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corporate
governance
Corporate
governance around the world is going through major change
as stakeholders exercise pressure on companies to make boards more
accountable. Shareholders and in particular institutional ones are
demanding greater board accountability.
Does ABC Company
have a strong board? Who is on the board? What is the mix? Does the board
have a formal evaluation of the CEO? How big is the board? Do board
members own stock? How are board members compensated? How much? Is it in
line with the industry and with the size of the business? What is the
ratio between independent directors and insiders? etc.
These are just a
few of the "new" questions that are frequently asked. We have
tried to address the main issues of today's corporate governance in a
concise and straightforward manner. We would be pleased to answer any
specific queries. Contact us for more information.
We can provide
you with practical counsel as to how your board can develop a competitive
edge that will make the difference in your business performance.
what
does a board do anyway?
So much has been written about corporate
governance and yet many company's boards, including large public
corporations, seem to miss the main purpose of a board. Here is our
interpretation of what is the function of a board in 6 short lines:
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Select,
evaluate, pay and replace the Chief Executive Officer.
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Insure
management is doing a good job.
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Reviewing
and approving of company's strategy.
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Making
sure the company complies with all the laws of the land.
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Providing
advice and counsel to management.
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Making recommendations
to the shareholders.
practical
and straight forward suggestions about
boards:
While exceptions will apply, we believe the
following suggestions are appropriate for most situations:
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Do
not group the positions of Chairman, President and Chief Executive
Officer into one person. Have at least two persons. Better two heads
than one! |
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Do
not have a very large board. A seven-member board is a good number.
Boards with over ten members tend to become unproductive. |
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Any
director who does not maintain a high attendance should be replaced.
He/she may be good but if they do not show up for the game then what
's the use? |
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Have
more independent directors than insiders. With more independent
directors you improve the objectivity of the board, which is
desirable. |
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Ensure
that directors own shares in the company. Have them pay for the shares
from their own money. |
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Make
sure your board has some turnover. It's healthy. Have an age limit for
retirement. You can always give specific assignments to ex-directors
as need be. |
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Ensure
there is a comprehensive CEO yearly evaluation. |
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Ensure
that all committees are staffed at least 2/3 or more by independent
directors. |
director's
selection
Contrary
to one gentleman's opinion who compared board members to the "
parsley on the trout " ( i.e. don't add value and you really don't
miss it when it is not around ) an active and well balanced board can
provide your company with a competitive edge.
Here are
14 key criteria for selecting board members. They were borrowed from an
Executive Search handbook:
(1) Industry
knowledge
(2) Experience
(3) Previous
successful "missions"
(4) Functional
experience
(5) Team player
(6) Financial
knowledge
(7) High ethics and
integrity
(8) Character and
personality
(9) Good business
judgement
(10) Crisis
management skills
(11) Leadership
(12) High
performance standards
(13) Independence
(14) Availability
and commitment
These criteria are not arranged in any particular
order and probably not all would be applicable to every situation. The
point to remember is that you don't want to fill a seat but look instead
for a specific competency and a particular contribution by each board
member.
With some work, your board can move from an
"old boys club" to an "intellectual capital" that through
its independence, vitality, experience and diversity can make a difference
to your company's performance.
most common skill
mix"
Financial
Strategy & planning
Sales & Marketing
Human resources
Lobbyist
Academic
Door opener (contacts)
Information Technology
International
Technical
Research & development
Legal / Politics
Environment
Friend
For more on Corporate Governance,
click here
Straight talk about
corporate governance…(Winter 2003)
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