Strategy and Governance Flashcards
Governance structure Facets
effectively setting the strategic direction of the organization
* ensuring that the organization is fulfilling its responsibilities to the primary stakeholders
* identifying ways to ensure that strategic decisions are made in a timely and effective manner
* implementing the controls required to ensure that the organization acts in an ethical, legal, and transparent manner in the best interests of its shareholders and other stakeholders
* facilitating orderly communication and cooperation between the organization’s owners (such as shareholders in a corporation or members in a not-for-profit organization) and its top-level managers, and between top-level managers and all employees
shareholders’ rights
- participating and voting at the shareholders’ meeting
- nominating and electing directors to the board
- receiving copies of the financial statements
- approving the organization’s bylaws and any changes to bylaws
- approving the appointment of the external auditor (or waiving the requirement for an audit)
- approving major or fundamental changes including: legal structure, divestiture, acquisition, etc.
Shareholder meetings and decisions
The matters of business typically occur at shareholder meetings and only voting shareholders are invited. Shareholder meetings are typically held annually, although special meetings can be called to deal with matters contemplated in the final matter of their rights.
Responsibilities for the board of directors of a publicly traded company
adopt: strategic planning process, written business code of conduct and communication policy for the organization.
identify the principal risks and oversight risk management activities.
appoint CEO and ensure succession planning.
develop corporate governance approach, roles and responsibilities for chair, board, subcommittees and CEO
monitor orgs control and information systems
assess ex Mgmt performance and compensation , their tone at the top to create culture of integrity.
monitor company’s financial performance, resources, products and services.
ensure boards composition consists of majority of independent directors
BOD’s qualities
able to understand their responsibilities within in a system of corporate governance - helpful if they have experience in the industry, not a requirement though
possess willingness to challenge managements decision if not there will be mismanagement of orgs resources and poor decision making.
duty of care - exercise same care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
duly of loyalty, put orgs interest ahead of their own in all situations.
max number of BOD
no specific rules or regulatory requirement
in practice anywhere from 3- 30 range ,
factors to consider in determining the number of directors are the objectives of the organization
private - small
NPO - large
good to have odd number so votes cannot tie.
Chairperson - elections and responsibilities
In order for the board to run effectively, the directors should elect a chairperson, who is commonly referred to as the “chair”. The chair’s role is to provide leadership, and that person’s responsibilities include:
* calling meetings of the board and setting the agenda for the meeting
* ensuring that board meetings are efficient
* ensuring that the board is following the bylaws or any other procedural regulations
* meeting regularly with the CEO to adjudicate matters that should be brought to the board for discussion
BOD position and compensation
usually not a full time,
directors may volunteer or they may receive compensation for their contribution. some bod takes additional duties such as chairing board committees and they are compensated for their time, may receive additional compensation for doing so.
Board committees
are formed to address specific tasks or duties that falls under board’s general purview.
not legally required unless is a public company.
committees can be standing or ad hoc.
example of some common board committees and their mandate.
Nominating committee: evaluates boards size and effectiveness and recommend new members
compensation committee: evaluates performance of CEO or exv director and their compensation and orgs share compensation plans.
risk committee: oversees how risk is managed and set risk framework, appetite and monitors mgmt’s risk activities
finance committee : oversees financial and budgeting functions or org
audit committee: recommends appointing external auditor and oversees auditors work. ultimate approval is shareholders or members at annual general meeting.
Members of executive management and their main responsibilities
exec management incentives
invoices the design and implementation of exec compensation packages that attempt to align the goals of the exec with those of the shareholders as closely as possible.
offer pay for performance salaries, bonus strategies, exec stock options or a combination of these. compensation package for CEO and approving all exec mgmt compensation plan is key function of the board.
other stakeholders definition and examples.
entities with an interest in the organization or who can be affected by the organization’s actions.
customers and suppliers, special interest groups, employees, creditors, governments, and members of the public in communities where the organization operates.
natural environment and wildlife
Indigenous peoples
Internal auditor
responsible for overseeing orgs operational and financing accounting.
Duties include:
-ensuring appropriateness of record keeping
-improve internal control systems
-can also perform fraud audits to identify an quantify fraud and then provide control to ensure that the fraud has stopped and will not reoccur.
Orgs are not required to have an internal auditor or department but this is part of internal control systems and helps to prevent fraud and provides stakeholders increased amount of confidence.
Board selection
the committee tries to ensure that a broad range of perspectives and skill sets are included so that all stakeholder needs can be adequately considered.
For corporate boards, some shareholders, such as majority shareholders, are heavily involved in board selection, while others are not.
Placing limits on the length of time directors can serve and staggering terms for members are considered healthy approaches for board succession
Boards also have a role in the organization’s commitment to diversity.
A balance of board continuity and renewal is important, even if difficult to achieve. Publicly disclosing the board mandate (or charter), the matrix of board member attributes, and board recruitment practices is considered best practice for a company, as it demonstrates how the board provides a basis for good corporate governance.
