THE BOARD OF DIRECTORS Chapter 4.

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COURSE OUTLINE
In which we consider:

 What the board does?

 Balancing the board’s performance and conformance roles
 Board committees - functions and authority
 Delegating board functions to management
 Corporate transparency

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FUNCTIONS OF THE BOARD
•The Board of Directors is a group of individuals elected or appointed to represent the interests
of shareholders or stakeholders in a company or organization.
•The specific responsibilities and functions of a Board of Directors can vary depending on the
type of organization, its structure, and the applicable laws and regulations.
•The Board of Directors works through the management team to ensure the effective and
efficient operation of the organization.
•While the management team is responsible for the day-to-day activities and decision-making,
the Board provides oversight, guidance, and strategic direction.

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FUNCTIONS OF THE BOARD
1. Governance and Oversight:
• Establishing and reviewing the organization's mission, vision, and strategic goals.
• Providing oversight to ensure that the organization operates in accordance with its
mission and goals.
• Monitoring and evaluating the performance of the organization's leadership.
2. Financial Oversight:
• Approving budgets and financial statements.
• Ensuring the organization's financial health and sustainability.
• Reviewing and approving major financial decisions.

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FUNCTIONS OF THE BOARD
3. Policy and Decision-Making:
• Setting policies and making key decisions that guide the organization.
• Approving significant contracts, partnerships, and other agreements.
• Making decisions on matters that are beyond the day-to-day operations.
4. Risk Management:
• Identifying and managing risks that may affect the organization.
• Ensuring that appropriate risk management strategies are in place.
5. CEO Appointment and Succession Planning:
• Selecting, appointing, and evaluating the CEO or executive leadership.
• Planning for CEO succession.

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FUNCTIONS OF THE BOARD
6. Stakeholder Relations:
• Representing the interests of shareholders or stakeholders.
• Building and maintaining positive relationships with key stakeholders.
7. Compliance and Legal Oversight:
• Ensuring that the organization complies with relevant laws and regulations.
• Addressing legal and ethical issues.
8. Strategic Planning:
• Participating in the development and review of the organization's strategic plan.
• Providing guidance on long-term objectives and goals.

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FUNCTIONS OF THE BOARD
9. Communication:
• Communicating with shareholders, employees, and the public about the organization's
performance and direction.
10. Ethical Leadership:
• Upholding high ethical standards and promoting a culture of integrity within the
organization.

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FUNCTIONS OF THE BOARD

Figure 4.1: Board functions working through management 8

FUNCTIONS OF THE BOARD
Providing Accountability: Monitoring & Supervising Performance:
•Reporting to shareholders •The Board monitors the performance of the
organization against established goals.
•Statutory and mandatory reporting
• Companies’ Registry •Management provides regular reports and
updates to the Board on operational and
• Regulators
financial performance.
• SEC, FSA, SFC
• NYSE, LSE, HKSE

•Non-financial reporting
•Reporting to other stakeholders
•Corporate Social Responsibility (CSR)
reporting 9
FUNCTIONS OF THE BOARD
Strategy Formulation: Policy Making:
•The Board works with the management team•The Board establishes policies that guide the
to develop and approve the organization's organization's activities.
strategic plan.
•Management implements and enforces these
•Management is responsible for executing the policies on a day-to-day basis.
strategy and achieving the goals set by the
Board.

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FUNCTIONS OF THE BOARD
Reserved powers of the board (board  Approval of overall corporate
mandates) strategy and direction
 Remuneration and selection of auditors  Terms and appointment of top
 Approval of interim and final financial executives
statements  Fundamental changes to pension
 Significant changes to accounting scheme rules
policies  Main treasury policies, including
 Board appointments and removals debt/equity mix, major borrowings
 Directors’ remuneration policy and currency exposure
 Major business acquisitions or disposals  Corporate risk management
 Approval of investment projects (more  Major changes to company business
than $X millions)
 Terms of reference for board
committees
 Appointments to board committees
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FUNCTIONS OF THE BOARD
The conformance and performance roles of the unitary board

conformance performance

• The unitary board, also known as a single-board structure, combines both conformance and
performance roles within a single governing body.

• This type of board is responsible for overseeing both the strategic aspects of the
organization (performance) and ensuring compliance with legal and ethical standards
(conformance). 12
FUNCTIONS OF THE BOARD - CONFORMANCE ROLES
•Legal Compliance: Ensuring that the organization operates within the bounds of applicable
laws and regulations.
•Ethical Standards: Setting and upholding high ethical standards throughout the organization's
activities.
•Risk Management: Identifying and managing risks that may affect the organization's
operations or reputation.
•Financial Oversight: Approving budgets, financial statements, and major financial decisions to
ensure fiscal responsibility.
•Internal Controls: Establishing and monitoring internal controls to safeguard assets and ensure
accurate financial reporting.
•Audit Oversight: Overseeing the external audit process to ensure the integrity of financial
reporting.

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FUNCTIONS OF THE BOARD - PERFORMANCE ROLES
•Strategic Planning: Participating in the development and approval of the organization's strategic
plan.
•Goal Setting: Setting performance objectives and key performance indicators (KPIs) aligned with
the organization's mission and strategy.
•Monitoring Performance: Regularly reviewing the organization's performance against established
goals and KPIs.
•Innovation and Adaptation: Encouraging and supporting initiatives that drive innovation and
adaptability in response to market changes.
•CEO Selection and Evaluation: Selecting, evaluating, and, if necessary, replacing the CEO to
ensure effective leadership.
•Succession Planning: Planning for the succession of key leadership positions to maintain
organizational continuity.
•Stakeholder Relations: Building and maintaining positive relationships with key stakeholders, 14
including shareholders, employees, customers, and the community.
FUNCTIONS OF THE BOARD - INTEGRATION
Integration of Conformance and Performance
•The unitary board integrates conformance and performance functions to create a holistic
approach to governance.
•Board members are responsible for understanding both the strategic aspects of the
organization and the compliance and risk management requirements.
•Regular board discussions and decision-making processes consider both conformance and
performance perspectives.
This integrated approach is designed to ensure that the organization not only complies with
legal and ethical standards but also performs effectively and achieves its strategic objectives.

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BOARD COMMITTEES
Board committees in most CG codes

1. Audit Committee
Purpose: Oversight of financial reporting, internal controls, and the audit process.
Functions: Reviewing financial statements, Overseeing the external audit, Monitoring internal
control systems.
2. Nomination (Nominating) and Governance Committee
Purpose: Responsible for board composition, nominations, and governance issues.
Functions: Identifying and nominating board candidates, Developing and reviewing corporate
governance principles, Evaluating board performance.

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BOARD COMMITTEES
3. Compensation (Remuneration) Committee:
Purpose: Oversight of executive compensation and related policies.
Functions: Reviewing and approving executive compensation, Overseeing incentive plans,
Assessing CEO performance.
4. Risk Management Committee:
Purpose: Focused on identifying and managing risks to the organization.
Functions: Assessing and monitoring enterprise risks, Developing risk management strategies,
Ensuring risk management policies are in place.

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BOARD COMMITTEES
5. Strategic Planning Committee:
Purpose: Supports the board in strategic planning and major decisions.
Functions: Assisting in the development and review of the organization's strategic plan,
Evaluating strategic initiatives and investments.
6.Technology or IT Committee:
Purpose: Oversight of the organization's technology strategy and risks.
Functions: Reviewing major technology investments, Assessing cybersecurity risks.

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BOARD COMMITTEES
Other board committees for the oversight of management

1. Management Governance and Compliance Committee:

Purpose:
• Oversight of management practices, governance structures, and compliance with laws
and regulations.
Functions:
• Reviewing and assessing the effectiveness of management structures and practices.
• Monitoring compliance with internal policies and external regulations.
• Assessing the performance of key executives and management teams.
• Addressing issues related to organizational culture and behavior.
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BOARD COMMITTEES
2. Corporate Ethics Committee:
Purpose:
• Oversight of the organization's ethical standards, values, and culture.
Typical Functions:
• Developing and promoting a code of ethics for the organization.
• Reviewing and addressing ethical concerns and violations.
• Ensuring that the organization's practices align with ethical principles.
• Promoting a culture of integrity and ethical behavior.

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BOARD COMMITTEES
Committees to spread the work of the board

1. Executive Committee:
•Purpose:
• Acts as a smaller decision-making body that can take prompt action between full board
meetings.
•Typical Functions:
• Handling urgent matters requiring immediate attention.
• Coordinating strategic initiatives.
• Serving as a forum for more in-depth discussions than possible in full board meetings.

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BOARD COMMITTEES
2. Finance Committee:
•Purpose:
• Provides focused oversight of financial matters and ensures fiscal responsibility.
•Typical Functions:
• Reviewing and recommending financial policies.
• Overseeing the budgeting process.
• Monitoring financial performance.
• Advising on investment strategies.

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BOARD COMMITTEES
3. Ad Hoc Committees for Specific Issues or Projects:
•Purpose:
• Temporary committees formed to address specific issues, projects, or tasks.
•Typical Functions:
• Conducting investigations or inquiries.
• Addressing one-time strategic initiatives.
• Providing focused attention to a particular issue, such as a merger or acquisition.

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BALANCING THE BOARD’S EFFORTS
How should boards spend their time?

Figure 4.2: Normative balance of board functions: how directors suggest

boards should balance their activities 24
BALANCING THE BOARD’S EFFORTS
How do boards spend their time?

Figure 4.3: Reported balance of board functions: how directors

believe boards do balance their activities 25
DELEGATING BOARD FUNCTIONS TO MANAGEMENT
•The board has ultimate responsibility for and control over the way an organisation is run,
except in some matters which may require the involvement of members (such as changing the
organisation’s governing documents).
•However, boards can choose to delegate part of their authority to others, such as an
organisation’s staff and volunteers.
•Establishing delegation policies that set out which of the board’s authorities are being
delegated and the circumstances under which they can be exercised.
•There are limitations on delegation. Common law dictates that directors cannot delegate their
core functions, including approval of the company’s annual financial reports.
•The Corporations Act also limits directors from relying solely on the advice of delegates or
other parties, requiring directors to assess information or advice independently before they
can rely on this.
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DELEGATING BOARD FUNCTIONS TO MANAGEMENT
Why use delegation?
•It saves time. A delegation of authorities gives directors the comfort of knowing an important
task is in expert hands. It gives them the freedom to focus on other high-level strategic
decisions.
•It can be more efficient. Delegating authorities reduces bureaucracy. It means that only some
critical decisions need deliberation in the boardroom.
•It can help with risk. If someone in management has the expertise and skill to make a decision,
but the board insists on making it, the directors create unnecessary risk. How do they explain to
shareholders that they made a wrong decision with limited experience when someone with
greater know-how was available?

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CORPORATE TRANSPARENCY
•Corporate transparency refers to the extent to which a company provides accurate, timely,
and easily accessible information about its activities, performance, and decision-making
processes to stakeholders (investors, employees, customers, and the public).
•Transparency implies openness, communication, and accountability.
•For example, in a business relation, fees are clarified at the outset by a transparent agent, so
there are no surprises later.
•For example, Make Salaries Public - Publishing the salaries of everyone in the company
prevents people from being paid unfairly.

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BASICS OF BOARD TRANSPARENCY
Conducting annual evaluations and sharing their results
•Annual evaluations on the board level are increasingly important and thus are now common
practice for for-profit and nonprofit organizations worldwide.
•The Harvard Law School suggests:
• It includes deciding on the goals of board review, people and activities evaluated, research
participants, techniques used, methodology for evaluation, and action points on results.
•Such an approach guarantees more efficient board reviews, providing deep oversight into the
board composition and potential issues surrounding it.

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BASICS OF BOARD TRANSPARENCY
Ensuring that board directors have the right skillsets
•According to Deloitte research, emotional intelligence is a key trait on which the success of
each executive director depends. High-impact board members have a personal style,
contextual understanding, and business credibility that creates a sense of psychological safety
and trust in the board.
•For this reason, boards create individual development plans for each executive director. Not
only will this help build trust with stakeholders and shareholders, but it will also ensure that
every director properly understands their roles and responsibilities and thus has the necessary
knowledge to fulfill them.

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BASICS OF BOARD TRANSPARENCY
Building a reputation for addressing issues instantly
•The way companies manage risks can make or break their reputation.
•A prime example of proper risk communication is Capital One, a company that suffered a
major data breach. The company announced the data breach as soon as it was discovered —
in July 2019 — and started working with federal law enforcement to investigate the issue.
•In December 2021, the company agreed to pay $190 million for the settlement of a lawsuit
against it, and paid out cash payments for the lost time and customer’s out-of-pocket losses.
That’s a level of responsibility and accountability every business should create.

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BASICS OF BOARD TRANSPARENCY
Establishing clear policies for all board members
•Both for-profit and nonprofit organizations, no matter the size, should have established
policies in writing on the way they address sensitive issues. The most common policies to
develop include:
•Conflicts of interests
•Anti-harassment and discrimination
•Information security
•Code of conduct
•Social media

•Beyond these essential questions, it is critical to decide how boards collect, store, and improve
data management.
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BASICS OF BOARD TRANSPARENCY
Proactively sharing financials and other data
•Because financial information is among the most vulnerable to share, that’s exactly
what employees, stakeholders, shareholders, and directors are most interested in.
•Boards should ensure immediate and easy access to their proxy statement, tax returns,
tax-exemption documents, board resolution templates, and important correspondence.

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BASICS OF BOARD TRANSPARENCY - EXAMPLE
Google — known for building a corporate culture of trust
Google has indeed been recognized for fostering a corporate culture that emphasizes trust,
openness, and communication.
Open Access to Company Code - It allows employees to understand the technology and
products they are working on more comprehensively, fostering a sense of ownership and
collective responsibility.
Transparency in Individual Objectives and Results - Employees can better understand how
their work aligns with the broader goals of the company.
Communication with Directors - Allowing employees the opportunity to communicate directly
with company directors, such as through the "Friday's all-hands" meeting - Google's commitment
to transparency and open communication. This practice provides a platform for employees to
ask questions, share ideas, and engage with leadership, fostering a sense of inclusion and
giving employees a voice in the company's direction.
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BASICS OF BOARD TRANSPARENCY
A sound narrative report will contain at least:

•A balanced review of the business of the company

•A comprehensive analysis of key financial and operating performance indicators
•An explanation of the principal risks facing the company
•Details of any significant events that the company has experienced recently
•An indication of any planned future developments
•A statement about the company's relationships with key stakeholders, including employees,
customers and suppliers
•A report on the company's policies on corporate social responsibility and sustainability.

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WHY TRANSPERANCY IS NECESSARY?
1. Builds Trust:
•Transparency is foundational for building trust among stakeholders, including investors,
customers, employees, and the public. When a company provides open and honest information,
it establishes credibility and fosters confidence in its operations.
2. Enhances Accountability:
•Transparent practices hold organizations accountable for their actions and decisions. This
accountability is crucial for responsible business conduct, ethical behavior, and adherence to
legal and regulatory standards.
3. Attracts Investment:
•Investors prefer companies that are transparent about their financial health, business
strategies, and potential risks. Transparent reporting allows investors to make informed
decisions, fostering a more favorable investment environment. 36
WHY TRANSPERANCY IS NECESSARY?
4. Facilitates Informed Decision-Making:
•Stakeholders, including consumers and employees, make more informed decisions when they
have access to relevant information about a company. Transparency enables customers to
make ethical purchasing choices, and it helps employees align their values with their workplace.
5. Mitigates Risks:
•Transparent organizations openly communicate potential risks and challenges. This allows
stakeholders to understand and assess these risks, and it enables the company to proactively
manage and mitigate them before they escalate.

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WHY TRANSPERANCY IS NECESSARY?
6. Promotes Ethical Conduct:
•Transparent companies are more likely to adhere to ethical business practices. Open
communication about ethical standards and conduct helps create a culture of integrity within
the organization.
7. Improves Reputation:
•Companies that prioritize transparency tend to have better reputations. A positive reputation,
built on openness and honesty, can enhance customer loyalty, attract top talent, and contribute
to long-term success.

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WHY TRANSPERANCY IS NECESSARY?
8. Addresses Stakeholder Concerns:
•Transparent communication allows companies to address stakeholder concerns promptly.
Whether it's addressing environmental practices, labor conditions, or other issues,
transparency enables organizations to be responsive and accountable.
9. Fosters Innovation:
•Transparency in reporting on research and development (R&D) and innovation efforts can
attract partnerships and collaborations. It demonstrates a commitment to innovation and
fosters an environment where the company can attract talent and resources for continued
growth.

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