Board Of Directors

Board of Directors

The heart of corporate

governance
Definition
a body of elected or appointed members
who jointly oversee the activities of a
company or organization. Other names
include board of governors, board of
managers, board of regents, board of
trustees, and board of visitors. It is often
simply referred to as "the board".
The Roles
1. providing entrepreneurial leadership.
2. setting strategy.
3. ensuring the human and financial
resources are available to achieve objectives.
4. reviewing management performance.
5. setting the company’s values and standards.
6. ensuring that obligations to shareholders
and other stakeholders are understood and
met.
1
Board Governance Framework
The Number of Members on the Board
In relation to numbers of directors, it is
significant that the trend in countries such as the
US, and now even in Japan, appears to be
towards smaller boards. Average board size in
the largest companies ranges from 11 members
in Latin America to over 23 members in Japan,
as shown in the table .
Remember!

Requirements by Company Law

159/1981 & its Executive
Regulations:
The size of the Board is
to be regulated by a
General Meeting of  GMS is empowered to elect or
Shareholders’ (GMS) fire Board members.
decision
 The Board must have not less
than three members.
 Chairman as Leader of the Board
 Primary role
↳ Provide overall leadership to the board
 Function
↳ Principal link between board and CEO/management team
↳ Responsible for board agenda and work plan
↳ Work with board committee chairmen
↳ Involved in selection and induction of new directors
↳ Counsel individual directors on their performance
↳ Participate in discussions with investors, key stakeholders
CEO as Leader of the Company
 Primary role
↳ Lead the management team, reporting to the board
 Function
↳ Work closely with board chairman
↳ Responsible for performance of management team
↳ Formulate corporate strategy, annual business plan and
budget
↳ Responsible for corporate and financial objectives
↳ Formulate major corporate policies
↳ Ensure continuous improvement in services and products
↳ Manage relations with investors, major customers,
regulators
↳ Responsible for company’s long-term sustainability
CEO-Chairman Duality
 Separation is a prerequisite to ensure the board’s independence

 Oversight by the board in general—and by the chairman-CEO in particular—

becomes difficult due to the inherent conflict

 A non-executive chairman is also likely to be more inquisitive in guiding the

board on strategy

 A non-executive chairman is ideally placed to counter the (potential) short-term

focus of the CEO with a long-term perspective.

 Roles of the chairman and the CEO are fundamentally different:

 CEO runs the business
 The chairman runs the board
Qualification Requirements
Leadership
Integrity
Accountability
Maturity
Work Ethic
Time
Industry Experience
Business Judgment
Education/Special Skills, for example:
Finance and Accounting;
Risk Management and Internal Control; or
Strategic Management.
Categorizing Directors
• Directors serving as • BoD members
members of the who are not
company executive members of the
board company’s
executive
Executive
Non- management
executive
Director
Director

Independent Outside
Director Director

• Non-executive, outside • Directors who

directors who meet are not
criteria for company
independence. officers or
employees
Importance of Independent Directors
 Independent, non-executive directors should constructively
challenge and contribute to the development of strategy.
 Independent directors should scrutinize the performance of
management in meeting agreed upon goals and objectives, and
monitor the reporting of performance.
 Independent directors should satisfy themselves that financial
information is accurate, and that financial controls and systems
of risk management are robust and defensible.
 Independent directors are responsible for determining
appropriate levels of remuneration for executive
Importance of Independent Directors

“ While responsibility for financial reporting,

remuneration and nomination are those of the
Board as a whole, independent non-executive board
members can provide additional assurance to
market participants that their interests are defended
”

OECD Global Corporate

Governance Principles
2004
Requirements on the Number of Independent
Directors (IDs)
NYSE – a majority of the board must be IDs; the
Sarbanes-Oxley Act has increased the role and
authority of IDs; key board committees must be
comprised exclusively of IDs
NASDAQ – independence is required for a
majority of the board
Council of Institutional Investors – 2/3 of
Board should be IDs
Actual Board Compositions
 U.S.
 (15th Spencer Stuart Board Index, 2000): the ratio of outsiders to
insiders is 78%, and has been so for several years.

 Europe
 Heidrick & Struggles’ Board Practice Survey 2005 (294 European
companies in 10 countries): the ratio of outsiders to insiders is 70%
(50% independent non-executives and 20% reference hareholders).

 Egypt
?
 Guidelines do not introduce the concept of the independent
director, yet
Europe: Composition of the Board by
Category
Six Critical Questions for Directors
Do I believe I have all the information?
Have I the necessary skills to make this
decision?
Do I have any conflict in this matter?
Objectively, is this a rational business
decision?
Can I explain this in a transparent manner?
Is it a responsible discharge of my duties?