1. By: 1. Kenneth A. Kim John R. Nofsinger And 2. A. C. Fernando

2. Lecture 9

3.  Last Lecture Review ◦ A BoDs is a body of elected or appointed members who jointly oversee the activities of a company. ◦ BoDs are appointment at the public Annual General Meeting of shareholders. ◦ Types of board are depending upon company status as well as the territory where the company prevails. ◦ Normally, we can see One-Tier board in common law based societies (like US and UK) and Two-Tier board in civil law based societies (like Germany etc).

4.  BoDs functions involve to hire, evaluate or even fire the top management, to vote in support or against of major proposals as well as financial decisions.  In short, BoDs main primary function is to safeguard the shareholder’s interest.  But the most important factor is to think a lot before selecting your board.

5.  Lecture Outlines ◦ Overview of the Board  Board legal duties  May not be the federal law requirement but the state wants BoDs.  Firms profitability and increase in share value  Loyal and fair  Take care of the rule of ethics  Employment practices  Human rights  Environment regulations  Corruptions  Moral obligations

6.  Board Committees ◦ An Executive Committee ◦ A Finance Committee ◦ A Public Relation Committee  Board Sub Committees ◦ Audit Committee ◦ Compensation Committee ◦ Nomination Committee

7. Overview of the Board  The Board Legal Duties ◦ No federal law explicitly dictates that public corporation must have a BODs. ◦ State laws vary from one state to the others. ◦ Fortunately every state requires that a corporation having a BODs.

8. ◦ Directors are supposed to enhance the firm’s profitability and share value. ◦ Directors also have a duty of loyalty and fair dealing. ◦ They must put the interest of shareholders before the their own individual interest. ◦ Must perform the duty of care, means being informed and making rational decision.

9. ◦ Must perform the duty of Supervision to establish the rules of ethics by holding regularly meetings to review the firm’s performance, operations and management.  Business ethics are Employment Practices, Human Rights, Environment Regulations, Corruption, Moral Obligation of MNCs. ◦ They must ensure that the accurate financial reporting and objective auditing are taking place.

10. Board Committees  Some board include; ◦ An executive committee  Group of directors appointed to act on behalf of, and within the powers granted to them by, the board of directors. Typically it consists of a chairperson, vice- chairperson, secretary, and treasurer.

11.  Or ◦ Senior-level management committee empowered to make and implement major organizational decisions. An executive committee often acts as an overseer of organizational activities and has the authority to request justification of certain matters as well as to plan activities.

12. ◦ A finance committee  The main duty of the Finance Committee is to maintain a continuing review of the financial affairs of the Institute. Using this information, it is the committee’s duty to make appropriate recommendations to the Board or the Executive Committee regarding financial matters.

13.  A community relations committee  The Community Relations Committee (CRC) facilitates dialogues and activities between different stakeholders.

14.  The most common board sub committees are; ◦ Audit Committee ◦ Compensation Committee ◦ Nomination Committee “A great deal of important board work occurs at the subcommittee level and subsequently goes to the full board for approval.”

15. Audit Committee ◦ an audit committee is an operating committee of the BOD charged with oversight of financial reporting and disclosure. ◦ Committee members are drawn from members of the company's board of directors, with a Chairperson selected from among the committee members.

16. ◦ A qualifying audit committee is required for a U.S. publicly-traded company to be listed on a stock exchange. ◦ To qualify, the committee must be composed of independent outside directors with at least one qualifying as a financial expert.

17.  Responsibilities of an Audit Committee ◦ Overseeing the financial reporting and disclosure process ◦ Monitoring choice of accounting policies and principles. ◦ Overseeing hiring, performance and independence of the external auditors.

18. ◦ Oversight of regulatory compliance, ethics, and whistleblower hotlines. ◦ Monitoring the internal control process. ◦ Overseeing the performance of the internal audit function. ◦ Discussing risk management policies and practices with management.

19. Compensation Committee The main purpose of the Compensation Committee is;  To assist the BODs in discharging its responsibility to the shareholders with respect to the company’s compensation programmes  To review the annual compensation discussion and analysis in the annual report.

20.  Appointment and Removal ◦ The members of the Compensation Committee shall be designated by the Board. ◦ Any member of the Compensation Committee may be removed from the committee with or without cause

21. Nomination Committee  The Board of Directors shall appoint a Nominating Committee of at least two members, consisting entirely of "independent" directors of the Board  Each member shall serve on the committee at the pleasure of the Board of Directors and may be removed by the Board at any time with or without cause.

22. Purpose of Nominating Committee  (i) to identify individuals qualified to become Board members,  (ii) to recommend to the Board director candidates for each annual meeting of stockholders or as necessary to fill vacancies and newly created directorships and  (iii) to perform a leadership role in shaping the Company's corporate governance policies, including developing and recommending to the Board a set of corporate governance principles.

23. Duties and Responsibilities Some of the duties and responsibilities are ; ◦ Recommend criteria for Board membership. ◦ Identify and recruit candidates for the Board. ◦ Conduct the appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates for Board membership.

24. ◦ Recommend to the Board candidates to fill new or vacant positions on the Board. ◦ Recommend to the Board candidates for the election of directors at each annual meeting of stockholders. ◦ Oversee the Company's corporate governance matters and policies, including the development of a set of corporate governance principles, and periodically review such principles and recommend changes to the Board as necessary.

25. ◦ Oversee the evaluation and assessment of the Board and Board committees. ◦ Evaluate annually the performance of the Nominating Committee. ◦ Perform such other duties and responsibilities as are consistent with the purpose of the Nominating or as may be assigned from time to time by the Board of Directors.

26.  Summary ◦ Overview of the Board  Board legal duties  May not be the federal law requirement but the state wants BoDs.  Firms profitability and increase in share value  Loyal and fair  Take care of the rule of ethics  Employment practices  Human rights  Environment regulations  Corruptions  Moral obligations

27.  Board Committees ◦ An Executive Committee ◦ A Finance Committee ◦ A Public Relation Committee  Board Sub Committees ◦ Audit Committee ◦ Compensation Committee ◦ Nomination Committee THE END