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Board Of Directors
NEDs
Role of CEO
Role of the Chairman
Directors Service Contract
Conflicts of Interest
Director's removal
Frameworks for assessing the performance of boards
Diversity on boards of directors
Board Of Directors
Disadvantages
1. A NED or independent director cannot be expected to both manage and
monitor
2. The time requirement on NEDs may be onerous
Two-tier boards
The board is split into multi-tiers, separating the executive from directors.
These are predominantly associated with France and Germany.
This two-tier approach can take the form of a:
a) Management or executive board
Responsible for managing the enterprise with the CEO to coordinate
activity.
Responsible for the running of the business.
Composed entirely of executive directors.
b) Supervisory board
Appoints, supervises and advises members of the management board.
A separate chairman coordinates the work and members are elected
by shareholders at the AGM
Has no executive function.
It reviews the company's strategy.
Advantages of 2-tier boards
1. Clearly management and owners separation
2. Clear stakeholder involvement
3. Separate meetings means freedom of expression
4. Owners control management by power of appointment
4) People role
NEDs should oversee issues on appointments and remuneration, but
might also involve contractual or disciplinary issues.
Independence
The Code states as a principle that the board should include a balance of
NEDs and executives.
The board should ensure any NED is truly independent in character
and judgement by:
not being an employee of the company within the last 5 years
not having a material business relationship with the company in
the last 3 years
not receiving any remuneration except a directors fee
not having any family ties with the firm
not holding cross directorships with other directors
Cross directorships
When two (or more) directors sit on the boards of the other.
In most cases, each directors second board appointment is likely to be
non-executive.
This can compromise the independence of the directors involved. For
example, a director deciding the salary of a colleague who, in turn, may play
a part in deciding his own salary
It is for this reason the cross directorships are explicitly forbidden by many
corporate governance codes
Advantages of NEDs
The main advantages of bringing NEDs onto a board are as follows:
1) Monitoring to reduce the excesses of executives.
2) External expertise
3) Perception: Company is perceived more trustworthy
4) Communication: improvement in communication between shareholders
interests and the company.
5) Independent view
6) compliance with corporate governance code
Disadvantages of NEDs
1) Lack of trust can affect board operations
2) Quality: there may not be many appropriately qualified NEDs around
3) Liability: Poor remuneration and liability in law might reduce potential NEDs
further
Role of CEO
1) To lead the company and to protect shareholder interests above all others
2) To develop and implement polices and strategies capable of delivering
superior shareholder value
3) To assume full responsibility for all aspects of the companys operations
4) To manage the financial and physical resources of the company, monitor
results, and ensure that effective operational and risk controls are in place
duties
remuneration details
termination provisions (notice
constraints
other ordinary employment terms
Director's removal