A basic principle of corporate governance (CG) relates to the board of directors of the company, wherein the company shall be headed by an effective, collegial and informative board of directors. You need, as a board member or an executive in the company, to ask yourself, where do we (as a company) stand in this?
To achieve the ultimate goal and rationale of corporate governance, all members of the board should understand their exact role and responsibilities stipulated, inter alia, in the company law, the articles a memorandum of association of the company, the corporate culture and the corporate governance code. The outcome of this in particular highlights that the role of the board is different from the role of the shareholders of the company (whose interests the board serves) and, also, the role of the officers at the different levels working in the company.
In particular, members should understand the board’s fiduciary duties of care and loyalty to the company, the shareholders, the stakeholders and the community in general. All members of the board in each company are responsible both individually and collectively for performing these responsibilities, which cannot be transferred nor delegated to other persons.
When a new board is appointed, the chairman of the board, assisted by the advisors of the company, should review the board’s role and duties with all members of the board, particularly covering the legal and regulatory requirements and the particulars stipulated in the code of corporate governance.
The company should have a written appointment agreement with each member of the board which includes the director’s powers and duties and other matters relating to his appointment including his tenure, the time commitment envisaged, the committee’s assignment if any, the remuneration and expense reimbursement entitlement, and the access to independent professional advice when needed.
The board should consider adopting a formal “Board Charter” or other statement in a legal document specifying matters which are reserved to the board, which should include but need not be limited to the specific items stated in the company law. An alternative is a formal statement or by-law stating the functions and authority delegated to the officers as mentioned in the company law.
The board should be collegial and deliberative, to gain the benefit of each member of the board of directors’ judgment and experience. There is a great need to benefit from the knowledge, knowhow and the wisdom of each board member. The chairman should take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made. To achieve such goals, the board should meet frequently, more than the minimum required by law.
All members of the board should attend the meetings, and the board should maintain informal communication between meetings. Unexcused absence is not welcomed as it may disturb the functions of the board and indicates that the person is not the type of those needed for efficient board of directors as stipulated in the Corporate Governance Code.
Regarding attendance, more control measures are required and continuous absence could lead to termination of membership. In this, we believe that, perseverance and loyalty are necessary elements for consideration at the time of appointing each member on the board. It goes without saying, this includes independent directors, as well. Commitment and accountability rules reflect the effectiveness of the board and are essentially required and should be observed by members of the board, taking into account that they are supposed to excel and give good example to all related parties in the company, the shareholders and stakeholders.
If you are a board member, you need to ask yourself where you stand in this and whether you are effective enough to make your board more efficient, as required for corporate governance purposes.
Dr AbdelGadir Warsama Ghalib is a corporate legal counsel.
