Role Of Director Flashcards
What is the purpose of examining the role of Directors, Board, and management?
To understand their roles in corporate, government, NFP, and CMEs.
What is corporate governance?
A framework of rules, relationships, systems, and processes by which authority is exercised and controlled in corporations.
What are the key functions of the board and its directors?
- Approving and overseeing business operations
- Reporting performance with transparency
- Ensuring adherence to good corporate governance principles
What are the consequences of breaching director’s duties?
Potential legal liabilities and loss of reputation.
What are the ASX Corporate Governance Principles?
- Responsibilities of the board
- Structure of the board
- Culture maintenance
- Regular and accurate reporting
- Timely and balanced disclosure
- Shareholder rights
- Risk management
- Fair remuneration
True or False: Shareholders hold the board responsible for the company’s performance.
True
What steps can a board take to instil values in a company?
- Define core values clearly
- Lead by example
- Integrate values into governance
- Communicate values consistently
- Align hiring with values
- Embed values in systems
- Encourage accountability
- Recognize value-based behaviour
- Engage stakeholders
- Regularly review values
Fill in the blank: Corporate culture is formed by _______.
[beliefs, history, values, experiences of an organization]
What are the types of companies mentioned?
- Incorporated entities
- Unincorporated entities
What are the benefits of incorporation?
- Separate legal entity
- Continuity of existence
- Limited liability for shareholders
What defines a proprietary company?
- No more than 50 shareholders
- Restricted rights to transfer shares
- No ability to raise public capital
What is the role of a non-executive director?
Not employed by the organization, provides oversight.
Who can be considered a de facto director?
A person not validly appointed but performs the functions of a director.
What is the role of the chair of the board?
Responsible for the board agenda, presiding over meetings, and leading the board.
What is required for the appointment of directors?
Directors are appointed by shareholders, usually at the AGM.
What are the prohibitions on being a director?
- Under 18 years of age
- Insolvent
- Disqualified under the Corporations Act 2001 (Cth)
What must happen for a director to be removed?
A resolution must be passed by shareholders, and the process must be documented.
What is the legal status of a company?
Recognized as a separate legal ‘person’ under the law.
What are the essential functions of directors?
- Strategy formulation
- Resource allocation
- Performance monitoring
- Compliance oversight
- Risk management
- Accountability to shareholders
What is a shadow director?
A person not validly appointed but whose instructions are followed by other directors.
What does the board collectively oversee?
The organization’s interest on behalf of shareholders/members.
What is the significance of the Corporations Act 2001 (Cth)?
It governs the operation of Australian companies.
True or False: A company can continue to exist even after shareholders change.
True
What is the responsibility of the board regarding risk management?
To oversee and ensure a sound risk management framework.
Fill in the blank: The board must provide _______ to shareholders.
[timely and transparent reporting]
What is a principal executive officer?
The officer who takes the main role in the management of the organization.
What is a partnership?
An unincorporated business run by two or more persons for profit.
What is the role of officers in an organization?
Involved in decision-making and can impact financial standing.
What document outlines the operational framework of a company?
The constitution.
What are the key elements of a corporate governance statement?
- Policies
- Performance
- Compliance with recommendations
What is the primary function of directors regarding strategy?
To set performance targets to meet commercial and community expectations.
What resources must directors make available for effective management?
CEO and succession plan.
What are the essential functions of directors?
- Strategy
- Resources
- Performance
- Compliance
- Risk
- Accountability to shareholders
Define compliance in the context of corporate governance.
Forced law, rule, regulation that must be followed.
What is performance in corporate governance?
Being productive or improving quality.
True or False: Boards should only avoid risks in their decision-making.
False.
What should delegations of authority include?
- Matters reserved for the board
- Matters delegated to management
What are the external aspects of compliance?
Establishing legal aspects and obtaining legal advice on matters.
What should directors monitor regarding performance?
Business plans, financial health using KPIs.
What should KPIs indicate?
Current position and progress towards objectives.
Fill in the blank: Directors should set the ______ and values.
purpose
Who typically evaluates the CEO’s performance?
Specialist advisers, chair, or non-exec director.
What is the role of directors in risk management?
Identify risks and develop strategies to mitigate the risk.
What is a fiduciary duty?
The relationship between directors and shareholders based on trust, honesty, care, and responsibility.
What does the Corporations Act 2001 (Cth) require from directors?
To act in good faith for the best interest of the corporation.
What should directors disclose according to the Corporations Act?
Material personal interest in matters relating to the affairs of the company.
What constitutes a conflict of interest for directors?
- Entering into a contract with the organization
- Making a personal profit
- Misuse of confidential information
- Working as a competitor
What are the consequences of improper use of position?
- Gain advantage for themselves or someone else
- Cause detriment to the corporation
What does the duty of care and diligence entail?
Exercising powers and discharging duties in good faith.
What is the Business Judgement Rule?
A director is deemed to meet their duties if they make a business judgment in good faith for a proper purpose.
What areas should directors understand that arise from the organization’s activities?
- Contracts
- Trade practices
- Intellectual property
- Environmental law
- Employment laws
- Anti-discrimination law
- Taxation
- Data and cybersecurity
True or False: Directors owe a direct duty to creditors.
False.
What is the purpose of Safe Harbour provisions?
Conditional on paying employee entitlements and ATO obligations before going into administration or liquidation.
What are the maximum penalties for breaches of duty as per the Treasury Laws Amendment?
Increased maximum imprisonment and financial penalties.
What rights do directors have according to the Corporations Act 2001 (Cth)?
- Right to information
- Right to advise
- Right to be heard
What must be recorded in minutes when directors delegate their powers?
The delegation itself.
What happens if a director is found to have acted recklessly?
They can be charged with a criminal offence.
What is the potential maximum civil penalty for individuals under the Amendment Act?
$1.565 million or three times the benefit gained.
What is the significance of monitoring financial management?
To ensure proper use of resources and compliance with financial reporting standards.
What should be done if an organization cannot pay its debts?
Obtain professional advice on the next course of action.
What is the duration of director rights after they cease to be a director?
7 years
This is a Common Law and Corporations Act right.
What is the Right to Advise?
Right to access independent advice other than that provided by the corporation.
What is the Right to Be Heard?
Right to have views and concerns heard and recorded at meetings.
What must be recorded when a director delegates their powers?
Must be recorded in minutes.
What is the best protection for directors?
Vigilance in the performance of duties.
What does D&O insurance provide?
Indemnity for directors and officers.
What are the key responsibilities of directors?
Establish governance to meet shareholder/member expectations.
What stakeholders depend on the leadership of directors?
- Stakeholders
- Employees
- Members
- Suppliers
- Creditors
- Broader society
What does the Rio Tinto case illustrate about stakeholder expectations?
Expectations include prioritizing ESG considerations and ethical governance.
True or False: Shareholders now expect boards to prioritize short-term profits over long-term value creation.
False
What are the two main focuses for boards to manage expectations effectively?
- Governance and oversight
- Stakeholder engagement
What should boards do to strengthen governance and oversight?
- Integrate ESG into strategy
- Establish clear accountability
- Conduct regular reviews and audits
What is a key action in meaningful stakeholder engagement?
Early and ongoing consultation with affected communities.
What should be linked to executive compensation?
ESG metrics.
Name a benefit of a diverse board composition.
Better positioned to manage contemporary expectations.
What is a robust risk management framework designed to do?
Identify potential ESG-related risks early.
What is a key area of information a board should review before entering a joint partnership?
Strategic fit and business case.
What is one potential financial risk of a partnership?
Unequal financial commitments.
Fill in the blank: A board must conduct thorough _______ before entering into a joint partnership.
due diligence
What is a potential operational risk of a partnership?
Dependency risk.
What can lead to brand and reputational damage in a partnership?
A partner’s ethical, environmental, or operational failures.
What should be established to oversee decision-making in a partnership?
A strong governance framework.
What is an essential step in crisis preparedness?
Swift and transparent response to issues.
What does the STAR Entertainment case discuss?
Allegations regarding the behavior of directors and officers failing to meet the required duty of care.
What should the board conduct to minimize risks when entering a partnership?
Thorough due diligence on the partner’s financials, legal standing, governance, and reputation.
Due diligence helps to identify potential risks and ensure compatibility before forming a partnership.
What is the purpose of a well-structured partnership agreement?
To clearly define roles, responsibilities, and expectations.
A clear agreement helps prevent misunderstandings and conflicts between partners.
List three key steps to reduce conflicts of interest for board members.
- Full Disclosure & Transparency
- Recusal from Discussions & Decisions
- Establish a Conflict of Interest Policy
What should a Conflict of Interest Policy outline?
- What constitutes a conflict (e.g., family relationships, business ties)
- The process for disclosure and management of conflicts
- Consequences for non-compliance
True or False: Board members should engage in discussions related to their own conflicts of interest.
False
Board members should recuse themselves from discussions and decision-making when a conflict arises.
What is one way to ensure that individuals with disabilities are included in board governance?
Appoint individuals with disabilities as board members.
This ensures firsthand perspectives are considered in decision-making.
What should be provided to remove barriers to participation for individuals with disabilities?
- Accessible meeting formats
- Flexible participation options
- Accessible materials
How can a Deputy Chair enhance board effectiveness?
By supporting the Chair and facilitating board evaluations.
This includes managing board dynamics and ensuring accountability.
What key performance indicators (KPIs) should be set for assessing CEO performance?
- Financial metrics
- Operational performance
- Leadership effectiveness
- Stakeholder impact
What is the role of the board when addressing loss of goodwill during a merger?
To manage stakeholder concerns, rebuild trust, and protect long-term value.
This includes conducting assessments and strengthening communication.
What does ASIC stand for and what is its main role?
Australian Securities and Investments Commission; regulates organizations to protect consumers, investors, and creditors.
ASIC was created under the ASIC Act 2001 (Cth).
Fill in the blank: The _____ is responsible for enforcing the Competition and Consumer Act 2010 (Cth).
Australian Competition and Consumer Commission (ACCC)
What does the AICD Code of Conduct require from its members?
- Act honestly and in good faith
- Use care and diligence
- Manage conflicts of interest
- Maintain confidentiality
List three things that every board must get right.
- Establish whom the board represents
- Set a positive role in corporate strategy
- Ensure effective internal controls
What is the purpose of the session on board meetings and governance?
To examine the composition and structure of the board and develop effective meeting procedures.
What should a board ensure regarding stakeholder engagement?
Transparency and trust.
This includes acting as a liaison between the board and key stakeholders.
What should boards do to verify accurate disclosures?
Ensure timely and complete disclosures to members, shareholders, and regulators.
What is the purpose of the board meeting session?
To examine the composition and structure of the board and develop effective meeting procedures.
What will participants be able to identify after the session?
Relevant board meeting protocols and procedures (including the use of committees).
List the factors that a board’s composition depends on.
- Board size
- Director tenure
- Structure of the organisation
- Stage of the organisation’s development
- Locations of operation
- Strategies being pursued
- Nature of the organisation
- Company type (family, publicly listed, Indigenous, proprietary)
What must be disclosed in governance reporting?
The composition of the board and governance structures.
What are the types of boards mentioned?
- All executive boards
- All non-executive boards
- Majority executive
- Majority non-executive
True or False: All executive boards are made up entirely of non-executive directors.
False.
What is the advantage of an all-executive board?
Can make quick decisions working together.
What is a key requirement of the Aged Care Act 1996 (Cth) regarding board composition?
Majority independent non-executive directors (NEDs) and at least one with experience in clinical care.
What does diversity in a board help to achieve?
- A range of views and perspectives
- New ideas and innovation
- Reduce risk of blind spots in decision making
What are characteristics of effective directors?
- High ethical standards
- Skills and experience
- Competence in specialised area
- Sound judgement
- Willingness to challenge opinions
- Integrity
- Ability to devote required time
What should board meetings allow for?
Formal and informal proceedings, including time for free discussion.
What is the role of the Chair in a board meeting?
Link between board and organisation, encourage open debate, keep board informed, evaluate CEO’s performance.
Fill in the blank: The agenda of a board meeting is usually set by the chair, CEO, and _______.
[company secretary].
What is the purpose of board committees?
To conduct more detailed work and make recommendations to the board.
What is a key responsibility of the audit committee?
Communication between board and internal/external auditors.
What must be monitored by the risk committee?
If the organisation is operating within its risk appetite.
What is a challenge in evaluating a board?
Lack of clear evaluation criteria.
What is one of the key actions to improve board performance?
Establish clear expectations for board roles and responsibilities.
What is a ‘Circular Resolution’?
Allows decisions to be passed without a meeting, by sending written documents to be signed.
True or False: Board meeting attendance includes the CEO and other executives.
True.
What should board meeting minutes be?
Accurate and authentic.
What is the purpose of the CEO’s report?
To provide a progress report on the organisation’s plans, policies, and budget.
What should the CFO’s report include?
- P&L
- Balance sheet
- Cash flow statement
What should be considered when developing a board culture?
Encourage divergent views and open discussions.
What are the key elements necessary to build a business case?
- Options
- Feasibility
- Accountability
- Risks
What is the ideal size of a board?
Large enough to include diversity of skills but small enough to operate cohesively.
What is the significance of diversity of thinking on a board?
It brings diverse perspectives and approaches.
What should board evaluations assess?
- Strategy formulation
- Performance of organisation
- Risk management
- Board composition
- Board relations
- Board culture
- Efficiency of operations and governance
What is one way to improve decision-making processes in board meetings?
Provide well-structured meeting agendas with clear objectives.
Fill in the blank: The board can authorize management for expenditure up to a certain _______.
[amount].
What should be included in well-structured meeting agendas?
Clear objectives
Agendas should guide the meeting effectively.
How can data and expert insights be utilized in meetings?
To inform strategic discussions
What is a key strategy to avoid groupthink in meetings?
Ensure meetings allow for diverse perspectives
What are important factors to strengthen board composition?
- Recruit directors with diverse expertise
- Include independent members
- Ensure a mix of seasoned and emerging leaders
What is the role of external expertise in board governance?
- Invite industry experts to present
- Encourage mentorship between board members
- Benchmark against best practices
What is a significant risk for directors regarding insolvency?
Directors may personally be liable for debts
What should directors check to understand an organization’s insolvency risk?
- Financial reports
- Auditor’s feedback
- Minutes and financial statements
What is regulatory risk in the context of board governance?
Directors can be liable for the organization’s breach of duties
What should directors review to assess performance risk?
Minutes and resolutions before accepting an appointment
What factors contribute to reputational risk for board members?
- Potential litigation history
- Time, capacity, and resources for the role
What should be researched regarding board dynamics?
- Background and skills of current directors
- Relationship between stakeholders and management
- Potential for conflict
- Alignment with board values
What should NFP directors consider regarding their role?
Alignment with the cause of the charity
What is a recommended practice for ensuring accurate board meeting minutes?
Assign a competent minute-taker
What should a standardized template for meeting minutes include?
- Date, time, location
- Attendees
- Agenda items
- Discussions, decisions, action points
What is essential when documenting decisions and actions in meeting minutes?
- State resolutions passed
- Note conflicts of interest
- Assign follow-up actions
What is the importance of reviewing and approving minutes promptly?
To allow corrections before final approval
What should be maintained to ensure confidentiality and compliance in record-keeping?
Secure records
What financial documents are essential when selling a business?
- Profit & Loss Statements
- Balance Sheets
- Cash Flow Statements
- Tax Returns
- Debt and Loan Agreements
What is included in business valuation during a sale?
- Recent valuation reports
- Comparable sales data
- Details on intellectual property
What legal documents are necessary for a business sale?
- Business registration documents
- Contracts with suppliers
- Lease agreements
- Employment contracts
What operational information should be prepared for a business sale?
- Organizational structure
- Standard operating procedures
- Customer and supplier contracts
What market information is crucial for selling a business?
- Market analysis
- Customer demographics
- Competitor analysis
What should a transition and exit plan include when selling a business?
- Owner’s role post-sale
- Employee retention plan
- Potential risks and liabilities
