board role, directors duties and liabilities and ethics by IFC & ACCA

1. MODULE 2: BOARD ROLE,
DIRECTORS’ DUTIES AND
LIABILITIES
Corporate Governance Training Program
27th Sept, 2017

2. 2
▪ Board’s Role, Responsibilities
▪ Delegation of responsibilities
▪ Directors’ Rights, Duties, Liabilities
▪ Chairman, CEO Role and Separation

3. 3
Discussion Topic
▪ Why should companies
have boards?

4. 4
Board’s purpose
“The board’s purpose is to provide entrepreneurial
leadership of the company within a framework of
prudent and effective controls….”
United Kingdom Combined Code (2006)

5. Responsibilities of
the Board
5

6. 6
Board Responsibilities
▪ Develop the company’s purpose, vision, values (The
board should develop a purpose statement to guide
the company direction)
▪ Guide strategy (approve the company’s major
strategic recommendations, risk policy, annual
budgets and business plans)
▪ Oversee management (be involved in selecting,
appointing, motivating, overseeing the CEO and have
succession plans in place to ensure planned
progressive changes)

7. 7
Board Responsibilities
▪ Monitor effectiveness in the company’s governance
practices(CG frameworks, policies, procedures and
practices)
▪ Ensure that controls are in place(accounting,
reporting, audit, risk management, legal compliance)
▪ Oversee disclosure, communications

8. 8
“The BOARD should fulfill certain key functions including:
ensuring the INTEGRITY of the corporation’s accounting and financial
reporting systems (including the independent audit), and that
appropriate systems of control are in place, in particular, systems
for risk management, financial and operational control, and
compliance with the law and relevant standards.”
“In every single business failure of a large company in the last five decades, the board
was the last to realize that things were going wrong.”
Peter Drucker, Managing for the Future

9. Delegation of
Responsibilities
9

10. Do
10

11. 11
Chairman, CEO Role Separation
Board Chairman
▪ Provide overall leadership to the board
▪ Responsible for board agenda, work plan
▪ Work with chairmen of board committees
▪ Informal link between board and CEO/management
▪ Participate in selection, induction of NEDs
▪ Counsel individual directors, performance evaluation
▪ Relations with shareowners, investors, key stakeholders

12. 12
Chairman, CEO Role Separation (cont.)
Chief Executive Office
▪ Work closely with board chairman
▪ Formulate strategy, business plan, gain board budget approval
▪ Responsible for financial, corporate objectives
▪ Formulate major corporate policies, supervise management
▪ Ensure effective management succession planning
▪ Ensure continuous improvement in services, products
▪ Relations with investors, major customers, business partners
▪ Ensure company’s long-term sustainability

13. 13
Director’s Roles
▪ Decision-maker
▪ Representative of an interest group
▪ Challenger
▪ Supervisor
▪ Reflective listener
▪ Process manager
▪ Knowledge provider
▪ Company representative
▪ Status provider
▪ Innovator
▪ Developer

14. 14
Directors Can Be….
▪ Imprisoned – EXAMPLE?
▪ Fined – EXAMPLE?
▪ Sued for losses – EXAMPLE?
▪ Held personally liable for…. – EXAMPLE?
▪ Removed from office by shareowners – EXAMPLE?
▪ Disqualified – EXAMPLE?

15. 15
Director’s Duties
▪ Duty to act within powers
▪ Duty of care
▪ Fiduciary duties

16. 16
Duty To Act Within Powers
▪ Act only within their powers as defined by the
constitution or approved by shareowners

17. 17
Duty Of Care
▪ Legal obligation imposed on directors requiring that
they adhere to a reasonable standard of care while
performing any acts that could potentially harm others
▪ Directors are normally expected to discharge their
duties in:
▪ Company’s best interests
▪ Compliance with company’s code of conduct

18. 18
Fiduciary Duties
▪ Directors must act in a faithful, trustful manner
towards or on the company’s behalf, putting their duty
before personal interests.
▪ Considerations include:
▪ Good faith
▪ Proper purpose
▪ Not to make secret profits
▪ Avoiding conflicts of interest
▪ Confidentiality

19. 19
Duty Of Loyalty Calls For Directors Not to…
▪ Conduct transactions in which they have a personal
interest
▪ Accept a position in a competing company
▪ Enter into contractual relations with a competing company
▪ Use the company’s assets, facilities for personal use
▪ Use information, business opportunities received in their
official capacity for personal gain
▪ Accept gifts

20. 20
Do Any Statutory Duties Of Directors Exist In
The Following Areas?
▪ Employee rights
▪ Data protection and privacy
▪ Health and safety rights
▪ Customer rights
▪ Human rights
▪ The environment

21. 21
Director’s Rights
▪ Access to information
▪ Reimbursement for expenses incurred
▪ Discharge their duties without interference
from co-directors
▪ Attend and participate in board meetings
▪ Notice of meetings
▪ Advice
▪ Delegation

22. 22
Case Study: Chase Bank: Duties of
Directors
▪ Read Hand out 1
▪ In your groups discuss:
▪ Group 1: was the Duty to act within powers were flouted? If so
how?
▪ Group 2: was the Duty of care flouted? If so how?
▪ Group 3: Fiduciary duties flouted? If so how?

23. 23
Questions

24. 24
Lunch Break