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Board Of Directors

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by

Saikhan Askhabov

on 10 February 2014

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Transcript of Board Of Directors

Strategy Formulation
Policymaking
Supervising executive
activities
Accountability
outward-
looking
inward-
looking
past and
present-focused
future-
focused

Check and balance mechanism
Limits potential Abuse of power

One leader limits conflict (Historically Accurate)
In the US combination of the two roles is common

Board Of Directors
Directors
Director Appointment
Annika, Alexander & Saikhan
Directors
Board Structures
Functions Of The Board
Board Committee
Conclusion
Agenda
Introduction
Functions Of The Board
Strategy Formulation
Policymaking
Supervising executive
activities
Accountability
outward-
looking
inward-
looking
past and
present-focused
future-
focused
Board Structures
All-executive director board
Majority-executive director board
Majority non-executive director board
All non-executive board
Unitary boards
Top managers = directors
small firms , start-ups
No duty distiction
non-executive directors:
in minority
Conclusion
Different board structures imply different power hierarchies
Why do directors get appointed?
Not feasible

that the shareholders voted the directors
Chosen by existing
directors and
routinely approved
by shareholders
Directors were
chosen from small network
of influence
Founder
/chairman/entrepreneur made
suggestions
Still the case
in many
private
companies




How do directors get appointed?
Modern model
Only
influential
shareholders can have an
influence
on director
appointment
More INEDs
are appointed
Existing
directors/management
choose

new
members
Networks still in existence
but
INED’s

counteract
the problem a little
Little influence
for
small
shareholders
19th Century model
The creation of an additional directorship

The type of "director" defines the corresponding tasks and duties
Re-appointment on the expiry of a director’s term of office
Appointment to fill a vacancy arising on resignation, death etc.

Pro:
High level of experience, knowledge and connections
Con:
Potential friction with new CEO’s

Implications of the Election
Should CEO and chairman be the same person?
Appointing retired CEO’s as chairman
Daniel Akerson
Larry Page
Eric E. Schmidt
The board of directors has different dynamic functions to fulfill
Members:
Mainly made of INED’s
Frequency:
3 or 4 times a year

Additional Roles:
Advising the board on the company’s systems of internal management control
Oversight of internal audit
Liaising with external auditors
Reporting to the board on audit process and issues
Review of financial information provided to shareholders
Advising board on matters of accountability
Oversight of risk management
CG compliance

Audit Committee:
Remuneration Committee:
Members:
Wholly or mainly independent outside directors
Packages:
Salary/Fees
Pension arrangements
Options to acquire share in the company
Other benefits (travel costs, memberships of clubs)

Difficulty:
Give sufficient incentives to directors in a competitive market for talent
Rewarding success
Avoiding excesses
Rewarding failure
Duty's
Establishing a formal and transparent procedure for developing policy
Determining the remuneration packages of each director and CEO
Preparing statement of remuneration policy & details of the remuneration of each director (Annually)

Nominating Committee:
Essential role:
Act as bridge between the independent external auditors and the board.
Essential role:
Responsible for overseeing the remuneration packages of board members
Essential Role
Reduce the possibility of a dominant director pushing through their choice
Committee's:
add expertise, new perspectives
-> British public listed companies
until 1970s
Detailed info
Detailed info
non-executive directors > managers
Managers make strategies
Management has too much power
-> USA, UK, advanced economies
not-for profit entities
Managers provide infor-
mation only
Two-tier boards
Executive board and supervisory board
-> Europe, Taiwan, China
Examples

Two parts:
Vorstand
(management board commitee
Aufsichtsrat
(supevisory)
Germany
Netherlands
Three parts: Representation of Capital, Employees, Society
Functions Of The Board
Strategy Formulation
Policymaking
Supervising executive
activities
Accountability
outward-
looking
inward-
looking
past and
present-focused
future-
focused
Expected
Observed
13%
49%
24%
14%
22%
23%
41%
14%
100%
37%
63%
55%
45%
100%
63%
37%
38%
62%
Delegation
Efforts:
Tasks:
Functions Of The Board
Strategy Formulation
Policymaking
Supervising executive
activities
Accountability
outward-
looking
inward-
looking
past and
present-focused
future-
focused
Approve and work with/through the CEO
Committees play an integral role in ensuring correct dispersion of control, accountability and due diligence.
Correct delegation of Tasks and function is crucial in CG.
Advisory Boards
Companies operating worldwide, business start-ups
Get advise from experienced people
Introduction

Shadow director =
Nominee director =
Governing director =
Corporate director =

Associate director =
another company, not a human being
not legally board-member

nominated by shareholder to represent interests
not formal board member, BUT can put pressure on decision making
dominant power in private company
Cross-directorship =
director of firm A is director in firm B ( and vice versa)
Functions Of The Board
Separated:
Combined:
Full transcript