Tuesday, December 21, 2004

Companies need to review their Board procedures

Companies of all sizes are under increased pressure to ensure that their Boards of Directors function as efficiently and as transparently as possible. Additionally, the demands on the time of individual Board Members have increased by at least 25% as the number of meetings (both main Board and Committee meetings), the length of meetings and the time required to prepare for meetings has increased.

The various international, governmental and regulatory organizations continue to issue legislation, regulations, interpretations and other requirements, in some cases, incorporating hefty penalties on companies failing to institute ‘good board governance’.

The difficulty remains that there is no widely accepted definition of ‘good board governance’, thereby leaving much room for interpretation and, as a consequence, leaving the possibility for Companies being ruled as insufficiently up to the mark.

Areas that should be on any list defining ‘good board governance’ should include:

  • A balanced number of independent Directors, as a minimum;

  • Requisite experience and credentials, particularly of the independent Directors;

  • The relative roles and responsibilities of the Board Chairman and Chief Executive (if separate);
  • The number and types of Board Committees;
  • Clear responsibilities of the Board and of the various Committees (particularly the Audit Committee), how these are to be organized and how they are to operate;
  • Clear obligations and functions for Directors and requisite performance evaluation;
  • Adequate risk assessment process for the production of regular risk assessment reports and action plans;
  • Clear procedures for Directors to monitor, question, oversee and challenge the activities of the Company;
  • Clear procedures for direct control and oversight of outside advisors, especially of the Company’s auditors;

  • As an essential part of what constitutes ‘good board governance’, is ensuring that the Board of Directors has access to reliable, accurate and timely information and documentation is of critical importance. There exist tools that allow companies’ Boards of Directors to be more time and cost efficient.

    By Onésimo Alvarez-Moro