DSM 504 CORPORATE GOVERNANCE. DSM 504 Governance defined The manner in which power is exercised in the management of economic and social resources of

DSM 504

CORPORATE GOVERNANCE

DSM 504

Governance defined

The manner in which power is exercised in the management of economic and social resources of an organizational for sustainable development

Concerned with the processes, systems, practices and procedure: What are these processes, systems and

procedures that you should be concerned with?

DSM 504

Concerned with the processes, systems, practices and procedure: The formal and informal rules that govern

institutions The manner in which these rules and

regulations are applied and followed the relationship that these rules and

regulations determine or create and the nature of these relationships

DSM 504

Essentially therefore, governance addresses the leadership roles in the institutional framework

DSM 504

Corporate governance defined

A system by which corporations are directed, controlled and held to account

The manner in which the power of a corporation is exercised in the stewardship of its assets/resources so as to increase shareholders value as well as satisfy the needs of all stakeholders

DSM 504

Good corporate Governance seeks to promote….. Efficient, effective and sustainable corporations that

contribute to the welfare of the society Responsive and accountable corporations Legitimate corporations that are managed with

integrity, honesty and transparency Recognition and protection of stakeholders rights An inclusive approach based on democratic ideals,

legitimate representation and participation

DSM 504

Pillars of good corporate governance

Good governance is frames against four main pillars

1. There must be effective body responsible for governance separate and independent of management to promote:

Accountability ( leaders must be ready to account Efficiency and effectiveness ( hence leadership for

results) Honesty and integrity ( leadership that is honest,

faithful and diligent) Transparent and open leadership with accurate and

timely disclosure of information relating to economic and other activities of the corporation

DSM 504

2. there must be an all inclusive approach to governance that recognizes and protects the rights of members and all stakeholders – internal and external

3. The institution must be governed and managed in accordance with the mandate granted to it

4. The institutional governance framework should provide an enabling environment within which its human resources can contribute and bring to bear their full creative powers towards finding innovative solutions to shared problems

KBC Governance Training

LAWS FOR EFFECTIVE DIRECTORSHIP


1. Primary duty

Each director undertakes to: Act first and foremost and always in the best interest

of the corporation and not for any other collateral purpose

To exercise his /her powers in the executive duties in good faith

To act with the care a prudent person would take when acting on their own behalf

In arriving at a decision on any issue he/she shall strive to ensure that the decision is in the best interest of the of the corporation and not driven by other interest


2. Core values

Each director subscribes to the values of the corporation

Directors undertake to take into account not only the possible financial impact of their decision, but also their consequences and effect o relations with stakeholders in general


3. Scope of responsibility

Each director is fully aware that the board is responsible for the upholding the vision, mission and values, deciding the strategic objectives and ensure effective control and be accountable to the stakeholders for these


4. commitment

Each director undertakes to dedicate time and attention necessary to fulfill his/her duties


5. Independence

In all circumstances, each director undertakes to preserve his/her independent of analysis, judgment, decisions and actions and to resist any pressure, direct or indirect whether by other directors, governments, creditors, suppliers of goods or services or, more generally any third party

Directors will not seek or accept from third parties any advantage that might be considered as compromising to his/her independence


6. Conflict of interest

Each director undertakes to disclose to the board fully and immediately it comes to his/her attention any real or potential conflict of interest, direct or indirect which they may have

A director with such a conflict shall not participate in any discussion of any such topic or on voting on it


7. Board effectiveness

Each director is fully aware of the importance of regular attendance and effective participation at meetings

Each director undertakes to do everything within their power to attend all meetings

Each director undertakes to prepare sufficiently for meetings by careful considering board papers and attachments thereto and where necessary seek clarification

Where a director is unable to attend a meeting, he/she undertakes to communication any concerns or issue they with considered


8. Board evaluation

At regular interval, not exceeding twelve months, the board shall undertake an evaluation of its functions collectively as individuals.


9. Information confidentiality

Each director is responsible for seeing to it that he is providing sufficient information in due time to permit the board to deliberate on all issues and on the other hand request of the chairman or CEO in a timely manner , information that may require decision making

Directors must personally take the necessary precautions to preserve the confidentiality of such information and not divulge it under any circumstances


10. Duty to communicate dissent

Each director commits to express his/her views clearly and to use all means at his/her disposal to convince the board of the validity of his her position should he/she hold the view that a proposed Board decision is not in the best interest of the corporation

DSM 504

PRINCIPLES OF GOOD CORPORATE GOVERNANCE

DSM 504

1. Authority And Duties Of shareholder Protect, preserve and actively exercise the supreme

authority of the organisation in general meetings. Authority to : Ensure that only competent and reliable persons who

can add value to the company are appointed to the board

Ensure that Board of Director/managers is constantly held accountable and responsible for efficient and effective governance

Change the composition of the board that does not perform to expectations or as per mandate

DSM 504

Leadership of the corporation

Every corporation shall be headed by an effective board which shall exercise leadership, enterprise, integrity and wise judgment in directing the corporation so as to achieve continuing prosperity of the corporations and shall always act in the best interest of the corporation

DSM 504

3. Appointment Of The Board Of Director/managers Appointment to the board of Director should,

through a managed and effective process, ensure that a balanced mix of efficient individuals is made and that each of these appointment is meant to add value and bring independent judgment to bear in the decision making process

DSM 504

4. Strategy and Values

The board of Director/senior managers should determine the values of the corporation, determine the strategy to achieve its purpose and implement its values in order to ensure that the corporation survives and thrives and that procedures and values that protects the assets and reputation of the corporation are in place

DSM 504

5.Structure and organisation

The board should ensure that a proper management structure is in place and make sure that the structure functions to maintain corporate integrity, reputation and responsibility

DSM 504

Corporate Performance, Viability And Financial Sustainability The Board should monitor and evaluate the

implementation of strategies, policies and management performance criteria and plans

Constantly review the financial sustainability of the corporation

DSM 504

Corporate Compliance

Ensure that the corporation complies with all relevant laws, regulation, governance practices, accounting and audit standards

DSM 504

Remuneration

The Board of Director should set up an independent Remuneration Committee to determine in consultation with the Government, equitable and attractive remuneration packages for Directors as well as management for ratification by the government as shareholders

DSM 504

Responsibility to stakeholders

The Board should identity the corporations internal and external stakeholders; agree on a policy for determining how the corporation should relate to, and with them, while ensuring the rights of stakeholders are respected, recognized and protected

DSM 504

Rights and expectations of stakeholders Who are the stakeholders? What are their rights? What information do they require?

DSM 504

Stakeholders

Internal: Members Board Management EmployeesExternal: Providers of funds Suppliers and providers of services Beneficiaries Regulatory authorities Government and community

DSM 504

Stakeholder: Information needs

Providers of finance have special rights and duties to ensure that:

The funds entrusted are used for the purpose intended, efficiently and effectively and for the target communities or beneficiaries.

That the governance practices are adequate to ensure Accountability transparency and openness efficiency and effectiveness honesty and integrity

DSM 504

GUIDELINES/CODE OF BEST PRACTICES

DISCLOSURE OF INTEREST BY DIRECTORS/MANAGERS

On appointment and on a continuous basis, all Director/managers, and in good faith, disclose to the board any interest or other interest that is likely to create a potential conflict of interest

DSM 504

COMPOSITION, MIX OF SKILL AND COMPETENCIES

Board member who bring with them a mix of various skills and competencies

DSM 504

SUCCESSION PLANNING in order to ensure continuity of the Board, the

appointment of the members of the Board should be staggered and the practice or rotation of Directors applied

THE CHAIRMAN OF THE BOARD The chairman should be elected by the board

DSM 504

CORPORATE COMMUNICATION ensure that the corporation communicates

with its stakeholders effectively through well defined channels

DSM 504

INDUCTION, TRAINING AND DEVELOPMENT OF DIRECTORS

The Board should put in place an effective induction programme for new Directors and that training and development programmes should be continuously mounted to in order to provide Directors with newer and emerging skills in good corporate governance and leadership

DSM 504

INDEPENDENCE OF THE BOARD OF DIRECTORS/MANAGERS

The appointment procedure for Director/managers should ensure that the Director/managers discloses actual or perceived conflict of interest so that the corporation can function independently objectively and only in the best interest of the corporation

DSM 504

BOARD MEETINGS In order to bring effectiveness in the

governance of the corporation as a business entity, the Directors should devote time and resourcefulness to their corporation by meeting regularly as dictated by the needs of each corporation

DSM 504

FINANCIAL OPERATIONAL AND GOVERNANCE REPORTING

The Board should ensure that financial reports follow international standards and that there is effective communication of all operational report to the stakeholders

COMMITTTES OF THE BOARD The board should ensure that they establish

effective committees to streamline reporting including the Audit Committee

DSM 504

MONITORING THE PERFORMANCE OF THE BOARD

in order to ensure that this is adding shareholders value, the Board should monitor is collective performance, individual performance and the performance of the management

DSM 504

LIABILITIES OF DIRECTORS The Directors must exercise highest degree

of care and diligence in the discharge of their duties and should be held jointly and severally liable for all acts of omission

ACCOUNTABLITY OF THE BOARD The appropriate chain of accountability

should be from CEO, to the board and shareholders

DSM 504

THE RELATIONSHIP BETWEEN THE BOARD AND MANAGEMENT

The culture and environment within which the Board and the Management operate should provide an enabling environment and effective atmosphere which good governance and management can thrive

BALANCING COMMERCIAL vs. SOCIAL OBLIGATIONS

the board should put in place strategies for balancing its commercial and social obligations

DSM 504

CODE OF BEST PRACTICE The Board should approve and ensure the

implementation of written code of best practices for their individual corporations

DSM 504

ROLES AND FUNCTIONS OF THE BOARD OF DIRECTORS

DSM 504

functions

1. Performance functions

2. Conformance functions

DSM 504

Functions

PERFORMANCE FUNCTIONS Exercising leadership, enterprise, integrity, judgment

in directing the corporation Determining the corporation purpose and values Determining the strategy to achieve the corporation

values and to implement its values that it survive and thrives

Identifying key risk areas and performance indicators in order to generate economic profit and provide efficient services

DSM 504

Performance function (cont..)

Exercising objective judgment of the corporation, independent from management but with sufficient management information

Determining the broad policies of the corporation

Monitor and evaluate the implementation of strategies

Regularly assessing the corporations performance and effectiveness as a whole, and that of individual Directors and CEO

DSM 504

Conformance function

Ensure the procedures and practices are in place to protect the corporation assets and reputation

Ensure that the corporation complies with all relevant laws and regulations and code of best practices

Ensure that the technology and systems in use are adequate to run the corporation properly

DSM 504

Ensure that the corporation has developed succession and exit plans for its execute Director/managers and senior management

DSM 504

Important to note

It is advisable that the board should have a charter or manual setting out its responsibilities

DSM 504

WHAT BOARDS DO

Strategy (Making choices) Develop policy Govern Talk/listen Partner Think future

DSM 504

WHAT BOARDS DON’T DO

Manage Do/tasks Supervise/delegate to staff Think today

DSM 504

ROLE OF THE CHAIRPERSON

DSM 504

Role of the chair

provide overall leadership role to the board Demonstrate qualities of leadership Maintain close, but independent, working

relationship with the CEO Act as an inform link between board,

management, government and other stakeholders

Harness the collective skills of the Board and the executive team

DSM 504

Role of the chair (cont..)

Ensure timeliness and relevance of information and materials to the board

Encourage Directors to have full participation in board deliberations

Heads the board evaluation processes Efficiently conduct board meetings Be available guide the board decision making process Chair the Annual General Meetings

DSM 504

ROLE OF THE MANAGEMENT

DSM 504

Role of Management

Management is the crucial link in translating the plans and strategies approved by board members into result oriented action, it is accountable to the board for running the

organization efficiently, effectively and productively, for running the day-to-day affairs of the organization

within the policy guidelines, strategies, plans and targets set by the board body

Management is the responsibility of the Executive Director/manager and his team of managers.

DSM 504

Role of Management (cont…)

Oversee the day to day management of the corporation business affairs

Facilitate the preparation of the budget for discussion of the board and establishment of internal controls

Implement and communicate policies and strategies adopted by the board

Prepare proposals for consideration by the Board Attend to personnel matters, including hiring and

firing of staff Develop and recommend to the board appropriates

strategies and annual plans for the corporation

DSM 504


Consistently strive to achieve the corporations financial and operating goals and objectives

Ensure continuous improvement in the quality and value of products and services provided by the corporation

Ensure that the corporation has a effective management team structure, including effective management succession and exit plans

DSM 504


Participate in the formulation and the implementation of the corporate policies

Maintain a conducive work environment for attracting, retaining and motivating employees

Foster a corporate culture that promotes ethical practices within the corporation

DSM 504

Characteristics of Good Governance

Timely and accurate information is disclosed on all matters relating to the acquisition, use and control of funds, performance and governance of the organisation

Strategic guidance and effective monitoring of the organisation and all its systems, procedures, activities, contracts, relationships and the impact the organisation and its work has on its wider stakeholders ensuring full accountability

Recognition and protection of stakeholders

DSM 504

Characteristics of weak governance

Rubber stamp boards – a board is a legal necessity

Boards with conflicts of interest – joining a board purely for personal gain

Boards with confusion of roles between the board, ED and staff

Idle boards who just do not perform their roles- no reading, no added value etc

DSM 504

Characteristics of effective boards

Able to attract and retain talented, trustworthy, reliable and committed persons to the board

Has appropriate mechanism for introducing or inducting Directors into their roles to facilitate their effective contributions

Provision of accurate, timely and relevant information to the board of all information material and relevant to its role.

Realistic definition of the roles, functions of relationships between the board, chairman and board members, chairman and Executive Director, board and management etc

Proper recording of minutes showing resolutions and indicating action to be taken.

DSM 504

Effective Boards cont.

Effective boards are: Heterogeneous-composed of Directors of different skills,

backgrounds and experiences Flexible – composed of Directors who are independent, not

bound by allegiances inside the organization. Task oriented – discussions are centred on achieving

specific and common objectives Led democratically – each Director’s opinion is freely

presented, analyzed and explained Work plan – uses a work plan to guide its activities Assessment – carries out an annual assessment of its

activities Meetings – handles meetings professionally

DSM 504

Effective Board Meetings

Effective board meetings Minimum four meetings Date and time to be decided b the board or

chairperson Give notice of meeting – at least 14 days Enough to keep continuity Few enough so that management can get on

with the job

DSM 504

Effective Board Meetings (cont..)

The meeting Must be properly organized with adequate

preparation Decision to be made pre-determined Should be effectively chaired Should have effective participation by

members Time should be observed Should have all information made available

DSM 504

What steps do you take when preparing for a board meeting and making follow ups on board resolutions

DSM 504

BOARD DEVELOPMENT AND EVALUATION

DSM 504

Induction and Development

Induction Organised by the Chairman Meet all key players Visit major sites Review all relevant papers

Development From evaluation Up-skilling Development of the Board as a whole

DSM 504

BOARD EVALATUON AND INDIVIDUAL DIRECTORS

PERFORNCE EVALAUTION

DSM 504

A formal evaluation ensures that the Board and management is adding value to the organisation and fulfilling its responsibilities to the organisation and to the stakeholders

DSM 504

Purpose: To enhance performance, effectiveness and

contribution of each Director/manager, manager and also improve the effectiveness of board and organisation as whole in fulfilling its role

Formal feedback provides an objective framework for analytical feedback to the board and the members

To identify skill gaps in the composition of the board, and provide an important input into the selection and appointment process

Should be done at least once a year but should not replace informal feedback on performance on an ongoing basis

DSM 504

Should Director/managers who are providing voluntary service be questioned about their performance, should we just be grateful to

them?

DSM 504

BOARD ASSESSMENT

Healthy process to ensure board effectiveness and achievement of targets.

Increasing correlation between effective boards and organization performance.

Important to commit time at least once per annum.

DSM 504

To encourage positive attitude towards evaluation, the purpose of evaluation needs to be communicated clearly

Who should be evaluated The board in general The chair The CEO Individual Director Staff

DSM 504

Must be for positive outcomes and improved performance

Evaluation responses should be confidential Methodology

Self evaluation Evaluation by peers, Evaluation by a consultant Evaluation by staff 360 degrees feedback

DSM 504

EVALUATION OF THE BOARD AS A WHOLE

Use an agreed questionnaire Use an outside facilitator who has board experience Circulate the questionnaire and then each returns to

facilitator Facilitator determines problem areas or matters of

concern Facilitator leads board through discussion and

resolution Ensure adequate time - not at a normal board

meeting Record results / agreements

DSM 504

EVALUATION OF INDIVIDUAL BOARD MEMBERS

Use an agreed form - transparency Each member compiles form for every member of the

board - annotate self evaluation All forms returned to the Chairman Chairman appraises the individual Director/managers Deputy Chairman or elected member does

Chairman’s appraisal

DSM 504

The Challenge of the 21st Century Board

1. To set the direction

2. To establish the framework

3. To inculcate values

4. To motivate/inspire

5. To deploy resources

DSM 504

The Calling of the 21st Century Board

To obtain extraordinary results from ordinary people

To lead by walking the talk

To guide strategic clarity and focus

The board has a helicopter vision

Management have the organization “feel”

Documents

DSM 504 CORPORATE GOVERNANCE. DSM 504 Governance defined The manner in which power is exercised in the management of economic and social resources of