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Structural Elements of Boards - Coggle Diagram
Structural Elements of Boards
The 11C's model asks 'Do the board and committees have appropriate configuration and is the board compliant?'
Boards fall into one of four types
All executive board, often found in start up and family companies where the founder is the major shareholder as well as both the chair of the board and managing director/CEO
The majority executive board which is made up mostly by executives from the company's top management position as well as some NEDs.
At least half the board, excluding the chair, should be NEDs whom the board considers to be independent
The two-tier board, consists of two separate boards: one made up of all external directors to govern and one comprised of all internal personnel to manage
Basic set up
Ratio of execs/NEDs
The first consideration is the ratio of internal executives to external NEDs that comprise the board
For those in the FTSE 350 and in the charity sector, there will be compliance guidelines that provide boundaries for this ratio
The ratio will depend upon a range of factors including organisational life cycle, sector type, country, company culture and various practical constraints
Board size
Although there are no minimum or maximum provisions that dictate board size, there is often an assumption that there is a sweet spot within which effective board functioning will occur
Bard size will have an impact on the functioning of the board and it will also be affected by the particular requirements of the board and organisation
Committees structure
Boards use committees as a method of expanding their work, increasing their efficiency and investigating important issues in more detail
The standard committees will include audit, remuneration and nomination committees but the size, meeting frequency and functioning of these committees is likely to vary such that there are a variety of other themed committees that may be useful to consider
Director considerations
Average tenure
The average tenure, the amount of time that a chair or other director has been part of the board, is considered to be an important factor
The assumption here is that directors will become less independent and perhaps more conflicted over time
Board diversity
The diversity of a board has received a significant amount of interest in recent years, especially around gender and ethnic divesity
Age or generational diversity is also recognised as a potential factor in broad performance
Beyond this, boards may also be interested in reflecting their stakeholder divesrsity within the boardroom's membership
Director compensation
Whether and how much directors are compensated is a key basic consideration within board structures
This may include to what extent they are remunerated for their work on the board, or their work chairing or participating in committees, whether they are part of any incentive scheme and what percentage of equity they hold.
Chair set up
Chair/CEO split
The chair, as the leader of the board, has the biggest influence on board functioning and is therefore the role that has received the most consideration in terms of structural set up
Chair as a former CEO
This succession is subject to compliance and is assumed to reduce independence and therefore have an impact on governance
The chair is either executive or non-executive
Even if the chair is not also CEO, they can sometimes act in a quasi-management fashion as an executive chair
This role is created at certain times within an organisations life cycle such as in a period of significant transition and is also assumed to reduce the level of independence of the chair's role
Board tasks
Board meeting frequency
It is generally assumed that boards and their committees will need to met relatively frequently to do their work
How frequently they meet will depend upon a variety of factors, including practicalities relating to the size and location of board membership, current business requirements and external environmental forces
Board review
The board evaluation is becoming an increasingly important aspect of a board's structural calendar
FTSE 350 boards are required to review themselves every year and be reviewed externally at least once every three years
Board induction and development
Ideally, every director will commence their board directorship with an appropriate induction and will continue to be developed in their role through their tenure