Thursday, June 20, 2024

Corporate governance and reporting – Part 4

Duties And Responsibilities Of The Board Of Directors

Introduction

The duties and responsibilities of directors can be divided into 2 broad categories, those arising from statute and those arising from good corporate governance. The statutory duties mainly arise from the Companies Act. This instalment considers the duties and responsibilities of the Board that arise from good corporate governance which imposes much more responsibilities than the statutory requirements.

Key duties and responsibilities

As noted in the previous instalments, the Board is the focal point of corporate governance. There are a number of duties and responsibilities that are  mandated on the Board. The Board can delegate some of the responsibilities to subcommittees but should still retain the responsibility. The following are noted in the context of King III and King IV:

  •  Appointment of Chairman

The Chairman should be appointed by the members of the Board on annual basis and the role should be formalized. The appointment of the Chairman by the shareholder is not good corporate governance practice.

  •  Appointment of the Chief Executive Officer(CEO)

As noted in the previous instalment, the CEO should be appointed by the Board. Again, appointment of the CEO by the shareholder is not good corporate governance practice.

  •  Appointment and removal of the Company Secretary

The focus should be on qualifications and experience of the Company Secretary so that the individual is a resource who can competently and effectively assist the Board.

  •  Induction and ongoing training and development of directors

Annual plans to refresh the Board and induct new Board members assist the Board members to contribute effectively during Board deliberations.

  •  Establish a framework for the Board’s role, functions, duties and performance criteria.

This includes directors on the Board, and Board committees. Related to this is the annual performance evaluations of the Board, its committees and individual directors

  • Establish a framework for the delegation of authority

The Board delegates some of its authority to executive management and subcommittees. Therefore, it is imperative that there is a formal framework for the delegation of authority to ensure that individuals and subcommittees work within the entity’s risk tolerance levels.

  • Approval of strategy.

The Board should ensure that the organization’s strategy  is aligned with the purpose of the company, value drivers of its business and legitimate interests and expectations of its stakeholders.

  •  Remuneration governance

The Board should ensure that the organization remunerates fairly, responsibly and transparently so as to achieve the strategic objectives of the entity. This involves approving the remuneration policies and getting shareholder approval of the remuneration policy.

  • Appointment of an effective and independent Audit Committee

The role includes the approval of the Audit Committee Charter and terms of reference.

  • Approval of the charters and terms of reference for the Board and subcommittees

All charters of the Board and Committees need to be formally approved by the Board

  • Approval of a group governance framework

This affects entities which have subsidiaries. The subsidiaries Boards should be consulted.

  • Governance of risk.

The role of the Board with respect to risk should be in the Board Charter. The Board takes ultimate responsibility for risk governance including setting a risk management policy and plan, determining levels of risk tolerance, appointment of risk committee. Risk tolerance and risk assessment should be reviewed annually.

  •  Governance of Technology and Information.

The governance of Technology and Information should be done in a way that supports the organization’s strategic objectives. King IV now emphasizes the management of Technology separately from the management of Information. This is a shift from the Information Technology view in King III.

  • Compliance with laws, rules, codes and standards.

The role includes making sure that there are policies and processes for continuous monitoring.

  • Governing stakeholder relationships.

Stakeholder mapping will assist the Board in making sure that the key stakeholder relationships are identified and adequately managed. This depends on the industry in which an entity operates and its relationships with various stakeholders and their expectations.

  • Oversight over the Integrated Report.

 As entities move from the traditional annual report to integrated reporting, the Board is required to ensure the integrity of the integrated report. Integrated reporting is closely linked to the transparency and accountability.

Conclusion

The Board takes overall responsibility for the corporate governance of the entity. Effective delegation of the various roles and responsibilities should be the focus of the Board and making sure that subcommittees are properly constituted by people with the right skills and experience. Ultimately, all the subcommittees’ report to the main Board together with their recommendations for the Board’s consideration and approval.

Innocent Munjanja is  Technical Director at Botswana Accountancy Oversight Authority

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