“Corporate Governance and

Social Responsibility”
MS-438
Lecture 05
“ The Board of Directors”

By: Majeed Ullah Khan

Asst. Professor, Institute of Business Studies
KUST
Topic: The Board of Directors

Teaching Agenda
 Board a Principal Instrument of Governance
 Types od Ineffective Boards
 Power of a Board
 Delegation of Powers by Board
Functions of Board
Tools available to Board
Responsibility and Accountability
Borrowing Power of the board
Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of Directors

Board as the Principal Instrument of Governance

In corporation, Management and ownership are separated
Management runs the company but shareholders own it
The bridge between these tow group is BoD
Shareholders elect board to monitor management
Board is a forum through which board can protect their interest
Effective board improve governance, performance, access to capital,
better reputation
Ineffective board cause harm to stakeholders, detriorate performance,
poor market reputation, unaffordable capital
Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of Directors

Board as the Principal Instrument of Governance

Board listen stakeholders concerns, make policies and ensure its
implementation
Board is required by all CG regulations around the globe to make
reforms for protection of all stakeholders
Board role as an principal instrument:
a. Entrepreneurial Leadership
b. Set strategic objectives
c. Review performance of management to ensure policy implementation
d. Arrange resources needed to implement plan
e. Set mission, vision and value statement, also code of conduct
Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of directors

Type of Ineffective Board

Theoretically, shareholders elect board
But practically, sitting board elect new board by nominating members
In Pakistan, family members/ groups hold more than 50% shareholding
So, Controlling shareholders elect board
They don’t opt for effective board and enjoy free hand in decisions
“Executive directors elect whole board” led to below ineffective baors:
 Rubber stamp board
 Good old boy board OR Country club board
 Paper Board
 Trophy Board

Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of directors

Power of the Board

The board have power to conduct the business of companies as authorized in MoA
These are collective power of board
The mode of exercise the power is to pass resolution in convened meeting
Sources of power of the board:
 The company bylaws such as Articles and Memorandum of association
 The Law of the country e.g Companies ordinance 1984
 Resolution passed by shareholders
 Industry practices

Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of Directors

Delegation of Power by the Board

 Board may delegate its one or more power to person
 The person not necessarily be a board member
 Law and MoA & AoA authorized board to delegate powers
 This can done through passing resolution in meeting with requite majority
 Delegation of powers don’t waive off board from it responsibilities
Board should pay due attention when delegating the power:
1. Is it necessary to delegate power
2. Appropriate method for delegating the power
3. Place effective system that delegated power are not misues

Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of Directors

Functions of a Board

The Oversight functions of the board:

The supervision and oversight of management
Approve strategic plans of the company
Approve annual budget
Engaging external auditors
Ensuring the integrity and reliability of company’s annual report
Reviewing operational activities and matched it with planning or
budget

Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of Directors

Functions of a Board

The Directional functions of the board:

Setting companies mission, vision and value statement
Code of conduct for management and employees
Appointment of CEO and other senior executives
 Succession planning for senior executive
 Appoint of committees e.g audit committee, remuneration committee
The advisory Functions of the board:
General guidance on happening in corporate world, technical advice
Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of Directors

Tools available to a Board

To perform the function following tools are available to Board:

Composition of Board
Independence of the board
 Committees
 External help
 Government Intervention

Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of Directors

Responsibilities and Accountabilities

• Responsibility refers to acts and duties performed by person or body
• Accountability refers to explain and give account of what has been done
• E.g. the responsibility of the board is to conduct business of the company
• E.g. Board is accountable to shareholders for any task if questioned by shareholderrs

Responsibilities of the Board:

 Collective responsibilities of the board
 Directors cant be held responsible for any act done on behalf of company
 Act in the best interest of the company.
 Accountability to the owners
 Statutory duties (minutes of meetings, financial statements, listing
requirement)
 Fiduciary or Trustee-ship Duties
Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: The Board of Directors

Borrowing Power of the Board

• Board has power to borrow funds for a company
• Law does not place limitation on borrowing amount
• Prudential regulations of State Bank Bank of Pakistan place some restrictions
 Borrowing is attractive for new project due to tax shield
 Loan duration and project life can be matched.
 Negotiating loan from bank is easier than issuing new securities
 So companies borrowed funds to finance new project
 But Board should maintain balance between availability of loan and paying back
ability
 Insolvency occurred due to over- borrowing
 Vigilant board can save companies from insolvency
 Hard to place restriction on borrowing of the companies

Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk
Topic: the board of directors

THANK YOU

Course: Corporate Governance and Social Responsibility, MS-438-- Instructor: Majeed Ullah Khan, Asst. Prof. Institute of Business Studies, KUST -- Email:
majeedullah@kust.edu.pk