Post on 23-Dec-2015
DSM 504
CORPORATE GOVERNANCE
DSM 504
Governance defined
The manner in which power is exercised in the management of economic and social resources of an organizational for sustainable development
Concerned with the processes, systems, practices and procedure: What are these processes, systems and
procedures that you should be concerned with?
DSM 504
Concerned with the processes, systems, practices and procedure: The formal and informal rules that govern
institutions The manner in which these rules and
regulations are applied and followed the relationship that these rules and
regulations determine or create and the nature of these relationships
DSM 504
Essentially therefore, governance addresses the leadership roles in the institutional framework
DSM 504
Corporate governance defined
A system by which corporations are directed, controlled and held to account
The manner in which the power of a corporation is exercised in the stewardship of its assets/resources so as to increase shareholders value as well as satisfy the needs of all stakeholders
DSM 504
Good corporate Governance seeks to promote….. Efficient, effective and sustainable corporations that
contribute to the welfare of the society Responsive and accountable corporations Legitimate corporations that are managed with
integrity, honesty and transparency Recognition and protection of stakeholders rights An inclusive approach based on democratic ideals,
legitimate representation and participation
DSM 504
Pillars of good corporate governance
Good governance is frames against four main pillars
1. There must be effective body responsible for governance separate and independent of management to promote:
Accountability ( leaders must be ready to account Efficiency and effectiveness ( hence leadership for
results) Honesty and integrity ( leadership that is honest,
faithful and diligent) Transparent and open leadership with accurate and
timely disclosure of information relating to economic and other activities of the corporation
DSM 504
2. there must be an all inclusive approach to governance that recognizes and protects the rights of members and all stakeholders – internal and external
3. The institution must be governed and managed in accordance with the mandate granted to it
4. The institutional governance framework should provide an enabling environment within which its human resources can contribute and bring to bear their full creative powers towards finding innovative solutions to shared problems
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LAWS FOR EFFECTIVE DIRECTORSHIP
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1. Primary duty
Each director undertakes to: Act first and foremost and always in the best interest
of the corporation and not for any other collateral purpose
To exercise his /her powers in the executive duties in good faith
To act with the care a prudent person would take when acting on their own behalf
In arriving at a decision on any issue he/she shall strive to ensure that the decision is in the best interest of the of the corporation and not driven by other interest
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2. Core values
Each director subscribes to the values of the corporation
Directors undertake to take into account not only the possible financial impact of their decision, but also their consequences and effect o relations with stakeholders in general
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3. Scope of responsibility
Each director is fully aware that the board is responsible for the upholding the vision, mission and values, deciding the strategic objectives and ensure effective control and be accountable to the stakeholders for these
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4. commitment
Each director undertakes to dedicate time and attention necessary to fulfill his/her duties
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5. Independence
In all circumstances, each director undertakes to preserve his/her independent of analysis, judgment, decisions and actions and to resist any pressure, direct or indirect whether by other directors, governments, creditors, suppliers of goods or services or, more generally any third party
Directors will not seek or accept from third parties any advantage that might be considered as compromising to his/her independence
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6. Conflict of interest
Each director undertakes to disclose to the board fully and immediately it comes to his/her attention any real or potential conflict of interest, direct or indirect which they may have
A director with such a conflict shall not participate in any discussion of any such topic or on voting on it
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7. Board effectiveness
Each director is fully aware of the importance of regular attendance and effective participation at meetings
Each director undertakes to do everything within their power to attend all meetings
Each director undertakes to prepare sufficiently for meetings by careful considering board papers and attachments thereto and where necessary seek clarification
Where a director is unable to attend a meeting, he/she undertakes to communication any concerns or issue they with considered
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8. Board evaluation
At regular interval, not exceeding twelve months, the board shall undertake an evaluation of its functions collectively as individuals.
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9. Information confidentiality
Each director is responsible for seeing to it that he is providing sufficient information in due time to permit the board to deliberate on all issues and on the other hand request of the chairman or CEO in a timely manner , information that may require decision making
Directors must personally take the necessary precautions to preserve the confidentiality of such information and not divulge it under any circumstances
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10. Duty to communicate dissent
Each director commits to express his/her views clearly and to use all means at his/her disposal to convince the board of the validity of his her position should he/she hold the view that a proposed Board decision is not in the best interest of the corporation
DSM 504
PRINCIPLES OF GOOD CORPORATE GOVERNANCE
DSM 504
1. Authority And Duties Of shareholder Protect, preserve and actively exercise the supreme
authority of the organisation in general meetings. Authority to : Ensure that only competent and reliable persons who
can add value to the company are appointed to the board
Ensure that Board of Director/managers is constantly held accountable and responsible for efficient and effective governance
Change the composition of the board that does not perform to expectations or as per mandate
DSM 504
Leadership of the corporation
Every corporation shall be headed by an effective board which shall exercise leadership, enterprise, integrity and wise judgment in directing the corporation so as to achieve continuing prosperity of the corporations and shall always act in the best interest of the corporation
DSM 504
3. Appointment Of The Board Of Director/managers Appointment to the board of Director should,
through a managed and effective process, ensure that a balanced mix of efficient individuals is made and that each of these appointment is meant to add value and bring independent judgment to bear in the decision making process
DSM 504
4. Strategy and Values
The board of Director/senior managers should determine the values of the corporation, determine the strategy to achieve its purpose and implement its values in order to ensure that the corporation survives and thrives and that procedures and values that protects the assets and reputation of the corporation are in place
DSM 504
5.Structure and organisation
The board should ensure that a proper management structure is in place and make sure that the structure functions to maintain corporate integrity, reputation and responsibility
DSM 504
Corporate Performance, Viability And Financial Sustainability The Board should monitor and evaluate the
implementation of strategies, policies and management performance criteria and plans
Constantly review the financial sustainability of the corporation
DSM 504
Corporate Compliance
Ensure that the corporation complies with all relevant laws, regulation, governance practices, accounting and audit standards
DSM 504
Remuneration
The Board of Director should set up an independent Remuneration Committee to determine in consultation with the Government, equitable and attractive remuneration packages for Directors as well as management for ratification by the government as shareholders
DSM 504
Responsibility to stakeholders
The Board should identity the corporations internal and external stakeholders; agree on a policy for determining how the corporation should relate to, and with them, while ensuring the rights of stakeholders are respected, recognized and protected
DSM 504
Rights and expectations of stakeholders Who are the stakeholders? What are their rights? What information do they require?
DSM 504
Stakeholders
Internal: Members Board Management EmployeesExternal: Providers of funds Suppliers and providers of services Beneficiaries Regulatory authorities Government and community
DSM 504
Stakeholder: Information needs
Providers of finance have special rights and duties to ensure that:
The funds entrusted are used for the purpose intended, efficiently and effectively and for the target communities or beneficiaries.
That the governance practices are adequate to ensure Accountability transparency and openness efficiency and effectiveness honesty and integrity
DSM 504
GUIDELINES/CODE OF BEST PRACTICES
DISCLOSURE OF INTEREST BY DIRECTORS/MANAGERS
On appointment and on a continuous basis, all Director/managers, and in good faith, disclose to the board any interest or other interest that is likely to create a potential conflict of interest
DSM 504
COMPOSITION, MIX OF SKILL AND COMPETENCIES
Board member who bring with them a mix of various skills and competencies
DSM 504
SUCCESSION PLANNING in order to ensure continuity of the Board, the
appointment of the members of the Board should be staggered and the practice or rotation of Directors applied
THE CHAIRMAN OF THE BOARD The chairman should be elected by the board
DSM 504
CORPORATE COMMUNICATION ensure that the corporation communicates
with its stakeholders effectively through well defined channels
DSM 504
INDUCTION, TRAINING AND DEVELOPMENT OF DIRECTORS
The Board should put in place an effective induction programme for new Directors and that training and development programmes should be continuously mounted to in order to provide Directors with newer and emerging skills in good corporate governance and leadership
DSM 504
INDEPENDENCE OF THE BOARD OF DIRECTORS/MANAGERS
The appointment procedure for Director/managers should ensure that the Director/managers discloses actual or perceived conflict of interest so that the corporation can function independently objectively and only in the best interest of the corporation
DSM 504
BOARD MEETINGS In order to bring effectiveness in the
governance of the corporation as a business entity, the Directors should devote time and resourcefulness to their corporation by meeting regularly as dictated by the needs of each corporation
DSM 504
FINANCIAL OPERATIONAL AND GOVERNANCE REPORTING
The Board should ensure that financial reports follow international standards and that there is effective communication of all operational report to the stakeholders
COMMITTTES OF THE BOARD The board should ensure that they establish
effective committees to streamline reporting including the Audit Committee
DSM 504
MONITORING THE PERFORMANCE OF THE BOARD
in order to ensure that this is adding shareholders value, the Board should monitor is collective performance, individual performance and the performance of the management
DSM 504
LIABILITIES OF DIRECTORS The Directors must exercise highest degree
of care and diligence in the discharge of their duties and should be held jointly and severally liable for all acts of omission
ACCOUNTABLITY OF THE BOARD The appropriate chain of accountability
should be from CEO, to the board and shareholders
DSM 504
THE RELATIONSHIP BETWEEN THE BOARD AND MANAGEMENT
The culture and environment within which the Board and the Management operate should provide an enabling environment and effective atmosphere which good governance and management can thrive
BALANCING COMMERCIAL vs. SOCIAL OBLIGATIONS
the board should put in place strategies for balancing its commercial and social obligations
DSM 504
CODE OF BEST PRACTICE The Board should approve and ensure the
implementation of written code of best practices for their individual corporations
DSM 504
ROLES AND FUNCTIONS OF THE BOARD OF DIRECTORS
DSM 504
functions
1. Performance functions
2. Conformance functions
DSM 504
Functions
PERFORMANCE FUNCTIONS Exercising leadership, enterprise, integrity, judgment
in directing the corporation Determining the corporation purpose and values Determining the strategy to achieve the corporation
values and to implement its values that it survive and thrives
Identifying key risk areas and performance indicators in order to generate economic profit and provide efficient services
DSM 504
Performance function (cont..)
Exercising objective judgment of the corporation, independent from management but with sufficient management information
Determining the broad policies of the corporation
Monitor and evaluate the implementation of strategies
Regularly assessing the corporations performance and effectiveness as a whole, and that of individual Directors and CEO
DSM 504
Conformance function
Ensure the procedures and practices are in place to protect the corporation assets and reputation
Ensure that the corporation complies with all relevant laws and regulations and code of best practices
Ensure that the technology and systems in use are adequate to run the corporation properly
DSM 504
Ensure that the corporation has developed succession and exit plans for its execute Director/managers and senior management
DSM 504
Important to note
It is advisable that the board should have a charter or manual setting out its responsibilities
DSM 504
WHAT BOARDS DO
Strategy (Making choices) Develop policy Govern Talk/listen Partner Think future
DSM 504
WHAT BOARDS DON’T DO
Manage Do/tasks Supervise/delegate to staff Think today
DSM 504
ROLE OF THE CHAIRPERSON
DSM 504
Role of the chair
provide overall leadership role to the board Demonstrate qualities of leadership Maintain close, but independent, working
relationship with the CEO Act as an inform link between board,
management, government and other stakeholders
Harness the collective skills of the Board and the executive team
DSM 504
Role of the chair (cont..)
Ensure timeliness and relevance of information and materials to the board
Encourage Directors to have full participation in board deliberations
Heads the board evaluation processes Efficiently conduct board meetings Be available guide the board decision making process Chair the Annual General Meetings
DSM 504
ROLE OF THE MANAGEMENT
DSM 504
Role of Management
Management is the crucial link in translating the plans and strategies approved by board members into result oriented action, it is accountable to the board for running the
organization efficiently, effectively and productively, for running the day-to-day affairs of the organization
within the policy guidelines, strategies, plans and targets set by the board body
Management is the responsibility of the Executive Director/manager and his team of managers.
DSM 504
Role of Management (cont…)
Oversee the day to day management of the corporation business affairs
Facilitate the preparation of the budget for discussion of the board and establishment of internal controls
Implement and communicate policies and strategies adopted by the board
Prepare proposals for consideration by the Board Attend to personnel matters, including hiring and
firing of staff Develop and recommend to the board appropriates
strategies and annual plans for the corporation
DSM 504
Role of Management (cont…)
Consistently strive to achieve the corporations financial and operating goals and objectives
Ensure continuous improvement in the quality and value of products and services provided by the corporation
Ensure that the corporation has a effective management team structure, including effective management succession and exit plans
DSM 504
Role of Management (cont…)
Participate in the formulation and the implementation of the corporate policies
Maintain a conducive work environment for attracting, retaining and motivating employees
Foster a corporate culture that promotes ethical practices within the corporation
DSM 504
Characteristics of Good Governance
Timely and accurate information is disclosed on all matters relating to the acquisition, use and control of funds, performance and governance of the organisation
Strategic guidance and effective monitoring of the organisation and all its systems, procedures, activities, contracts, relationships and the impact the organisation and its work has on its wider stakeholders ensuring full accountability
Recognition and protection of stakeholders
DSM 504
Characteristics of weak governance
Rubber stamp boards – a board is a legal necessity
Boards with conflicts of interest – joining a board purely for personal gain
Boards with confusion of roles between the board, ED and staff
Idle boards who just do not perform their roles- no reading, no added value etc
DSM 504
Characteristics of effective boards
Able to attract and retain talented, trustworthy, reliable and committed persons to the board
Has appropriate mechanism for introducing or inducting Directors into their roles to facilitate their effective contributions
Provision of accurate, timely and relevant information to the board of all information material and relevant to its role.
Realistic definition of the roles, functions of relationships between the board, chairman and board members, chairman and Executive Director, board and management etc
Proper recording of minutes showing resolutions and indicating action to be taken.
DSM 504
Effective Boards cont.
Effective boards are: Heterogeneous-composed of Directors of different skills,
backgrounds and experiences Flexible – composed of Directors who are independent, not
bound by allegiances inside the organization. Task oriented – discussions are centred on achieving
specific and common objectives Led democratically – each Director’s opinion is freely
presented, analyzed and explained Work plan – uses a work plan to guide its activities Assessment – carries out an annual assessment of its
activities Meetings – handles meetings professionally
DSM 504
Effective Board Meetings
Effective board meetings Minimum four meetings Date and time to be decided b the board or
chairperson Give notice of meeting – at least 14 days Enough to keep continuity Few enough so that management can get on
with the job
DSM 504
Effective Board Meetings (cont..)
The meeting Must be properly organized with adequate
preparation Decision to be made pre-determined Should be effectively chaired Should have effective participation by
members Time should be observed Should have all information made available
DSM 504
What steps do you take when preparing for a board meeting and making follow ups on board resolutions
DSM 504
BOARD DEVELOPMENT AND EVALUATION
DSM 504
Induction and Development
Induction Organised by the Chairman Meet all key players Visit major sites Review all relevant papers
Development From evaluation Up-skilling Development of the Board as a whole
DSM 504
BOARD EVALATUON AND INDIVIDUAL DIRECTORS
PERFORNCE EVALAUTION
DSM 504
A formal evaluation ensures that the Board and management is adding value to the organisation and fulfilling its responsibilities to the organisation and to the stakeholders
DSM 504
Purpose: To enhance performance, effectiveness and
contribution of each Director/manager, manager and also improve the effectiveness of board and organisation as whole in fulfilling its role
Formal feedback provides an objective framework for analytical feedback to the board and the members
To identify skill gaps in the composition of the board, and provide an important input into the selection and appointment process
Should be done at least once a year but should not replace informal feedback on performance on an ongoing basis
DSM 504
Should Director/managers who are providing voluntary service be questioned about their performance, should we just be grateful to
them?
DSM 504
BOARD ASSESSMENT
Healthy process to ensure board effectiveness and achievement of targets.
Increasing correlation between effective boards and organization performance.
Important to commit time at least once per annum.
DSM 504
To encourage positive attitude towards evaluation, the purpose of evaluation needs to be communicated clearly
Who should be evaluated The board in general The chair The CEO Individual Director Staff
DSM 504
Must be for positive outcomes and improved performance
Evaluation responses should be confidential Methodology
Self evaluation Evaluation by peers, Evaluation by a consultant Evaluation by staff 360 degrees feedback
DSM 504
EVALUATION OF THE BOARD AS A WHOLE
Use an agreed questionnaire Use an outside facilitator who has board experience Circulate the questionnaire and then each returns to
facilitator Facilitator determines problem areas or matters of
concern Facilitator leads board through discussion and
resolution Ensure adequate time - not at a normal board
meeting Record results / agreements
DSM 504
EVALUATION OF INDIVIDUAL BOARD MEMBERS
Use an agreed form - transparency Each member compiles form for every member of the
board - annotate self evaluation All forms returned to the Chairman Chairman appraises the individual Director/managers Deputy Chairman or elected member does
Chairman’s appraisal
DSM 504
The Challenge of the 21st Century Board
1. To set the direction
2. To establish the framework
3. To inculcate values
4. To motivate/inspire
5. To deploy resources
DSM 504
The Calling of the 21st Century Board
To obtain extraordinary results from ordinary people
To lead by walking the talk
To guide strategic clarity and focus
The board has a helicopter vision
Management have the organization “feel”