towards

Chairman
Ensure the board
receives
appropriate,
accurate, timely
and clear
information.

Role of Board (cont).

Facilitate effective
contribution from
non-executive
directors

Role of the board(cont)

Hold meetings with


the non-executive
directors, without
the executive
directors present.

Role of the board(cont).

Chair the AGM and


other stakeholders
meetings, using these
to provide effective
dialogue with
shareholders.

The CEO
The Chief Executive
Officer (CEO) is
responsible for the
executive
management of the
companys operations.

The CEO(CONT).
He or she is the senior
executive in charge of
the management
team and to whom all
other executive
managers report.

The CEO(cont).
Other executive managers
might also be directors of
the company , but the CEO
is answerable to the board
for the way the business is
run and its performance.

Specific roles of CEO

Specific
responsibilities of
the chief
executive, inter
alia are to:

Specific roles of CEO


Develop and
implement policies
to execute the
strategy
established by the
board.

Specific roles of CEO


Controls performance
of the company.
Assume full
accountability to the
board for all aspects of
company operations.

Specific roles of CEO


Manage financial and
physical resources
Build and maintain
an effective
management team.

Specific role of CEO

Put adequate
operational,
financial,
planning, risk
and internal

Specific role of CEO

Closely monitor
operations and
financial results in
accordance with
plans and budgets

Specific role of CEO


Interface between
board and employees
Assists in selection
and evaluation of
board members

Specific role of CEO


Represent the
company to major
suppliers, customers,
professional
associates etc

Specific role of CEO


Develop codes of
conduct
Develops mission,
vision etc

Board appointments.

Recruitment onto
the boards of listed
companies
involves:

Board appointments

Search,selection,n
omination,appoint
ments
Election processes

Board appointments
The recruitment
process may be
initiated and
completed by:

Board appointments
Chairman, CEO
,Members of the board,
Significant shareholder,
Nomination
committee,Executive
search firms.

Board appointments
James Tanous and Michael
Sonlon (2003:31) confirm
that board members may
be; insiders, friends or
associates of other sitting
directors.

Board appointments
Problem:

This led to a lack of


proactive involvement
and missing skills in
the industry.

Baord appointments
However Daum and
Neff (2004:14)
advises that a
generic director
search should
involve the

Board appointments
Designing or
selection process,
Assessing the skills
requirements

Board appointments(cont).

Developing a
specification for the
director to be recruited
with particular focus
on skills required to fill
the gap.

Board appointments(cont).

Deciding whether
or not to outsource
the search to an
executive search
firm.

Board
appointments(cont).

Creating a long
list of board
prospects from a
wide range of
inputs.

Board appointments(cont).

Reviewing the long


list for any kind of
potential conflict.
Narrowing the long
list to a short list.

Board appointments(cont).

Contracting
referees of the
prospects on the
short list.

Board appointment
Design and conduct a
thorough interview
process and
recommending the
best candidate to the
company

Board
appointments(cont).

Extend an
offer.

Board appointments
The Indian Companies
Act (1957) allows the
following to appoint
board members:
Shareholders
The board

Board appointments

The central
government, and
external
parties ,such
as ,Lending

Board appointments(cont).

Foreign
collaborators
Holding
companies.

Board appointments(cont).

In Zimbabwe, the
situation is different.
Selection and
appointment of
persons to boards of
listed companies
rides on the principle

Board
appointment(cont).

Who you know


What you
know

Board appointment(cont).

Thus the
following
instruments are
used:
Nomination

Board appointment(cont).

CEO
Chairperson

Board composition
King (2006:37)
recommends a
good mix of inside
and outside
directors.

Board composition(cont).

Naresh Chandra
Report (2002) in Sigh,
2005 recommends
that 50% of the board
should be
independent or 30%
of all corporate

Board appointments(cont).

Cadbury Report
(1992); Coyle, (2004)
argue that 2/3 should
be NEDs, most of
whom are
independent.

Board structures
Two types of board
structures do exist.
These are, Unitary
and Two tier board
structures.

The Unitary system


It is a single board
consisting of
executive directors
and NEDs

Advantages of the Unitary

NEDs can bring in


,independent
scrutiny
,experience, and
expertise.

Advantages of Unitary

Board
accountability is
enhanced.
Reduces power of
executive

Advantages of Unitary

Strategies are
critically evaluated.
Board has capacity
to provide checks
and balances.

Disadvantages of Unitary

It cannot
supervise itself.

Two tier system

It is made up of
two sets of boards,
the management
board and the
supervisory board.

Advantages of two tier

The system
reduces
autocracy. It is
hard for the
chairperson or

Disadvantages of
two tier
It may not be
possible to
accommodate each
individuals
concerns.

Disadvantages of two tier

Much time may be


spend on
unnecessary
debates.
May not be suitable
for crisis

Board succession
Key positions in the
board are the
chairman and the
CEO.

Board succession
These positions need
to be replaced . The
CEO and the
chairperson will
retire or resign one
day.

Succession planning

The solution to
board succession
is succession
planning.

The CPD for directors

The CPD come


from the
Combined Code
and apply equally
to executive and

CPD
Existing directors
should continually
update their
knowledge of:

CPD

Soft skills should


also be updated
regularly through
the continuous
professional
development

CPD
Effective
behaviours of
boards, Influencing
and Negotiating
skills ,Conflict
resolution skills,

CPD
Strategy, Financial
Management
,Audit,
Remuneration,
Risk, management,
Legal, regulatory

CPD
Any matters that
directly impact on the
company or its
operations, and
organisational culture

Board committees
1. The audit committee.
2.The remuneration
committee.
3.The nomination
committee.
4.The risk management
committee.

Question 1
Identify one
committee in
corporate governance
and explain its terms
of reference.

Question 2
Draw up a
programme of CPD
outlined by the
Combined code and
explain the essence
of each component