Corporate Governance
Some international developments
Jennie Mills
Milford International Associates Ltd
Jennie Mills Milford International
Structure of session
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International debate on the role of
boards
Why is this now in focus
• Examples Enron, MCI, Shell
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The Slovak Code amendment
Information flow, the board secretary
& board evaluations
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Independent board members-the
international debate
OECD Principles 2004
“the CG framework should ensure the
strategic guidance of the Co, the effective
monitoring of management by the board,
& the board’s accountability to the Co &
shareholders”
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• 6 sub principles & 11 sub points
• “the board should be able to exercise objective
independent judgement on corporate affairs”
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The international debate 2
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HIGGS
• The role of the SID
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Tyson
• Broadening the gene pool
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EU Recommendation
The Netherlands Code
Breeden Report “Restoring Trust”
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A board member’s duties –
responsibilities
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Good faith/ loyalty
Care
Skill
Diligence
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Incapacitated person
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Human being
Best interests, care, skill, diligence
Decent citizen thing to do
Company an artificial citizen
Incapacitated
Director, heart, mind and soul.
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Corporate Governance
about process
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Process to discharge and be seen to
be discharging those responsibilities
Outsiders
Information needed to invest, supply
etc
Quality of information.
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Enron
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Had the trappings of good
governance
Quantitatively complied
Non executives
Good board attendance
Committees of board
Yet dysfunctional.
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Enron – Why?
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Self interest
Greed
Dishonest – 900 SPE’s
Appears to prop up share price
Codes will not help
Failure to discharge good faith, care,
skill and diligence.
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Critical issues in Enron
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Lack of quality governance
Failure of performance and
conformance
Scandal
Confusion director/manager role.
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“Restoring Trust” the case of MCI
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Articles of incorporation used as
Governance Constitution for MCI
More shareholder communication
Selection of directors
An active, informed & independent
board
Non exec chairman
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“Restoring Trust” the case of MCI
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Active board committees
Term Limits & auditor rotation
Compensation limits
Equity compensation programs
Enhanced transparency, internal controls
& finance dept
Legal compliance, enhanced legal dept &
ethics program
Change in control devices
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Royal Dutch Shell
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Re-statement of reserves
Unusual board structure
Board changes
SEC review
Governance review
Shareholder concerns
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Slovakia
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The ROSC recommendations:
• Definition of board roles, both BOD & SB
• Establish a forum for board training
Increasing emphasis on the independent
directors/ board members
In two tier boards this means the role of
the supervisory boards
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Role of the Board of Directors
To manage the Company
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Responsible for achieving company aims,
strategy & aims
Accountable to SB & GM
Guided by best interests of company
Provide SB in good time with all information
necessary for exercise of its duties
Compliance with laws & regulation, managing the
risks & financing the Co.
Reporting developments, internal risk
management & controls to SB and audit
committee
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Role of the supervisory board
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To supervise the policies of the board, general
affairs of Co & affiliates & assist BOD with advice
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SB guided by Co interests & take into account
those of stakeholders
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SB responsible for quality of its own performance
Each SB member shall:
• Be capable assessing overall policy
• Have specific expertise required to fulfil
assigned duties
Composition enable it to carry out duties
effectively & members adequately trained
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The role of the supervisory
board
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SB & each member has responsibility
for obtaining information necessary
to undertake its duties properly
If necessary it has a right to obtain
outside advice at Co’s expense
SB may require officers and advisers
to attend meetings
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The Role of the Chairman
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Best practice requires separation of CEO & chairman roles
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Determines the agenda & chairs meetings
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Monitors proper functioning of board & committees
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Arranges for adequate information
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Arranges training
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Acts as main contact with BOD
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Initiates evaluation of SB and BOD
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Ensures efficient conduct of GM
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Board committees
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Specimen TOR attached to Slovak CG
Code
Function to prepare decision making of SB
In the absence of board committees, the
SB assumes responsibility
SB has duty to report annually on board
committees
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Flow of information
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How does one achieve this?
Role of the board secretary
• Description
• Example of BP.
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Board evaluations.
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Rationale
• FRC recommendation
• Winter recommendation
• OECD recommendation
• Useful tool
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Mechanisms
• Self evaluation
• Independent evaluation/ facilitation
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