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Chapter 11 SBL

The board of directors is responsible for overseeing management and company operations. This includes establishing internal controls, assessing risks, ensuring effective human resources, and reporting to shareholders. Non-executive directors monitor executive directors and management to provide an independent view. Key board committees, such as the nomination committee and remuneration committee, help reduce the board's workload by focusing on specific tasks like nominating directors and setting compensation. These committees improve decision-making, risk management, and increase shareholder confidence.

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42 views3 pages

Chapter 11 SBL

The board of directors is responsible for overseeing management and company operations. This includes establishing internal controls, assessing risks, ensuring effective human resources, and reporting to shareholders. Non-executive directors monitor executive directors and management to provide an independent view. Key board committees, such as the nomination committee and remuneration committee, help reduce the board's workload by focusing on specific tasks like nominating directors and setting compensation. These committees improve decision-making, risk management, and increase shareholder confidence.

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brave man
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CHAPTER 11

BOARD OF DIRECTORS
 It is responsibility of the board to ensure management is performing its job correctly
 It is directors’ responsibility to develop strong internal controls and assess the risks of
the company and devise ways to mitigate them
 Director is also responsible for ensuring that necessary human resource is hired and
have the required financial capability to perform projects effectively
 Directors are obliged towards shareholders and other stakeholders of the company
 They will meet after certain interval to perform their duties effectively
 For listed companies, it is not enough to have executive directors; they will appoint non-
executive directors, establish remuneration committee, nomination committee, and
audit committee
 Directors will assess their own performance (profitability) and will report it to
shareholders
 They will submit themselves for re-election after certain regular interval

Non-Executive Directors
Responsible for monitoring executive directors and other team members; their job is to ensure
that the information provided by the executive directors and management gives a true and fair
view. There are different roles and responsibilities of NEDs:
 Strategy Role: setting challenging targets and offering advice, they will contribute
towards the strategic success of the company
 Scrutinizing Role: executive directors are held accountable for their decision and results
in front of NEDS
 Risk Role: it ensures adequate system of internal controls and risk management system
is performing accurately
 People Role: overseeing appointment and remuneration of executive directors

Advantages of NED on Board:


 Monitoring role
 Additional expertise on the board
 Perception of the company will improve in front of shareholders and others
stakeholders
 They have effective communication with stakeholders
 They can communicate with stakeholders efficiently and timely
 Discipline over strategy

Disadvantages of NED on Board:


 Unity of board
 Quality of NEDs is a subjective issue
 Liability of the role is to make themselves independent, otherwise it is not useful
Chairman and CEO
There is a clear division of responsibilities at head level of the company; none of them has
unfettered power

Chairman Responsibilities
 They will monitor NEDS and will ensure that the board has set and implemented
company direction and strategy effectively
 They will set policies for the shareholders and they will explain overall aims of the
organization

CEO Responsibilities
 Their responsibility is to monitor the company’s operation efficiently and effectively
 They will report to the chairman and the BoD

Reasons for Splitting the Role


 Representation: of shareholders by chairman
 Accountability: CEO and management accountable in front of others
 Temptation: more focus on self-interest rather than interest of shareholders

Reasons against Splitting the Role


 Ability: it is difficult to have two people with same competence level and ability
 Conflict: if two high powered executive directors manage the organization can create
conflict

Board Committees
Purpose of board committees is to perform different operations; there are different positives
which are relevant with board of operations

Benefits
 Reduces workload of board
 Creates structure which will improve decisions and key areas
 Directors will take these issues quite seriously
 It will increase shareholders confidence
 It will improve risk management and monitoring over remuneration

Nomination Committee
They are responsible to nominate their directors, especially executive:
 Regular review of current board size, structure, composition, and recommendation
 There should be a balance between executive and non-executive directors
 Composition of the board should be well diversified
 Evaluate skills, knowledge, capabilities, and board experience
 Recommend directors for reappointment
 Put shareholders interest at first
Remuneration Committee
It has different roles:
 Setting remuneration for executive directors and the chairman
 Remuneration should be aligned with performance targets
 They will establish pension policies for board members

Remuneration Package
 Basic salary
 Performance related
 Pension
 Benefit in kind

Remuneration consists of 3 elements:


 Company strategy
 Components of salary package
 Main considerations in determining remuneration

Remuneration of NEDs
 basic salary and share reward
 equity based remuneration

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