Effective of board and Assessment of board

By Sami ur Rahman and Umar Hayat

Roll No: 52 and 57MBA (3.5)

Effective board(background)Separation of ownership from active

management is the important feature of orgFor that, shareholders elect BOD as per

defined policyExecutive committees are appoint by Board

for specific assign taskBoard lay down certain policies for executives

and management of the companyDirector is a person to who the duty of

managing and oversee the day to day operations (Lord, C)

Authority of the boardAccording to sec 292 of company

Act, board is authorized to; Make call on the shareholders money unpaid Issue debentures Borrow loans Invest company funds Make loans

Some other sections also explained various authorities e.g. filling the vacant post in board

Effectiveness of the boardBoard is to ensure the corporate

governance of the company on the behalf of shareholders

Prevent insiders from expropriation of the shareholders wealth, avoid frauds and stealing funds

Corporate governance are not in born, but are the collective efforts of all stakeholders

Director face complex oversight and accountability, personal risk and liability, after financial crises

Effectiveness of boardAlan, B. Robin, B. & Rogers, P. explain

seven habits of the effective board1. Own the strategy ( feel sense of ownership

of strategy to non-executive. where the non-executive directors also contribute to develop the strategy)

2. Effective top team (executive should be appoint on their ability)

3. Match reward and performance (avoid favoritism in executives)

4. Ensure financial viability (skills in directors to make sound financial decision)

Effective board5. Match risk with return (assessment of

risk)6. Manage corporate reputation (do, what is

right for the company, regardless of outside pressure)

7. Drive the board for an effective chairmanThe degree of adoptability of these

habits are vary form one organization to another organization

Barriers in the way of board effectiveness

In contrast to the effective board habits, Martinelli (2012) defined barriers for EB;◦Ineffective nominating committee

Should be aware from responsibilities of executives

◦No plan for rotation New blood comes with new ideas

◦Failure to remove the ineffective members Ineffective members blocks performance

◦Lack of functioning committee structure

Barriers in the way of effectiveness

◦ No strategic plan◦ Too small board◦ And no orientation for new and old members

Board needs developmentThey suggest some practices for board

effectivenessoThoughtful nomination and recruitment of

leadershipo presence of effective committeesoEstablishment of executive structureoBoard periodic evaluation

Barriers to effective board Autra (2012) identify some weaknesses and

barriers of ineffective board.An effective board should overcome these

barriers;a) Lack of clarity (ambiguity in the roles of

individual directors)b) Poor process management (communication

gap)c) Lack of alignment on company strategyd) Poor team dynamics (professionalism)e) Board composition

Assessment of board or self evaluation of boardKiel and beck, (2006) suggest seven steps to

effective board and director evaluation What are the objectives? Who will be evaluated? What will be evaluated? Who will be asked? What techniques will be used? Who will do the evaluation? What will you do with the results?

Effective board should have clear objectives, evaluate the individual director performance, whole or individual evaluation, best techniques for evaluation, experience in evaluation and plan for Improvement on results

Assessment of board or self evaluation of boardWadswoth, J,J. (2000) argues three ways to assess

board;◦Director self assessment

Assessment of duties and responsibilities performed in the board

Initiative step to be taken and to note their weakness and strengths

Track the director needs and required training◦Assessing the cooperative board as a single entity

What are the area of strength of the board? What are the area of weakness of the board? How well are directors are performing required duties? How can the board improve its performance and effectiveness?

Assessment of board or self evaluation of board

◦Assessing board meetings Productivity and effectiveness of meetings

Board have to identify their weakness in open meeting

Make the board more effective and enjoyable