Legislative and Initiative in Corporate Organization Proposal

Good Governance
Group 6
Legislative and initiative in

corporate organization proposal
• Governments are implementing
legislative initiatives designed to
govern businesses' management
of their negative impacts on
human rights. These requirements
increasingly form part of broader
efforts to drive responsible
business conduct, sustainable
corporate governance, and to
include business in tackling
climate change.
This amendment initiative and referendum were first
adopted in the US in South Dakota in 1898.
The legal process whereby the registered voters of a
local government unit may directly propose, enact, or
amend any ordinance.
The legal process whereby the registered voters of the
local government units may approve or reject any
ordinance enacted.
U.S. congress passed the sarbanes-oxley Act of

2002, July 30 to help protect investor from
fraudulent financial reporting by corporations. It
mandated strict reforms to existing securities
regulations and imposed tough new penalties in
lawbreaker
Derek Higgs was appointed to review the role of this framework
Review and regulation
• The board • Remuneration

• The chairman • Liability
• The non-executive directors • Relationships with shareholder
• Senior independent director • Smaller listed companies
• Recruitment and appointment
• Induction and professional
development
• Tenure and time commitment
The Board
Board
• The existing combined code does not include a
definition of the role of the board.
The role includes:

- Promoting the success of the company by directing and supervising the
company's affairs.
- providing entrepreneurial leadership within prudent and effective controls
where risk is
assessed and managed
- setting strategic aims and ensuring sufficient resources are available to meet
objective
- reviewing management performance
- ensuring obligation to shareholder and others are met

• At least half the board, excluding the
chairman, should be independent non-
executive directors.
• There should be a strong executive
representation on the board.
• There should be an appropriate mix of skills
and experience
• No-one should sit on all three main board
committees.
The
• The role or the chairman is set out includes:

- Leading the board and ensuring its effectiveness
- Ensuring directors receive appropriate timely information

- Ensuring effective communication with shareholders
- Ensuring regular evaluation of performance
- Ensuring non-executive directors are effective and that their relations with executive directors are
constructive
• The roles of chairman and chief executive
should be separated and the division of
responsibilities should be set out in writing.
• The chairman should be elected for three
year term.
• The chief executive should not become
chairman.
• Chairman should meet the independence
criteria
The
• The role of a non-executive is set out in an annex to the

report and includes:
- Challenge and contribute to the development of the company’s strategy
- Scrutinize the performance of management in meeting agreed goals and monitor reporting of
performance
- Satisfy themselves on the accuracy of financial information and that financial controls/risk
management
are robust/defensible
- Determine executive director’s remuneration and prime role in
appointing/removing senior management.

Senior
• Higgs endorses the combined Code requirement for a senior

independent director
• This person should be available to shareholder as an alternative
channel to the chairman or chief executive
• The senior independent director should chair meetings of the non-
executives.
• Higgs emphasizes that non-executive directors need to be
independent of mind and willing able to challenge and question
executives while maintaining a good working relationship.
• The report includes a definition of
independence.
The criteria include:

- Not an employee within the last five years
- No material business relationship with the company
within the last three years
- No remuneration other than the director’s fee
- No close family ties with directors, senior employees
or company advisers
- No cross directorships or significant links with
other directors
- Not a representative of significant share holder
- Not served on the board for more than ten years

Recruitment and appointment
• A non-nation committee should be established and should be chaired by an independent non-executive

director
• An annex to the report contains a summary of the principal duties of a nomination committee.
These includes:
- Before an appointment identify balance of skills, knowledge and experience required.
- Identify and nominate suitable candidates given the above.
- Annually review time commitment required for a non-executive director and consider whether non-
executives are spending enough time to fulfill their duties.
- Consider succession planning given challenges or opportunities facing the business.
- Regularly review board structure/size/composition and recommend any necessary changes.
- Give a statement of activities in the annual report including committee membership, number of
meetings an attendance of members.
- Make it’s term of reference publicly available.
- Ensure the non-executive directors receive a formal letter of appointment setting out expectation.
• The nomination committee should have a majority if
independent non-executive directors
• Executive development programs should be
considered to train suitable individuals for future roles
as directors
• When shareholder approval is sought for the
appointment of a non-executive directors the board
set out the reasons why that person is appropriate and
how the meet the requirements of the role
Induction and professional
development
• There should be a comprehensive induction
program for new non-executive directors
• The chairman should address the developmental
needs if the whole board to enhance effectiveness,
adequate resources should be made available to
develop/refresh the skills knowledge if directors
• Performance of the board should be evaluated
annually and the annual report should indicate
whether and how this is done
• Higgs suggests that non-executive directors should
conduct self-appraisals if their skills, knowledge
and expertise
Tenure and time
commitment
 Normal tenure of non-executive directors to
be two three-year terms, explanation should
be given to shareholder for any longer terms
 If tenure is more than nine years annual re-

election of the director is required
• If offered an appointment elsewhere ono-executives should inform the
chairman before accepting
• Full-time executive directors should hold only one non-executive position in
and should not become chairman of, a major company
• No-one should chair more than one major company
• Non-executive directors should provide the chairman with their reasons for
resigning especially when they do so because if concerns over either the way
Remuneration
• Remuneration should reflect the workload,
complexity and responsibility involved
• Part may be taken in the form of shares
• Non-executive should not normally hold share
options, where the do advance shareholder
approval should be obtain and the shares
acquired should be held for a year after the
individual leaves the board
• At least three members, all members to be
independent non-executive directors
• Terms of reference should be published and principal duties
should include
- Determine remuneration framework and policy
- Set remuneration of executive directors, chairman and chairman and chairman secretary
- Determine targets for performance related pay schemes
- Determine policy on pension arrangements for executive directors
-Ensure on changes to employee benefit strictures
- Agree on changes to employee benefit structures
- Agree policy for authorizing expense claims from chairman and chief executive
- Ensure the annual report contains all the necessary disclosures
Liability
• The report recognizes that the question
of liability is an important one and
suggest a number of areas the
government should address
• Appropriate director’s and officers’

insurance should be provided by
companies
Relationships with
shareholder
• All non-executive directors, especially those
chairing board committees, should attend the
AGM
• The senior independent directors should attend
certain meetings with major shareholders
• As part of the induction process non-executive
directors should meet major investors
• The annual report should state what step have
been taken to ensure that the board has an
understanding of the views of major investor
Smaller listed companies
• A smaller company is defined as one outside the FTSE350
• Higga recognizes that the one size fits all approach may not be
appropriate but concludes that all public companies have certain
obligations and therefore does not allow for any differentiation.
• The report acknowledges that it may take smaller companies
more time to comply and that some provisions will be less
relevant/manageable
• The only exception is the restriction that no one should be on all
three main board committees this does not apply to smaller
companies

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Good Governance

Legislative and initiative in

U.S. congress passed the sarbanes-oxley Act of

• The board • Remuneration

The role includes:

• The role or the chairman is set out includes:

- Ensuring directors receive appropriate timely information

• The role of a non-executive is set out in an annex to the

appointing/removing senior management.

• Higgs endorses the combined Code requirement for a senior

The criteria include:

• A non-nation committee should be established and should be chaired by an independent non-executive

 If tenure is more than nine years annual re-

• Appropriate director’s and officers’

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