Trends in Corporate Governance Dr. Sandra B. Richtermeyer, CMA, CPA President, Institute of Management Accountants (IMA) June 21, 2011

Trends in corporate governance  Concept of governance based on interpretation and type of organization: small-mid sized business, large corporation, publicly traded, privately owned, non-profit, etc.  Governance practices in the US have come a long way but we have a long road ahead  In the US, in the popular press, issues or problems that are related to poor governance are often attributable to executive leadership  Tonight’s discussion will have items that are applicable to a variety of organizational types

Developing best practices in board governance  Board alignment with strategy, vision and mission  Board composition/diversity  Board structure  Separation of CEO/Chairperson role  CEO evaluation and compensation  Disclosure and transparency  Board diversity, culture, and training  Effective board meetings  Board oversight  Board succession planning

Board alignment with mission, vision and strategy Board’s role in strategic planning based on size of organization, sophistication, industry trends, etc. Board member clarity regarding their role in strategy setting Clarity in communicating and applying strategic goals A vision statement is needed to start with goal setting and strategic direction A clear strategic plan linked to the mission provides the essential platform for board’s effectiveness An understanding of the board’s role in strategic planning is critical and this may vary by organization

Board alignment with mission, vision and strategy Mission and core competencies oversight How are board members informed and educated on the primary products and services? Do board members conduct site visits? When delivering key program services, how is quality maintained? Are appropriate benchmarks provided to the board members?

Board composition/diversity Disclosures on board composition are often weak or not available Industry background Position title, certification, education Years of experience with organization Years of experience serving on other boards Age ranges Gender, ethnicity Photo Global experience Internally – leadership assessment

Board culture Healthy board culture may be described using terms such as: Active engagement Fosters teamwork Level of trust Opportunities for open discussion Active collaboration occurs Respectful environment Constructive conflict  Recommended: Ask board members to individually describe their view on the culture of the board  Recommended: Board satisfaction surveys can be helpful in gauging culture and understanding where problems exist

Board member satisfaction/self-assessment Board member satisfaction surveys can be conducted as often as quarterly and are easily implemented with an online survey tool The results of the survey should go to a board member responsible for oversight, not the board chair The end goal of a board satisfaction survey is to have an understanding of whether or not board members have an effective and satisfying leadership experience or to assess their level of engagement

Sample/basic questions for a board member satisfaction/self-assessment survey The following statements can be evaluated on a five point scale (agree on one end of the scale and disagree on the other end)  A climate of mutual respect exists between the board chair and the board members  All board members are engaged in the board’s activities  We have adequate time to ask questions at the board meeting and explore ideas  All board members are prepared for each board meeting  I feel prepared for each board meeting

More sample/basic questions for a board member satisfaction/self-assessment survey Do you feel the size of the board is adequate? Do you feel that your service on this board is rewarding and satisfying? How could you feel better about your performance as an individual board member? Depending on the board size, a 360 evaluation of each board member may be helpful Board surveys can be conducted via survey or interview (perhaps through a facilitator)

Board training If done properly, board training can lead to a stronger board that functions more like a team than a group of individuals Most helpful if conducted at the beginning of board terms and if it includes continuing board members Also helpful if conducted mid-way through the year as the board culture and sense of community has had an opportunity to develop. Training can consist of Bylaw, policy, procedure overview, Team building

Board oversight (general) Board oversight is critical in terms of financial oversight and mission/program oversight All board members should be educated on their fiduciary role and existing bylaws, policies and procedures Board members should clearly understand where conflicts of interest could arise (a conflict of interest policy where each board member signs off is helpful) For publicly traded companies, the compliance requirements are generally clear, but those can be interpreted as the minimum

Financial oversight – key questions to consider Does the budget support the org’s goals and objectives? Is it too aggressive? Too conservative? Do all board members review and understand the financial results of the organization on a regular basis? Are the revenue streams diverse? If not, how can revenue risk be minimized? Are investment policies reviewed on a regular basis? Are appropriate internal controls in place? How do the financial results compare to prior years? How are board members informed when compliance reports are submitted? Do board members have easy access to all areas of oversight?

Effective board meetings Keep the agenda template consistent Distribute the agenda before the meeting Only meet for the planned amount of time Establish attendance guidelines Distribute minutes as soon after the meeting as possible As your board grows, implement committee structures and use full board meetings to report on committee activities Allow time for brainstorming and free thinking Allow time for socialization of board members outside of your standard board/committee meetings

Establish a succession plan for all board leadership roles Have clear role descriptions for each board member and make sure all board members understand all board roles Establish paths to becoming a board chair/member and communicate those paths to members/constituents Implement term limits for board roles Find ways of engaging previous board members to allow them to contribute Sharing of organizational history

Conclusion Final Thoughts Questions??????