PROFILE
NAME
:
IMRAN KHAN
STAGE
:
PROFESSIONAL- IV
REGISTRATION # :
00991706
The Role Of Board Of Directors
Mention the phrase “ Corporate Board of Directors” to the average investor, and they are
likely t conjure up images of nicely dressed men and women standing around a table,
smiling congenially. This is entirely understandable; many annual reports feature
prominent, glossy pictures of just such a scene.
Now, ask the investor what exactly the BOD does? And very few will be able to give you
definitive answer.
PURPOSE OF BOARD OF DIRECTORS:
The primary responsibility of the BOD is to protect the shareholders’ assets and ensure
they receive a decent return on their investment.
The BOD is the highest governing authority within the management structure at any
publicly traded company. It is the board’s job to select, evaluate and decide appropriate
compensation for the company’s CEO(s) evaluate the attractiveness of and pay dividends,
oversee share repurchase programs, approve the company’s financial statements and
recommend or discourage acquisitions and mergers.
BOD is the group of individuals elected by the shareholders to watch over the
management of company on behalf of the shareholders. Board members are, in essence,
like trustee or guardians for the shareholders and, in a large sense, for the integrity and
reliability of our economic system.
Because of their essential role, directors by law owe special duties of the company and
particularly its shareholders; duties called “Loyalty” and “Care”. Loyalty means freedom
form conflicts of interest- in other words, serving shareholders and only shareholders
with independence and undivided attention. “Care” means doing your work with
responsibility, thoroughly and in good faith.
The procedure for election of directors has been laid down under section 178 of the
Companies Ordinance 1984. Non-compliance of the said section will render the election
of directors invalid.
The minimum number of directors has also been laid down in the ordinance, which are as
follows:
o
o
o
o
Single member Company:
Private Limited Company:
Non Listed Public Company:
Listed Public Company:
1
2
3
7
BEHAVIOUR OF
GOVERNANCE:
BOARD
OF
DIRECTORS
BEFORE
CORPORATE
Under section 193(2) the Directors of a public company are required to meet twice in a
year in order to review the affairs of the company and for the approval of new projects
and other financial matters.
Because of rapid changes in day-to-day business affairs and fluctuation in stock market
these changes make such meetings insignificant. The BOD is unable to properly monitor
the affairs of a company.
Due to these reasons regulatory bodies were concerned over the protection of pubic funds
invested in the share and stock of listed companies. In order to achieve these primary
objectives, SECP has taken a number of long awaited steps including issuance of code of
CORPORATE GOVERNANCE in March 2002.
BOARD OF DIRECTOR UNDER CODE OF COREPERATE GOVERNANCE:
The code of corporate governance has enumerated seen key positions that have been
vested with major responsibilities for not only good operations of corporate entity but
also made them responsible to ensure compliance of code of corporate governance. These
key positions are BOD, Audit Committee, Chief Executive Officer, Chief financial
Officer, Chief Internal Auditor, Company Secretary and External Auditor.
All listed companies are advised to encourage effective representations of independent
non-executive director, on their Board of Directors independent meaning they are not
associated with or employed by the company. In theory, the independent director will not
be subject to pressure, and therefore are more likely to act in the shareholders’ interest.
It is the requirement Corporate of Code Governance that BOD should meet at least once
in every quarter of the financial year. Code Of Corporate Governance stipulates that no
person shall serve as director of more than 10 listed companies. The tenure of office of
directors shall be three years and the directors shall fill any casual vacancy within 30
days.
I will further elaborate this point later.
RESPONSIBLITIES POWERS AND FUNCTIONS OF BOARD OF DIRECTORS:
Code of Corporate Governance requires that a “ Statement of Ethics and Business
Practices”, vision/mission and overall corporate strategy and significant policies is
prepared and circulated annually by its BOD to establish a standard of conduct for
directors and employees. The significant policies for this purpose may include Risk
Management, Human Resource Management, Procurement of goods and services,
Marketing.
In order to strengthen and formalize corporate decision-making process, significant issues
shall be placed for the information, consideration and decision of the BOD of listed
companies. Significant issues for this purpose may include:
1. Annual business plans, cash flow projections, forecast and long term plans,
budgets including capital, manpower and overhead budgets, along with variance
analyses.
2. Quarterly operating results of the listed companies as whole and in terms of its
operating divisions or business segments.
3. Internal audit reports, including cases of fraud.
4. Details of joint venture agreements.
5. Promulgation or amendment of a law, rule or regulation, enforcement of an
accounting standard and such other matters as may affect the listed companies.
6. Any show cause, demand or prosecution notice received from revenue or
regulator authorities.
7. Disputes with labor and their proposed solutions any agreement with labor union
or collective bargaining agent and any charter of demands on the listed
companies.
8. Payment for goodwill, brand equity or intellectual property.
AUDIT COMMITTEE:
The BOD of Code of Corporate Governance of every listed company shall establish an
Audit Committee, which shall comprise not less than three members, including the
Chairman. Majority of the members of Committee shall be from among the nonexecutive directors of the listed company and the chairman of the Audit Committee shall
preferably be a non-executive director.
It is the requirement of Code of Corporate Governance to have Audit Committee
composed solely of independent directors. Audit Committee has a critical role to play in
ensuring the integrity of the company financial reports.
TERMS OF REFERENCE:
Audit Committee should be given written terms of reference which deal adequately with
their authority and duties and they should meet at least once every quarter of the financial
year.
Keeping in view the quarterly BOD meetings Audit Committee meeting and General
meetings, a director of listed company may have o attend at least 8 meetings of a listed
company in a year resulting in over 80 meetings for 10 listed companies in 52 weeks. If
we deduct Sundays and public holidays then about 295 days are available to attend over
80 meetings.
It is obvious director cannot be expected to carry out fiduciary duties with a sense of
objectivity. The SECP should take this matter in to consideration in order to govern the
company’s affairs in the best way.
Coming back to the terms of reference….
The term of reference of the Audit Committee has been laid down by the SECP some
major pints are as follows:
1. Determination of appropriate measures to safeguard the listed companies’ assets
2. Review of quarterly, half yearly and annual financial statements of the listed
companies prior to their approval by the BOD.
3. Facilitating he external audit
4. Review of management letter issued by external auditors and management’s
response there to.
5. Ensuring coordination between the internal and external auditors of the listed
companies.
6. Determination of compliance with relevant statutory requirements
7. Monitoring compliance with the best practices of corporate governance and
identification of significant violations there of; and
8. Consideration of any other issues or matter as may be assigned by the BOD.
CONCLUSION:
In nutshell we can say that BOD plays an imperative role in managing corporate affairs
of a company.
Here I would like to take the opportunity that students should read news letters and other
publication issued by Professional Bodies and Regularity Authorities, in order to upgrade
their knowledge about Code of Corporate Governance.
Thank you.