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THE BOARD OF DIRECTORS AND GOVERNANCE ISSUES IN BUSINESS - Coggle Diagram
THE BOARD OF DIRECTORS AND GOVERNANCE ISSUES IN BUSINESS
BOARD OF DIRECTORS
DUTIES OF BOD
Duty of loyalty :
demonstrate unyielding loyalty to the corporation
Avoid conflict of interest
Duty of obedience
must obey the law
Ensure that the corporation itself obey the law
Duty of care
exercise due diligence
make decision on a informed basis
Act in good faith
honest belief that their actions were taken to serve the best interest of the corporation
ROLES OF BOD
Monitoring/control role
Resource dependence role
Service/expertise/counsel role
Types of board structure
DUAL BOARD STRUCTURE (TWO-TIER SYSTEM)
The shareholders appoint the members of the supervisory board at the same time the supervisory board appoints the members of the management board
UNITARY BOARD STRUCTURE (ONE TIER SYSTEM)
The board is the highest governing body of a company
One single board is responsible for all aspects of the company's activities
Shareholders elect the directors to the board at the company AGM and do not influence the direction of the firm
BOARD COMPOSITION
MCCG
There must be a right balance in the board composition comprising the independent non-executive directors and non-executive directors
Bursa Malaysia Listing Requirement
If the number of directors of the listed issuer is not 3 or a multiple of 3, then the number nearest 1/3 must be used.
A listed issuer must ensure that at least 2 directors or 1/3 of the board of directors of a listed issuer, whichever is the higher, are independent directors.
In the event of any vacancy in the board of directors, resulting in non-compliance with subparagraph (1) above, a listed issuer must fill the vacancy within 3 months.
BOARD SIZE
SMALL BOARD SIZE
Reduce the possibility of free riding
Less oversight duties
Able to make timely strategic decision
Conducive to an active board size
LARGE BOARD SIZE
Longer time to make decision
Decrease the ability of the board to control management
More capable in monitoring the actions of top management
more difficult for the CEO to obtain consensus for taking actions that will harm shareholders’ interest
Communication among directors become more difficult
Responsbility
The board is responsible for evaluating the appropriateness of the strategies and approaches taken by the management in translating the corporate goals
MCCG RECOMMENDATIONS TO FACILITATE THE BOD TOWRDS GOOD GOVERNANCE
Reviewing and adopting a strategic plan for the company
Identifying principal risks and ensure that the implementation of risk management system is appropriate
Succession planning, including appointing, training, fixing the compensation of and where appropriate, replacing senior management
Developing and implementing an investor relations program and shareholder communication policy for the company
Overseeing the conduct of the company's busness
Reviewing the adequacy and intergrity of the company's internal control system
BOARD COMMITTEES
AUDIT COMMITTEE
FUNCTIONS
Ensure management does not override established prudent financial practices & procedures
Assist the board in discharging their responsibilities for financial reporting and internal controls
Provide impartial channel for complaints concerning management and direction of a company
Bursa Malaysia Listing Requirement (updated as at 1 January 2022
the audit committee must be composed of not fewer than 3 members;
all the audit committee members must be non-executive directors, with a majority of them being independent directors; and
at least one member of the audit committee –
must be a member of the Malaysian Institute of Accountants; or
if he is not a member of the Malaysian Institute of Accountants, he must have at least 3 years’ working experience and - (aa) he must have passed the examinations specified in Part I of the First Schedule of the Accountants Act 1967; or (bb) he must be a member of one of the associations of accountants specified in Part II of the First Schedule of the Accountants Act 1967; or
fulfils such other requirements as prescribed or approved by the Exchange. (2) A listed issuer must ensure that no alternate director is appointed as a member of the audit committee.
MCCG 2019
9.4 The Audit Committee should comprise solely of independent directors.
AC should be the “check and balance” of the management, so it would safeguard the co against the company incompetence and fraud.
REMUNERATION COMMITTEE
To prevent the executive directors from designing their own pay
To determine the company's policy on executive remuneration and specific packages for the executive directors
Should consist wholly and mainly non-executive directors so that the recommendation to the board on the remuneration does not involve the opinion of executive directors
NOMINATION COMMITTEE
Company need strategic recruitment process, guided and led by a nomination committee that is independent from management
To reduce the chances of the small shareholders swayed the balance in an AGM are about likely as single voter determining the choice of the board of directors
Also involved in assessing existing directors, succession planning in the company by identifying possible gaps in skills and knowledge