Question

Effective corporate governance places a great deal of emphasis on the board of directors. Although the board’s activities should be separate from those of management which is usually responsible for day to day functions of the enterprise, they (the board) must take ultimate responsibility for the activities of the enterprise. Some of these responsibilities may be better achieved by delegation of certain matters to committees of the board, but the ultimate responsibility must rest with the board.

YOU ARE REQUIRED TO:
a. Outline the general functions of the board of directors (use the King Report as a guidance). 
b. Identify 7 board committees which should be in place at a large listed chemical manufacturing company. 
c. identify the board committees which should consist of only non –executive directors.  

Answer 1

a) The general functions of the board of directors include the following.

1. The board of directors sets the overall corporate strategy for the company keeping in mind the long-term benefit of the shareholders.

2. The board of directors appoints the Chief Executive Officer (CEO) of the company and the CEO reports directly to the board of directors. The performance of the CEO is evaluated by the board of directors.

3. The board of directors is responsible for making sure that the company's operations are in accordance with the rules and regulations set by the government.

4. In the annual general meetings, the board of directors makes several key decisions that are in the best interest of the shareholders including the decision on share buyback dividend distribution.

5. The board of directors must make sure the company's financial reports are prepared in a transparent manner and that the reports reflect the economic reality of the business.

6. Set the compensation of the management to incentivize the management to act in the best interest of the shareholders.

b) The 7 board committees which should be in place at a large listed chemical manufacturing company are as follows:

1. A committee to lay out the Corporate Social Responsibility policy.

2. Compensation committee to set the compensation of the management and the employees.

3. Audit committee to oversee the company's financial activities.

4. Nomination and Remuneration committee to nominate the members of the board and set the remuneration of the board members and the company's top management.

5. Risk Management Committee to take actions to identify threats and minimize business risk.

6. Relationship management committee to manage the relationship between the shareholders, internal and external stakeholders.

7. Investment committee to make decisions on the strategic investment opportunities.

c) The board committees which should consist of only non-executive directors are as follows:

1. The Audit Committee.

2. The Remuneration Committee.

3. The Nomination Committee.