Good corporate governance is a culture and a climate of; Consistency, Responsibility, Accountability, Fairness, Transparency and Effectiveness that is Deployed throughout the organization. [•Trust is the foundation of development both in relations among humans and institutions •Gaining the trust of others is a valuable but difficult endeavor •Achieving the status of being trustworthy is a long process, but trust could be lost very quickly •In gaining trust, actions speak louder than words, as consistency of actions is a more dependable indicator of intent •Corporate governance is the foundation of corporate trust •The most important element of organizational infrastructure is the Board of Directors •The boards do not run companies but rather guide and advise the management •Governance is much more than compliance.] The quality of a board depends on the quality of its members, its structure, and its processes. Independent members should be competent and sufficiently informed to make judgments for sustainability of the company. Role of Independent Board Members : •Handle ‘the agency problem’ between the shareholders and the management (fraud, cronyism, lethargy, risk aversion, excessive risk taking) •Evaluation of the risk-reward balance, short term – long term returns, stakeholder interests, ethical conduct – market realities, oversight - motivating. •Prevention of preferential treatment of any stakeholder. Components of Independence : •Financial: Corporate governance codes mostly define independence in terms of the financial interest of the member •Intellectual •Political •Group Independence •Emotional The key to a successfully functioning board is the character and competencies of the people who make up that board. General Characteristics of Board Members : 1.Integrity and high ethical standards, 2.Understanding of fiduciary responsibility, 3.Financial literacy, 4.Conformity with the corporation’s values, 5.Ability to make judgments on decisions with implications on numerous dimensions, 6.Independent thinking, ability to express thoughts, 7.Exhibiting a constructive approach, 8.Having internalized the principles of corporate governance, 9.Believing in and applying standards of stretch performance, 10.Being prepared to devote sufficient time and attention, 11.Willing to take initiative to be proactive, challenge the management, and when needed take action. Individual Competencies of Board Members : 1.Sector experience 2.Stakeholder experience 3.Senior management experience 4.Senior-level relationships 5.Geographic or issue based experience The basic member choosing criterion “What value they will add to the board.” Board members should demonstrate certain behaviors in fulfilling their duties. 1.Knowing the corporation and the market well 2.Implementing a challenging and constructive questioning process 3.Having a good understanding of the corporation’s cash flow 4.Having an understanding of benchmarks 5.Focusing not only on the performance of the current term, but also about the indicators for the future performance 6.Inorganic growth opportunities 7.Succession planning 8.Potential off-balance-sheet liabilities 9.Reputational risks, whistle blowing process in identifying potential fraud risks 10.Understanding customer expectations 11.Understanding of the value chain 12.Effective oversight for CSR activities 13.Being aware of potential regulatory and legislative changes 14.Understanding of the priorities and concerns of the investment community Pearls are not found in shallow waters, if you want one, you must dive deep - Chinese Proverb •General charactersitics of Board Members. •Individual competencies of Board Members. The key to a successfully functioning board is the character and competencies of the people who make up that board. •“acquaintances” that may hesitate to challenge the CEO. •Limitation to the diversity of joint experience of the board. Traditionally, members of board of directors are picked by the largest shareholder, Chairperson, or CEO., but…. •Financial Independence •Intellectual Independence •Political Independence •Group Independence •Emotional Independence Independent members should be competent and sufficiently informed to make judgments for sustainability of the company. •Knowing the corporation and the market well •Focusing current, but also future performance •Succession planning •Potential off-balance-sheet liabilities •Risk evaluation and trade-offs Board members should demonstrate certain behaviors in fulfilling their duties. •Integrity and high standards for ethical conduct •Openness, transparency and accountability •Common sense and strategic thinking skills •Team building •Experience and knowledge Chairperson should ensure the effectiveness of the board and sustainable increase of the corporation’s value. A collection of excellent players do not always make a great team, especially if they all excel at the same skills. •Building successful teams / successful boards is an important entrepreneurship skill. •Effectiveness of boards determine the effectiveness of the corporation. •In Order to Create a Successful Board; •Mutual respect, trust, and candor must be attained between all board members. •Different skills and competencies of the members must cover company needs like; •Risk profile •Stage of life cycle •Geographic experience •Industry experience •Stakeholder experience •Team members must spend time together and exchange ideas and views. •The board has to work as a unified team, not as individual stars. •Great care should be taken to ensure that the team is formed properly from the outset. •Corporate incentive systems should be set up so as to increase team performance. •Sufficient time has to be invested up front to ensure agreement on a common vision. •Planned changes are necessary to ensure lasting team success. Adherence to corporate governance principles is not enough, the expectations of stakeholders are more than that. Common Mistakes/How to Avoid such Mistakes : “We have the best run company Utilize scenario analyses to prepare for the worst Make risk evaluations and increasing sensitivity to the weak points Make phased decisions and retain flexible Delaying disposal decisions for non- performing business due to stigma of failure Ending value draining activities is the easiest way to create value Make realistic and independent assessments when considering disposals Difficulty of overcoming the investment momentum Treat past expenditures as bygones Focus on value creation Phase investments , minimize risk of a major failures Treating costs in different areas with different criteria Treat the cost of a one million USD mistake made in marketing and the cost of a one million USD mistake in production with the same criteria Be careful, especially when entering into a new and fashionable business Being overly influenced by most recent developments Focus on long term trends and averages Use comparative benchmarking data to get a more realistic understanding Increase the flexibility and focus on the decision horizon Increase the flexibility of the strategic plan Group Thinking Have a diverse board Establish a climate of candor and encourage dissent
Posted on: Tue, 23 Dec 2014 16:20:21 +0000
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