Role of the Board and Directors

Trevor HunterMOS 4422Corporate GovernanceKing’s University College

“Doing” GovernanceSo you are a member of a Board. . .

You know what a Board is

You know what a Board is supposed to do

How do you do it???

“Doing” GovernanceThe Corporate Board member’s

responsibilities*

1.Attendance2.Chief Executive3.Finances4.Board effectiveness

*Adapted from Fisher Rowe, (1995) Philanthropy is not business: Advice to new non-profit Board members, Nonprofit World, 13,5.

1. AttendanceHow can you contribute if you are not

there?Regular meetings

Meetings must be a priorityIf you don’t go to meetings why are you on the Board - commitment?

Committee workWhere things “actually get done”Real chance to leverage your abilities

2. Chief ExecutiveApprove the selection,

compensation and if needed, the removal of CEOThe leader and personification of the organization – huge responsibility

Set performance goals and evaluation methodology

Negotiate compensation

2. Chief ExecutiveEnsure regular CEO evaluations take

placeHow do you know if the CEO is

performing effectively?An annual review compared to goalsIt is the Board’s responsibility to ensure that the CEO is fulfilling her/his mandate and this can only be done if hard questions are asked

2. Chief ExecutiveThe Chair has the primary

responsibility for CEO evaluationBegs the question: How can a Board Chair effectively evaluate CEO performance if both positions are held by the same person?

Rolls of the Chair and CEO are different and should be delineated

Duties of the Board ChairBuilds strong, effective, well-balanced

and representative Board and committeesSets agenda, schedule and chairs

directors’ and shareholders’ meetings. May chair or sit on various committee meetings.

Manages Board affairsEnsures that committees are working

effectivelyEnsures all directors are contributing

Duties of the Board ChairHeads the evaluation of the CEO

and review of corporate performance

Acts as an advisor and sounding Board to the CEO

Provides link between management and the Board and between shareholders and the Board

Duties of the Board ChairEnsures Board is receiving timely

information of appropriate quality and amount both before, during and after meetings

Facilitates Board performance appraisals (more on this later)

Board Chair and the BoardThe performance of the Board Chair

should be evaluated Is the Board strong, effective and

perform appropriately?Are the Board’s affairs managed

appropriately? Does the Board provide effective, independent oversight?

Are the Chair’s duties performed appropriately?

Duties of the CEOThe CEO is the senior management

person responsible for achieving the goals approved of by the Board.

Number one goal is maximizing shareholder wealth

Duties of the CEOProvides leadership to the

corporationDevelops strategy, policies and

management processesRecommends financial targets and

investment projectsCreates strategic plans to meet

goals

Duties of the CEODevelops business plans and ensures

they correspond with corporate objectives

Monitors financial performanceSelects, develops, mentors and

monitors senior managementRecommends appropriate rewards and

incentivesSets annual senior management

objectives

Evaluating the CEOHow can you tell if the CEO is

performing effectively?Are the Board’s goals being achieved?

Is leadership being provided?Customer relationsMonitoring and improving organizational culture

Evaluating the CEODiscuss openly among Board

membersIs the CEO providing appropriate information?

Is the Board being asked to address appropriate strategic issues?

Do the CEO and Board chair work effectively together?

Evaluating the CEOGather input from the organization’s

senior management and other employeesDo senior managers feel empowered?Do employees understand the organization’s goals and their role in fulfilling them?

Are management issues resolved quickly, fairly and in a constructive way?

2. Chief ExecutiveProvide advice and counsel – its

lonely at the topPart of a Board member’s role, particularly the Board chair, is to provide advice to the CEO

Often a member is a sounding Board for ideas or plans before implemented – not necessarily a Board issue but a trusted but external opinion is warranted

3. FinancesAssume financial responsibility for the

firmApprove budgets and oversee adherence

Contract independent auditsControl investment, manage capital or reserve funds

Ensure compliance with all regulations

SOX compliance

3. FinancesFinancial literacy

Board should have a policy stating that all members must have a knowledge of basic financial evidence or else not allowed to vote

Basic training should be part of director orientation

Members tested to show literacy – liability protection

Requirement of finance “expert” on audit committee

3. FinancesLack of literacy results in:

Voting on budget without really understanding it

Hiring or not hiring staff without understanding if the organization can afford to – what are the economics?

Votes on acquisitions, divestments, dividends, compensation etc. without understanding ramifications

4. Board EffectivenessIt is important that the Board take the

time to assess its own performanceHard to do any time, but particularly hard when there is a lot of pressure

If you don’t look at how you function how will you know if you are fulfilling your role?

Self assessment – Is it worth it? Research suggests – YES!

Role of the Board and Directors

Trevor HunterMOS 4422Corporate GovernanceKing’s University College