Meetings of the board and its committees Flashcards
What are the 2 different types of directors’ meetings and 3 differences between them?
Where are the rules and procedures governing the holding of directors’ meetings?
How must directors’ meetings be conducted?
- Formal structured board meetings = set corporate strategy and evaluate the performance of company executives
*Frequency depends on board or chair’s preference and the stage of company’s evolution
* Agenda influenced by seasonal events e.g. annual board evaluations, approval of financial statements etc.
* Formal board minutes kept recording decisions and rationale - Executive management meetings = day-to-day business decisions to implement corporate strategy
* Held frequently - weekly, fortnightly, or monthly
*General agenda but exact business determined by the actual performance of various departments
*Minutes may be limited to action points with little record of discussions
In the Articles
MA. 19 (plc) and 16 (ltd) authorises directors to conduct their formal meetings as they see fit (CA2006 and MA only concerned with board meetings and not day-to-day management meetings)
How many board meetings should be held each year? (What about listed companies)
How are decisions made at directors’ meetings?
Who can convene a directors’ meeting?
How much notice must be given for directors’ meetings?
What will the notice include? (3)
What is the required quorum for a directors’ meeting?
What can happen when the number of directors falls below the minimum quorum requirement? (2)
No minimum requirement, directors can decide, but an annual meeting should be held to formally approve financial statements
Listed companies usually disclose number of meetings in CG section of ARA
Formal votes are rare = most decisions are agreed upon following sufficient discussion to resolve any concerns, but if a director does not agree with any decisions this should be minuted
(If views are evenly balanced on a matter, a formal vote may be used)
Any director may convene a meeting of the directors (usually instruct Cosec to do so)
No minimum notice period = any reasonable notice may be given depending on location and availability of each director and the subject matter to be discussed
(Small company with 2 directors in same office = could be 30 minutes notice)
(Multi-national listed company = could be days notice)
- Place, date and time of meeting
- an agenda of topics to be discussed
- any supporting board papers and reports may be circulated with agenda (large/listed) or tabled at meeting (small)
Contained in Articles = MA. 10 (plc) and 11 (ltd) = 2 directors (but increasingly common for private company Articles to allow a sole director where quorum is 1)
The remaining director(s) may appoint another director(s), or call a GM for members to appoint director(s)
Who can elect the chair of the board?
For a listed company, what should the chair be on appointment and how long should they stay in post?
What is the chair’s role? (6)
What power does the chair have?
MA. 12 (Plc & Ltd) = directors collectively may elect one of their number to act as chair of the board
Provision 9 = should be independent on appointment and not remain in post for more than 9 years (Provision 19)
- Leads the board and is responsible for its overall effectiveness (Principle F)
- Ensure all points of view are discussed and encourage participation (Para 61)
- Lead by example demonstrating ethical leadership and promoting culture of openness and debate (Principle F)
- Promote good relationships with all directors and senior management
- Ensure board regularly reviews its performance (Provision 21)
- Ensure regular engagement and effective communication with shareholders (Provision 3)
MA. 14 (plc) and 13 (ltd) = give chair a casting vote in the event of an equality of votes
What are directors responsible for and what powers do they have?
Can directors delegate these responsibilities and powers?
Why are clear, documented policies and procedures setting out specific decisions and exercise of authority reserved for the board and for executive management important?
Who should these be given to?
What happens if they are breached?
MA. 3 = Subject to the articles, directors are responsible for the management of the company’s business for which purposes they may exercise all the powers of the company
MA. 5 and 6 = Subject to the articles, directors may delegate any of the powers which are conferred on them under the articles to such person or committee as they think fit
(Should not delegate all functions and should establish appropriate oversight to supervise and monitor delegates and their actions = otherwise breach of s.174)
Committee terms of reference, Schedule of matters reserved for the Board, and signing authority schedules should be adopted = To avoid overlapping work and potential conflicts of interest
Copies should be given to all directors
Compliance should be monitored and breaches considered by the chair and the board
Why does FRC Guidance on Board Effectiveness recommend boards adopt a formal schedule of matters reserved for the board? (2)
What are the 12 matters that should be included in the schedule?
A. helps clarify for Board members which matters are reserved for them and also helps the Executive Team determine which decisions require Board approval
B. Simplifies delegation process = allows company-wide changes to be made without having to alter the terms of the delegation for each individual or committee
CGI Guidance on Matters Reserved for the Board:
1. Strategy and management = approval of company’s strategic aims and objectives
2. Structure and capital = changes to company’s listing or plc status
3. Financial reporting and controls = approval of annual report and accounts
4. Internal controls = maintaining sound Internal control and risk management system e.g. approve risk appetite
5. Contracts = approving major capital projects
6. Communication = approval of resolutions to be put to shareholders at GMs
7. Board membership and other appointments = appointment or removal of the company secretary
8. Remuneration = determining the remuneration policy for directors, cosec and other senior executives
9. Delegation of authority = establishing board committees and approving their ToR
10. CG matters = determine independence of NEDs
11. Policies = approval of policies e.g. whistleblowing
12. Other matters = the making of political donations
When delegating any of its powers to a committee, the board should establish and approve what?
What are 5 sections this should include?
The 4 main board committees are nomination, audit, remuneration, and risk, but what other committee may a company have?
What authority does this committee have?
Terms of Reference (CGI has published draft ToR suitable for risk, audit, remuneration, and nomination committees)
Sections in a ToR:
1. Purpose and authority (for executive committee)
2. Membership and Secretary
3. Quorum
4. Duties
5. Reporting responsibilities
An executive committee led by CEO = CEO will provide report on committee actions to board
Authority of executive committee flows from the authority of individual members and has no specific authority of its own
What are the 5 main benefits Board committees generally bring?
What are the member composition requirements of the UK CG Code for the nomination, audit, and remuneration committees?
- Member knowledge specialisation = some NEDs owe their position to the board based on a particular skill/knowledge they bring e.g., accountant to sit on audit committee;
- Committee specialism = overtime members of committees will build a body of knowledge and be better able to interact with and make a positive contribution to the task of holding the executive team to account;
- Better accountability and responsibility of committee members;
- More time to look into specific matters in more detail (can devote time to area of responsibility)
- More efficient and effective working of the board as a whole = allows a better allocation of issues needing to be addressed by the board
Provision 17 = NC = majority of members should be INEDs
Provision 24 = AC = at least 3 INEDs for large companies and 2 for small companies
Provision 32 = RC = at least 3 INEDs for large companies and 2 for small companies
Except at a meeting, how else may directors make decisions? (2)
- MA. 17 & 18 (Plc) and 8 (Ltd) = a resolution signed by all the directors entitled to attend a board meeting is as valid and effectual as if passed at a board meeting
- MA. 8 (ltd) = directors of private companies may reach decisions by simply indicating to each other, by any means, that they share a common view (MA.15 (Ltd) = must keep a written record of unanimous decisions)
CONFLICTS OF INTEREST - INTERESTS IN CONTRACTS
Where a director is directly or indirectly interested in a contract or a proposed contract with the company, what must they do?
What are the 3 circumstances a conflict applies in?
How may declaration be given? (2)
What must be done following this?
Material transactions between the company and its directors must be disclosed where?
S.177 and s.182 CA2006 = declare the nature and extent of their direct or indirect interest
Applies where transaction or arrangement is with the company:
A. Director contracts with company
B. Company A contracts with company B, and a director of company A is a major shareholder in company B
C. Company contracts with a connected person of a director
At a directors’ meeting or in writing (must be in writing if a sole director)
If given in writing = notice must be given to each other director and it is deemed to form part of the proceedings of the next meeting of the directors
In the company’s accounts
CONFLICTS OF INTEREST - SUBSTANTIAL PROPERTY TRANSACTIONS
What does S.190 CA2006 say?
What is a substantial non-cash asset?
Name 3 exempt transactions.
Even if exempt what should be done?
What are the 2 consequences where the requirements of s.190 are contravened?
Where must details of a substantial property transaction be disclosed?
S.190 = director or connected person may not enter into any arrangement to acquire from or transfer to the company a ‘non-cash asset’ without prior approval of the members by ordinary resolution passed in GM
S.191 = any asset that is non-cash and that is over £100,000 or exceeds 10% of the company’s net asset value and is more than £5,000
- A non-cash asset valued at less than £5,000
- in circumstances where the director is acquiring the asset in their capacity as a member and not as a director, i.e. issue of shares pursuant to a rights issue.
- an arrangement where the company is being wound up
Director discloses interest and ensure entry in minutes so there is no question subsequently raised as to the validity of the transaction and the director held liable
If no member approval obtained = (1) director or connected person and any other director(s) who authroised transaction are liable to account for any gains made, and jointly compensate company for any losses (2) transaction voidable at instance of company
In the company’s accounts
CONFLICTS OF INTEREST - LOANS TO DIRECTORS
What are the 5 transactions that cannot be done without member approval under ss.197-201 CA2006?
What is a quasi-loan?
Who are connected persons? (4)
A company cannot make the following without member approval:
1. Make a loan to a director or connected person (s.197)
2. Give a guarantee or provide security for a loan made by another person to a director or connected person (s.197)
3. (Public) Make a quasi-loan to a director or connected persons (s.198)
4. (Public) Give a guarantee or provide security for a quasi-loan made by another person to a director or connected person (s.198)
5. (Public) Enter a credit transaction as a creditor for the director or connected person (s.201)
Quasi-loan = transaction where creditor agrees to pay or reimburse another party for the borrower’s (director’s) debts on the terms that the borrower (director) will repay or reimburse the creditor
S.253 = include spouse, civil partner, parents, or children
CONFLICTS OF INTEREST - LOANS TO DIRECTORS
In order for approval to be given in general meeting there needs to be full disclosure in advance, which includes what 3 pieces of information in a memorandum?
What must happen if the resolution is to be passed in writing?
What must happen if the resolution is to be passed in a general meeting?
Name 4 transactions that are exempt from member approval.
A. the purpose of the loan or transaction
B. the amount of the loan or value of the transaction; and
C. the liability to which the company may be exposed under the loan or transaction
In writing = resolution (inclusive of the memorandum explaining the loan) must be circulated to members
At GM = memorandum must be available for inspection at RO for at least 15 days before meeting and must also be available for inspection at meeting
- Value of loan or quasi-loan does not exceed £10,000
- Credit transaction does not exceed £15,000
- An advance of up to £50,000 may be made to a director to enable them to meet expenditures incurred for the purpose of the company or to enable them to perform their duties properly
- It is a transaction entered into in the ordinary course of the company’s business
BEIS has issued new proposals to reduce corporate failure by strengthening corporate governance, stewardship, and improving the insolvency regime.
Name 2 of the proposals.
Insolvency proposals:
1. Legislating to give the Insolvency Service necessary powers to investigate directors of dissolved companies and
Corporate governance proposals:
2. Enhance the role of shareholder stewardship
Name 4 duties of the executive committee.
A. Prepare budgets and company strategies (then implementation once board approved)
B. Identify and monitor risk and formulate strategies to manage risks
C. Establish financial and other reporting mechanisms to capture relevant material information on a timely basis
D. Implement the company’s policies and processes
