MediaTraining Chile Jan10 Roger+Jeal

7/30/2019 MediaTraining Chile Jan10 Roger+Jeal

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Global Corporate Governance Forum

Role of Board of Directors in Corporate GovernanceFinancial Media WorkshopChile, January 2010

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Outline of Presentation

What is Corporate Governance? Building effective Board Governance

The different roles related to the Board

Some Concluding Thoughts!

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What is Corporate Governance?

Corporate Governance is a mechanism through which boards and

directors are able to direct, monitor and supervise the conduct andoperation of the corporation and its management in a manner that ensures

appropriate levels of authority, accountability, stewardship, leadership,direction and control.

The importance ofcorporate governancelies in its contributionboth to businessprosperity and toaccountability.

Paragraph 1.1, Committee onCorporate Governance:

Final Report Hampel Committee

Corporate governance is concerned withholding the balance between economic andsocial goals and between individual andcommunal goals The aim is to align as

nearly as possible the interests ofindividuals, corporations and society.

Sir Adrian CadburyCorporate Governance Overview, 1999

[World Bank Report]


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Its about Leadership!

Leadership for efficiency to compete in the global economy, create jobs

Leadership for probity (honradez, rectitud)..

because investors require confidence

to provide assurance of management's integrity

Leadership with responsibility. to take account of broader stakeholder interests

Leadership that is accountable and transparent

to build trust in companiesand in the economy!!


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Building Effective Board Governance

Defining key board roles Board Chairman

Chief Executive Officer

Board Directors - executive and non-executive

Putting in place board governance arrangements

Board committees to support decision process

Supporting functions to regulate processes

Board procedures and rules, e.g. conflicts of interest

Delegated authorities for management

Ensuring proper oversight and supervision

Management reporting and public disclosures

Assurance processes and controls


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The Board of Directors is Pivotal

The board should exercise compelling and relentless

leadership and should not underestimate the power ofleading by example - evidenced by high levels of visibilityand integrity, strong communications, and demandingexpectations. This leadership should be clear to ALL within

the organization, as well as shareholders (accionistas)and otherstakeholders(grupos de inters).

Boardroom BehavioursA report prepared for Sir David Walker

by the Institute of Chartered Secretaries and Administrators , UK

June 2009


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Audit

Committee

Remuneration

Committee

Other

Committees

Board Committees

Strategy

Board of Directors Achievement of strategic objectives and value creation

Fulfil responsibilities and duties in law and prescribed functions

BoardOpera

tions

Chairman

BoardMeetings

Reporting&Disclosure

Internal Controls

& Assurance

Executive

Committee

Internal Audit External AuditOther Assurance

ProvidersManagement

Combined Assurance Model

GovernanceSystem and

Controls

Corporate Policies & Procedures

Board Governance Instruments

Monitoring and Evaluation KeyAreasofResp

onsibility

CEO & Management

Shareholders

Informationan

dCommunication

CorporateSecretary

Source: KPMG

Board Governance Framework


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Chairman as Leader of the Board

Primary role Provide overall leadership to the board

Function

Principal link between board and CEO/management team

Responsible for board agenda and work plan

Work with board committee chairmen

Involved in selection and induction of new directors

Counsel individual directors on their performance

Participate in discussions with investors, key stakeholders


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CEO as Leader of the Company

Primary role Lead the management team, reporting to the board

Function

Work closely with board chairman

Responsible for performance of management team

Formulate corporate strategy, annual business plan and budget

Responsible for corporate and financial objectives

Formulate major corporate policies

Ensure continuous improvement in services and products

Manage relations with investors, major customers, regulators

Responsible for companys long-term sustainability


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Board Structure and Composition

Balancing executive and non-exec. participation Ensuring an effective selection process

Key personal and professional attributes

Skills aligned to strategy and business

Also fill board committee requirements, where appropriate

Some general guidelines

Must have time to devote to responsibilities

Must exercise judgment in best interests of company

Must be informed about the business and its markets

Must avoid interest conflicts between personal and business

Must treat board information confidentially

Should act objectively and be receptive to other perspectives

Should prepare adequately for meetings, regular attendance


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Common Legal Principles of Directorship

Exercise reasonable standard of care

Special business acumen or expertise not necessarily required

Not necessarily liable for errors of judgment

Given events following financial crisis, will this change?

Duty to act in best interests of the company

In other words, for ALL shareholders, not special interests

The legal framework and company charters should not permit

practices (such as pre-meetings and instructions on how to vote

by shareholders whose votes placed a director on the board)wherein shareholders may limit the ability of directors to exercisetheir duties to act in the best interest of the company and allshareholders.

Paragraph 90, OECDs White Paper on

Corporate Governance in Latin America


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Benefits of Effective Board Committees

Assist the board in its decision making Brings together non-executives and management

Allows detailed discussion on management matters

But, filters out operational issues that remain with management

And, focuses on strategic decisions required of the board

Supports board responsibilities in key areas

Audit, internal controls and risk

Executive compensation and management appointments

Governance issues and corporate policies

Nomination and selection of non-executive directors

Others, e.g. health, safety, environment, etc.

Defined terms of reference and limitations

Generally, no executive powers


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Instruments to Enhance Effectiveness

Board Charter setting out procedural rules Clarifies leadership roles and core responsibilities

Reserves matters specifically reserved to board

Sets management delegations and reporting arrangements

Comprehensive induction for new directors

Legal and regulatory obligations

Financial structure of business, budgets and KPIs

Understanding of strategic priorities and current status

Familiarize with business operations, e.g. site visits

Annual board work plan Meetings and budget cycle, annual reporting

Code of ethics or statement of business principles

Defines corporate values and conduct of staff and directors


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Role of Corporate Secretary

Supervises and co-ordinates board papers &

presentations

Takes the minutes ofboard meetings

Resolves organizational

matters for board meetings

Works closely with

Chairman and CEO onboard agenda

Arranges the annualshareholders meeting

and other specialmeetings

Ensures compliance withthe board procedures

Oversees, conductsinduction trainings fornewly elected directors

Explains the proceduralrequirements of laws, the

charter, and bylaws of thecompany

Key link between companyand non-executive directors


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Board Role in Financial Oversight

Duty to maintain proper accounting records

Periodic reporting of financial position, performance

Establishing, monitoring proper internal controls

Ensuring proper external controls and audit

Skills, knowledge required by directors


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Boards Role in Risk Management

The board should know about and evaluate the:

Most significant risks facing the company

Possible effects on shareowners

Companys management of a crisis

Importance of stakeholder confidence in the organization

Communications with the investment community

The board should ensure that:

Sufficient time is devoted to discuss risk strategy

Appropriate levels of awareness exist throughout the company

Risk-management processes work effectively

A clear risk-management policy is published


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Not an easy task - Identified Risks

Strategic

Unfocused strategy Strategy not aligned with capabilities

Complacency arising from past success

Unsuccessful acquisition/abortive bid

Failure to manage major changes

Reputational risk

Loss of investors confidence

Political/general economic risk

People Management leadership weak

Inadequate succession planning

Loss of key executives

Poor employee motivation

Internal communication weaknesses

Marketplace

Failure to respond to market trends Missed opportunities new tech., global markets

Weak or obselete brands

Over-reliance on a few customers

Poor customer satisfaction quality/timeliness

Ethical

Failure to enact high standards of ethics Obtaining contracts unethically

Stakeholder concerns on products/businessprobity poor community relations

Suppliers/Outsourcers

Over-dependence on suppliers/outsourcers

Failure to manage cost/quality of outsourcedservice

Supply chain problems Joint ventures, strategic alliances not

working

Financial

Cash flow/going concern problems

Treasury operations risk

Susceptibility to fraud/accountingirregularities

Legal/Compliance Failure to protect intellectual property

Health, safety, environmental issues

Litigation risk

Breach of competition, corporate,employee, tax laws


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Boards must re-establish and enforce the standard that

risks are to be undertaken for the benefit of theirconstituents, not for the personal gain of management.

George VojtaChairman of the Advisory Board of the Yale School of Management Millstein Center for

Corporate Governanance and Performance and Former Vice-Chairman, Bankers Trust Corp.

Restoring Integrity and Trust


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Six Critical Questions for Directors!

Do I believe I have all the information?

Have I the necessary skills to make this decision?

Do I have any conflict in this matter?

Objectively, is this a rational business decision?

Can I explain this in a transparent manner? Is it a responsible discharge of my duties?


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MCIS GUIDING PRINCIPLES

Build Trust and Credibility!

Respect for the IndividualCreate a Culture of

Openness and Honesty

Set the Tone at the Top

Uphold the Law!Avoid Conflicts of Interest

Set Metrics and Report

Results Accurately

Do the Right Thing!Promote Substance over

Form

Be Loyal to your Company,

your Family, yourself

Philip Armstrong

Global Corporate Governance ForumTelephone +1 202 458 9114

[email protected]

Thank You!

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MediaTraining Chile Jan10 Roger+Jeal

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