GOOD GOVERNANCE ROLES & RESPONSIBILITIES FOR EXECUTIVE & NON-EXEC DIRECTORS

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1 NBAA SEMINAR ON ESSENTIAL NUMERACY AND GOVERNANCE SKILLS FOR MANAGERS AND NON-ACCOUNTANTS APC, Dar es salaam GOOD GOVERNANCE ROLES & RESPONSIBILITIES FOR EXECUTIVE & NON-EXEC DIRECTORS Said Baraka Kambi Presenter/Facilitator CEO: The Institute of Directors in Tanzania (IoDT); Chair: Africa Corporate Governance Network, J Burg, SA> Certified Trainer Global Corporate Governance Forum of the International Finance Corporation (IFC / World Bank) Date: MARCH 19, 2016

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3 There is more to business than just financial numbers

4 Session Objective This 40-minuts session is designed to appraise participants of key issues in Corporate Governance (CG) specifically or roles, duties and responsibilities of the Board & Directors. It is expected that at the end of the session, participants shall have a firmer grasp of the key concepts and understand their respective roles so enhance board processes and subsequently improve the their overall performance efficiency and effectiveness of their respective boards.

5 Session Objective (..cont.) Provide general perspective on corporate governance Highlight on the Functions of the board; Role, Duties & Responsibilities of the board members

6 Definitions Corporate Governance is the system by which companies are directed and controlled - Cadbury Report (UK), 1992 the process and structure... to direct and manage the business and affairs of the corporation with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business - Where were the Directors? Guidelines for Improved Corporate Governance in Canada, TSE, 1994 Corporate Governance is a mechanism through which boards and directors are able to direct, monitor and supervise the conduct and operation of the corporation and its management in a manner that ensures appropriate levels of authority, accountability, stewardship, leadership, direction and control.

7 The Company /Entity Ø Legally distinct beings Ø separate existence, distinct from the people who own, direct, or work in it. Ø a going concern.

8 The Company /Entity Ø Simple structure three groups: ü ü Shareholders/owners of the company ü Can hire and dismiss its directors, but not to run the company. Directors -- legal responsibility for running the company. ü share ultimate accountability for its wellbeing and, ü may be held personally liable for its debts and obligations. ü collectively compose the board of the company whose decisions are generally collective and binding on all ü Some or all of the directors may also be managers in the company.

9 The Company /Entity Ø Simple structure three groups: ü Management ü main role is to put into practice the decisions of the board. ü Follows the direction set by the board and gets the job done. ü Possible and common for individuals to fill two or even all three of these roles (owner, director, manager). ü In such cases it is important for them to understand, and distinguish, their rights and obligations in carrying out each role.

10 The Company /Entity Ø Duty a moral or legal obligation; a responsibility. "it's my duty to uphold the law" ü a task or action that someone is required to perform. job, task, assignment, mission, function, charge, place, role "the President's official duties" Ø Responsibility the state or fact of having a duty to deal with something or of having control over someone.

11 The Board s Responsibilities King III 2.2. The board should appreciate that strategy, risk, performance and sustainability are inseparable. It should: q q inform and approve the strategy; ensure that the strategy is aligned with the purpose of the company, the value drivers of its business and the legitimate interests and expectations of its stakeholders; q satisfy itself that the strategy and business plans are not encumbered by risks that have not been thoroughly examined by management; and q ensure that the strategy will result in sustainable outcomes taking account of people, planet and profit.

12 CG Range of Board Responsibilities Conformance activities Performance activities Outward looking Accountability Formulating Strategy Inward looking Supervising Executive Activities Setting Policy Past and present focus Future focus Adapted from: R. Tricker, Corporate Governance: Principles, Policies and Practices (OUP, 2009).

13 Board s Role & Responsibility q Provide/ Exercise v Leadership and Strategic Guidance v Objective Judgment Independent of Management v Control over the Company q Direct and Control the Management of the Company q BeAccountable at all times toall Shareholders

14 Dimensions of Board Responsibility Dimensions Direction Involves: of Board Responsibility v Formulation & Review of Company Policies, Strategies, Budgets and Plans, Risk Management Policies, Top Level HR Policies, etc v Setting Objectives & Monitoring Performance v Oversight of Acquisitions, Divestitures, Projects, Financial and Legal Compliance, etc

15 Dimensions of Board Responsibility Control Involves Dimensions v Prescribing of Codes Board of Conduct, Responsibility v Overseeing Disclosure & Communication Processes, v Ensuring Control Systems to Protect Company Assets v Reviewing Performance & Realigning Action Initiatives to Achieve Company Objectives

16 Dimensions of Board Responsibility Accountability Involves Dimensions v Creating, Protecting of Board and Responsibility Enhancing Company Wealth and Resources v Timely and Transparent Reporting v Good Corporate Citizenry including Discharge of Stakeholder Obligations and Societal Responsibilities without Compromising the Shareholder Wealth Maximisation Goal

17 Dimensions of Board Responsibility Dimensions Accountability of Board Involves Responsibility v Creating, Protecting and Enhancing Company Wealth and Resources v Timely and Transparent Reporting v Good Corporate Citizenry including Discharge of Stakeholder Obligations and Societal Responsibilities without Compromising the Shareholder Wealth Maximisation Goal

18 The Board Overview of Responsibilities q Financial reporting Ø Appropriateness of accounting policies Ø Disclosure requirements Ø Fairness and balance of MD&A/operating review Ø GAAP conversion q External audit Ø Appointment and remuneration Ø Scope of work Ø Independence requirements Ø Significant audit findings/recommendations Ø Reviewing the performance of external auditors

19 The Board -- Overview of Responsibilities q Risk management & internal control Ø Understanding of key risk areas Ø Effectiveness of controls Ø Fraud risk q Internal audit Ø Charter, authority and resources Ø Scope of work Ø Internal audit effectiveness Ø Responses to internal audit recommendations q Maintaining & measuring effectiveness Ø Training needs Ø Maintaining financial literacy Ø Annual performance evaluation of audit committee

20 The Board Overview of Responsibilities q Communicating & Reporting Ø Relations with management Ø Updates and recommendations to the full board Ø Reports to the board and Shareholders q Regulatory, Compliance & Ethical Matters Ø Effectiveness of systems for ensuring compliance with laws and regulations Ø Code of conduct/ethics Ø Whistleblowing

21 Matters Reserved for the Board/ Transparency & Disclosure

22 Matters Reserved for the Board/ Transparency & Disclosure 1. Strategy & Management Ø Responsibility for the overall direction of the Organization Ø Approval of the Organization s long term objectives and strategy, policies and annual budgets. Ø Oversight of the Organization s operations and management 2. Structure and Capital Ø Changes relating to the Organization s capital structure including reduction of capital, share issues (except under employee share plans), share buybacks and major debt financing. Ø Major changes to the Organization s corporate structure, management and control structure. 3. Financial Reporting and Controls Ø Approval of preliminary announcements of interim and final results. Ø Approval of the Annual Report and Accounts, including the Corporate Governance statement and Remuneration Report;

23 Matters Reserved for the Board/ Transparency & Disclosure 4. Risk Management and Internal Controls Ensuring maintenance of a sound system of internal control and risk management. 6. Contracts Contracts which are material strategically or by reason of size, entered into by the Company or any subsidiary in the ordinary course of business. 7. Communication Approval of resolutions and related documentation. 8. Board Membership and other Appointments Changes to the structure, size and composition of the board. 9. Remuneration Determining the remuneration policy for the Chairman, the Chief Executive Officer and the Executive Directors

24 Matters Reserved for the Board/ Transparency & Disclosure 10.Delegation of Authority The division of responsibilities between the Chairman and the Chief Executive Officer 11. Corporate Governance Matters Conduct an adequate (formal & rigorous) annual evaluation of its own performance, that of its committees, the Chairman, the Chief Executive Officer and, in consultation with the Chief Executive Officer, other Executive Directors.

25 Good Governance (Effective Board) Structure + Process + Relationship = Board Effectiveness Competence + Contribution + Character = Director Effectiveness

26 who is a Director?

27 Direction or Management??? Ø The direction of a company involves the formulation of strategy and the acquisition and allocation of overall resources, setting policies which guide and constrain management action and, broadly, establishing the direction the company is to take. It emphasizes the mission of the business the shared vision of possible futures and desirable directions for the enterprise. Ø Executive management involves the running of the business shorter term operational matters of financial, production and market management, keeping an eye on performance throughout the enterprise and taking decisions consistent with the strategies. This is the segment in which governance and management can overlap. It includes planning the ongoing operation, and organising, coordinating, motivating and leadership 27

28 Managers The people responsible for supervising the use of an organization s resources to meet its goals for organizational performance Resources include people, skills, knowledge, machinery, computers and IT and financial capital

29 Who is and is not a director? Who is and is not a director? Section 2 Companies Act Cap 212 ''director'' includes any person occupying the position of director by whatever name called;

30 Who is and is not a director? A director is an officer of the company but not automatically an employee. Where a director is also a full-time employee he or she is often referred to as an "executive director".

31 Who is and is not a director? A "non-executive director" is usually part-time and is often appointed for his or her specialist knowledge and experience and/or to provide the board of directors with an impartial opinion.

32 Acceptance of Directorship Acceptance of directorships formally means: 1. You accept the responsibilities of one 2. You accept the liabilities of one 3. You accept the consequences of one

33 Duties of a Director Fiduciary The fundamental responsibilities of a director to exercise a reasonable level of care, loyalty, and relevant skills (often referred to as a director s fiduciary duty ).

34 Duties of a Director Fiduciary Companies are legally distinct beings Ø In law, a company has a legally separate existence, distinct from the people who own, direct, or work in it. Ø a going concern.

35 Duties of a Director Common Law Directors duties, obligations, and responsibilities in relation to common law and statutory obligations include:

36 Duties of a Director Common Law Øduty to act bona fide (in good faith) in the interests of the company as a whole Øduty not to act for an improper purpose Øduties of care and diligence Øduty to avoid conflicts of interest Øduty not to make improper use of position Øduty not to make improper use of information Øduty not to trade while insolvent.

37 Statutory Duties Duty of care and diligence and the business judgment rule a director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

38 Statutory Duties Duty of care and diligence and the business judgment rule Ø were a director or officer of a corporation in the corporation s circumstances Ø occupied the office held by, and had the same responsibilities within the corporation as a director or officer

39 Statutory Duties Duty of care and diligence and the business judgment rule Ø Business rule (any decision to take or not take action in respect of a matter relevant to the business operations of a corporation), the director must: ü make their judgment in good faith for a proper purpose ü not have a material personal interest in the subject matter of the judgment ü inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate ü rationally believe that the judgment is in the best interests of the corporation.

40 Statutory Duties Duty of Good Faith Ø A director or other officer of a corporation must exercise their powers and discharge their duties: ü in good faith in the best interests of the corporation ü for a proper purpose. more consistent with the fiduciary duty to act bona fide for the benefit of the company, providing for an obligation to act honestly at all times, despite any other conflicting duties.39 Directors can be in breach of this duty where their power is exercised for an improper purpose, even if they believe they are acting honestly.

41 Statutory Duties Duty not to make Improper use of Position Ø A director of a corporation must not improperly use their position to gain an advantage for themselves or someone else, or cause detriment to the corporation. A director contravenes this section when engaging in conduct with the intention and purpose of obtaining an advantage or causing a detriment, regardless of whether the benefit or detriment actually occurs in fact. Ø.

42 Statutory Duties Duty not to make Improper use of Position Ø When a director acts despite being aware that the corporation is in an unstable financial situation (and potential insolvency), it may be considered a breach

43 Statutory Duties Duty not to make improper use of information Ø A person who obtains information because they are, or have been, a director of a corporation must not improperly use the information to gain an advantage for themselves or someone else, or cause detriment to the corporation, e.g., ü Engaging in conduct with the purpose and intention of obtaining a benefit for anyone or causing a detriment to the company, despite what actually occurs in fact, or ü where a director s conduct involves knowledge of the poor financial position of the company and the possibility of insolvency.

44 Conclusion Directors duties in Tanzania (also as part of the Commonwealth) are designed to promote good governance and ensure that directors act in the interests of the company including putting the company s interests ahead of their own.

45 Questions?/Discussion?

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