1. Board of Directors Roles and Responsibilities

2. Key Terms Audit committee financial expert Business judgment rule
CEO duality
D&O insurance
Duty of care
Duty of fair disclosures
Duty of loyalty
Duty of obedience
Fiduciary duty
Independent director
Lead director
National Association of
Corporate Directors (NACD)
One-tier board model
Staggered board
Two-tier board model

3. Role of the Board of Directors
The board of directors is ultimately responsible for the company’s business affairs and governance as stated in its governing documents, including the articles of incorporation, the by laws, and shareholder agreements.
Many state laws require a corporation to form a board of directors to represent shareholders and make decisions on their behalf.
The success of the board of directors depends on the composition, structure, resources, diligence, and authority of the entire board, as well as their working relationships with other participants of corporate governance, including management, external auditors, internal auditors, legal counsel, professional advisors, regulators, standard-setting bodies, and investors.

4. (1) Represent shareholders and create shareholder value – understand all stakeholders
(2) Align the interests of management with those of shareholders while protecting the interests of other stakeholders (customers, creditors, suppliers).
(3) Define the company’s mission and goals.
(4) Establish or approve strategic plans and decisions to achieve these goals.
(5) Appoint senior executives to manage the company in accordance with the established strategies, plans, policies, and procedures.
(6) Oversee the company’s performance by setting objectives, establishing short-term and long-term strategies to achieve these objectives, and assessing the performance of senior executives in fulfilling their responsibilities without micromanaging.
(PLUS FIDUCIARY RESPONSIBILITIES)

5. Fiduciary Duties of Board of Directors
Fiduciary duty means that directors must be trustworthy, acting in the best interest of shareholders, and investors in turn have confidence in the directors’ actions.
MANDATED BY LAW AND SPECIFIED IN COMPANIES CHARTERS AND BYLAWS
The corporate governance literature presents the following fiduciary duties of boards of directors:
Duty of due care
Duty of loyalty
Duty of Good Faith
Duty to Promote Success
Duty to Exercise Diligence, Independent Judgment, and Skill
Duty to Avoid Conflict of Interests
Fiduciary Duties and Business Judgment Rules.

6. Fiduciary Duties of Board of Directors include…
Duty to exercise due diligence, independent judgment, and skill - directors should be knowledgeable about the companies’ business and affairs, continuously update their understanding of the company activities and performance, and use reasonable diligence and independent judgment in making decisions.
Duty to avoid conflicts of interests - potential conflict of interest may occur when director: receives a gift from a third party he is doing business with, either directly or indirectly enters into a transaction or arrangement with that company, obtains substantial loans from the company, or engages in backdated stock options.
Fiduciary Duties and Business Judgment Rules - directors operate under a legal doctrine called “business judgment rules”. Under that law directors that make decisions in good faith, based on rational reasoning, and an informed manner can be protected from liability to the company’s shareholders in the ground that they appropriately fulfilled their fiduciary duty of care.

7. Board Committee
Board committees normally function independently from each other, are provided with sufficient resources and authority, and are evaluated by the board of directors.
THUS board committee are a subset of the board and perform specific functions that assist the board in discharging its advisory and oversight responsibilities.
Public companies usually have the following board committees:
• Audit committee
• Compensation committee
• Governance committee
• Nominating committee
• Disclosure committee
• Other standing or special committees

8. Board Committee – Study This Slide
Audit Committee – composed of at least three independent directors; should be formed to implement and support the oversight function of the board, specifically in the areas related to the internal controls, risk management, financial reporting, and audit committees.
Compensation Committee – composed of at least three independent directors; serves to design, review, and implement ‘directors’ and ‘executives’ compensation plans.
Governance Committee - consist of both executives and nonexecutives directors; should be established to advise, review, and approve management strategic plans, decisions, and actions in effectively managing the company.
Nominating committee – composed of at least three independent directors; should be formed to monitor issues pertaining to the recommendations, nominations and elections activities of directors.
Disclosure committees – this committee is usually led by corporate counsel, CFO’s, or controllers. It is responsible for reviewing and monitoring the company’s 10-Ks, 10-Qs, and other SEC fillings, earning releases, materiality issues, conference call scripts, and presentations to the investors by senior management.
Special committee – the board of directors may form a special committee to assist the board in carrying out its strategic and oversight function, including financing, budgeting, investment, mergers and acquisitions.

9. Board Models Basics
One-Tier Board Model - consists of both inside (executive) directors and outside (nonexecutive) directors. Inside directors are perceived as the decision managers and outside directors are assumed to have the power and duty to monitor those decisions.
Two-Tier Board Model - The two-tier board system, consisting of a supervisory board and a management board, better known as the German board model, establishes different authorities and responsibilities for members of each board.
Modern Board Model - the structure of the modern board based on the two components of strategic board and oversight board is the natural offshoot of the emerging corporate governance reforms.

10. Director Education and Evaluation
Corporate governance reforms and best practices issued by a number of organizations recommend continuous education and evaluation of the board of directors.
Evaluation of the company’s board should be performed formally and regularly (at least annually) through either self-evaluation, independent committee evaluation (audit, compensation, nominating), or outside consulting evaluations.

11. Ultimately responsible to account for breaches of ethics
Board Accountability
- Accountability to shareholders
Accountability for Board Operation.
Accountability for Strategic Decisions and Performance.
Ultimately responsible to account for breaches of ethics