CORPORATE GOVERNANCE DSM 504 Governance defined n The

CORPORATE GOVERNANCE DSM 504

Governance defined n The manner in which power is exercised in the management of economic and social resources of an organizational for sustainable development n Concerned with the processes, systems, practices and procedure: n What are these processes, systems and procedures that you should be concerned with? DSM 504

n Concerned with the processes, systems, practices and procedure: The formal and informal rules that govern institutions n The manner in which these rules and regulations are applied and followed n the relationship that these rules and regulations determine or create n and the nature of these relationships n DSM 504

n Essentially therefore, governance addresses the leadership roles in the institutional framework DSM 504

Corporate governance defined n A system by which corporations are directed, controlled and held to account n The manner in which the power of a corporation is exercised in the stewardship of its assets/resources so as to increase shareholders value as well as satisfy the needs of all stakeholders DSM 504

Good corporate Governance seeks to promote…. . n Efficient, effective and sustainable corporations that n n contribute to the welfare of the society Responsive and accountable corporations Legitimate corporations that are managed with integrity, honesty and transparency Recognition and protection of stakeholders rights An inclusive approach based on democratic ideals, legitimate representation and participation DSM 504

Pillars of good corporate governance n 1. Good governance is frames against four main pillars There must be effective body responsible for governance separate and independent of management to promote: n n Accountability ( leaders must be ready to account Efficiency and effectiveness ( hence leadership for results) Honesty and integrity ( leadership that is honest, faithful and diligent) Transparent and open leadership with accurate and timely disclosure of information relating to economic and other activities of the corporation DSM 504

n 2. there must be an all inclusive approach to governance that recognizes and protects the rights of members and all stakeholders – internal and external n 3. The institution must be governed and managed in accordance with the mandate granted to it n 4. The institutional governance framework should provide an enabling environment within which its human resources can contribute and bring to bear their full creative powers towards finding innovative solutions to shared problems DSM 504

LAWS FOR EFFECTIVE DIRECTORSHIP KBC Governance Training

1. Primary duty Each director undertakes to: n Act first and foremost and always in the best interest of the corporation and not for any other collateral purpose n To exercise his /her powers in the executive duties in good faith n To act with the care a prudent person would take when acting on their own behalf In arriving at a decision on any issue he/she shall strive to ensure that the decision is in the best interest of the corporation and not driven by other interest KBC Governance Training

2. Core values n Each director subscribes to the values of the corporation n Directors undertake to take into account not only the possible financial impact of their decision, but also their consequences and effect o relations with stakeholders in general KBC Governance Training

3. Scope of responsibility n Each director is fully aware that the board is responsible for the upholding the vision, mission and values, deciding the strategic objectives and ensure effective control and be accountable to the stakeholders for these KBC Governance Training

4. commitment n Each director undertakes to dedicate time and attention necessary to fulfill his/her duties KBC Governance Training

5. Independence n In all circumstances, each director undertakes to preserve his/her independent of analysis, judgment, decisions and actions and to resist any pressure, direct or indirect whether by other directors, governments, creditors, suppliers of goods or services or, more generally any third party n Directors will not seek or accept from third parties any advantage that might be considered as compromising to his/her independence KBC Governance Training

6. Conflict of interest n Each director undertakes to disclose to the board fully and immediately it comes to his/her attention any real or potential conflict of interest, direct or indirect which they may have n A director with such a conflict shall not participate in any discussion of any such topic or on voting on it KBC Governance Training

7. Board effectiveness n Each director is fully aware of the importance of regular attendance and effective participation at meetings n Each director undertakes to do everything within their power to attend all meetings n Each director undertakes to prepare sufficiently for meetings by careful considering board papers and attachments thereto and where necessary seek clarification n Where a director is unable to attend a meeting, he/she undertakes to communication any concerns or issue they with considered KBC Governance Training

8. Board evaluation n At regular interval, not exceeding twelve months, the board shall undertake an evaluation of its functions collectively as individuals. KBC Governance Training

9. Information confidentiality n Each director is responsible for seeing to it that he is providing sufficient information in due time to permit the board to deliberate on all issues and on the other hand request of the chairman or CEO in a timely manner , information that may require decision making n Directors must personally take the necessary precautions to preserve the confidentiality of such information and not divulge it under any circumstances KBC Governance Training

10. Duty to communicate dissent n Each director commits to express his/her views clearly and to use all means at his/her disposal to convince the board of the validity of his her position should he/she hold the view that a proposed Board decision is not in the best interest of the corporation KBC Governance Training

n. PRINCIPLES OF GOOD CORPORATE GOVERNANCE DSM 504

1. Authority And Duties Of shareholder n Protect, preserve and actively exercise the supreme authority of the organisation in general meetings. Authority to : n n n Ensure that only competent and reliable persons who can add value to the company are appointed to the board Ensure that Board of Director/managers is constantly held accountable and responsible for efficient and effective governance Change the composition of the board that does not perform to expectations or as per mandate DSM 504

Leadership of the corporation n Every corporation shall be headed by an effective board which shall exercise leadership, enterprise, integrity and wise judgment in directing the corporation so as to achieve continuing prosperity of the corporations and shall always act in the best interest of the corporation DSM 504

3. Appointment Of The Board Of Director/managers n Appointment to the board of Director should, through a managed and effective process, ensure that a balanced mix of efficient individuals is made and that each of these appointment is meant to add value and bring independent judgment to bear in the decision making process DSM 504

4. Strategy and Values n The board of Director/senior managers should determine the values of the corporation, determine the strategy to achieve its purpose and implement its values in order to ensure that the corporation survives and thrives and that procedures and values that protects the assets and reputation of the corporation are in place DSM 504

5. Structure and organisation n The board should ensure that a proper management structure is in place and make sure that the structure functions to maintain corporate integrity, reputation and responsibility DSM 504

Corporate Performance, Viability And Financial Sustainability n The Board should monitor and evaluate the implementation of strategies, policies and management performance criteria and plans n Constantly review the financial sustainability of the corporation DSM 504

Corporate Compliance n Ensure that the corporation complies with all relevant laws, regulation, governance practices, accounting and audit standards DSM 504

Remuneration n The Board of Director should set up an independent Remuneration Committee to determine in consultation with the Government, equitable and attractive remuneration packages for Directors as well as management for ratification by the government as shareholders DSM 504

Responsibility to stakeholders n The Board should identity the corporations internal and external stakeholders; agree on a policy for determining how the corporation should relate to, and with them, while ensuring the rights of stakeholders are respected, recognized and protected DSM 504

Rights and expectations of stakeholders n Who are the stakeholders? n What are their rights? n What information do they require? DSM 504

Stakeholders Internal: n Members n Board n Management n Employees External: n Providers of funds n Suppliers and providers of services n Beneficiaries n Regulatory authorities n Government and community DSM 504

Stakeholder: Information needs Providers of finance have special rights and duties to ensure that: n The funds entrusted are used for the purpose intended, efficiently and effectively and for the target communities or beneficiaries. n That the governance practices are adequate to ensure Accountability n transparency and openness n efficiency and effectiveness n honesty and integrity n DSM 504

GUIDELINES/CODE OF BEST PRACTICES DISCLOSURE OF INTEREST BY DIRECTORS/MANAGERS n On appointment and on a continuous basis, all Director/managers, and in good faith, disclose to the board any interest or other interest that is likely to create a potential conflict of interest DSM 504

n COMPOSITION, MIX OF SKILL AND COMPETENCIES n Board member who bring with them a mix of various skills and competencies DSM 504

n SUCCESSION PLANNING n in order to ensure continuity of the Board, the appointment of the members of the Board should be staggered and the practice or rotation of Directors applied n THE CHAIRMAN OF THE BOARD n The chairman should be elected by the board DSM 504

n CORPORATE COMMUNICATION n ensure that the corporation communicates with its stakeholders effectively through well defined channels DSM 504

n INDUCTION, TRAINING AND DEVELOPMENT OF DIRECTORS n The Board should put in place an effective induction programme for new Directors and that training and development programmes should be continuously mounted to in order to provide Directors with newer and emerging skills in good corporate governance and leadership DSM 504

n INDEPENDENCE OF THE BOARD OF DIRECTORS/MANAGERS n The appointment procedure for Director/managers should ensure that the Director/managers discloses actual or perceived conflict of interest so that the corporation can function independently objectively and only in the best interest of the corporation DSM 504

n BOARD MEETINGS n In order to bring effectiveness in the governance of the corporation as a business entity, the Directors should devote time and resourcefulness to their corporation by meeting regularly as dictated by the needs of each corporation DSM 504

n FINANCIAL OPERATIONAL AND GOVERNANCE REPORTING n The Board should ensure that financial reports follow international standards and that there is effective communication of all operational report to the stakeholders n COMMITTTES OF THE BOARD n The board should ensure that they establish effective committees to streamline reporting including the Audit Committee DSM 504

n MONITORING THE PERFORMANCE OF THE BOARD n in order to ensure that this is adding shareholders value, the Board should monitor is collective performance, individual performance and the performance of the management DSM 504

n LIABILITIES OF DIRECTORS n The Directors must exercise highest degree of care and diligence in the discharge of their duties and should be held jointly and severally liable for all acts of omission n ACCOUNTABLITY OF THE BOARD n The appropriate chain of accountability should be from CEO, to the board and shareholders DSM 504

n THE RELATIONSHIP BETWEEN THE BOARD AND MANAGEMENT n The culture and environment within which the Board and the Management operate should provide an enabling environment and effective atmosphere which good governance and management can thrive n BALANCING COMMERCIAL vs. SOCIAL OBLIGATIONS n the board should put in place strategies for balancing its commercial and social obligations DSM 504

n CODE OF BEST PRACTICE n The Board should approve and ensure the implementation of written code of best practices for their individual corporations DSM 504

n. ROLES AND FUNCTIONS OF THE BOARD OF DIRECTORS DSM 504

functions 1. Performance functions 2. Conformance functions DSM 504

Functions n PERFORMANCE FUNCTIONS n Exercising leadership, enterprise, integrity, judgment in directing the corporation n Determining the corporation purpose and values n Determining the strategy to achieve the corporation values and to implement its values that it survive and thrives n Identifying key risk areas and performance indicators in order to generate economic profit and provide efficient services DSM 504

Performance function (cont. . ) n Exercising objective judgment of the corporation, independent from management but with sufficient management information n Determining the broad policies of the corporation n Monitor and evaluate the implementation of strategies n Regularly assessing the corporations performance and effectiveness as a whole, and that of individual Directors and CEO DSM 504

Conformance function n Ensure the procedures and practices are in place to protect the corporation assets and reputation n Ensure that the corporation complies with all relevant laws and regulations and code of best practices n Ensure that the technology and systems in use are adequate to run the corporation properly DSM 504

n Ensure that the corporation has developed succession and exit plans for its execute Director/managers and senior management DSM 504

Important to note n It is advisable that the board should have a charter or manual setting out its responsibilities DSM 504

WHAT BOARDS DO n Strategy (Making choices) n Develop policy n Govern n Talk/listen n Partner n Think future DSM 504

WHAT BOARDS DON’T DO n Manage n Do/tasks n Supervise/delegate to staff n Think today DSM 504

ROLE OF THE CHAIRPERSON DSM 504

Role of the chair n provide overall leadership role to the board n Demonstrate qualities of leadership n Maintain close, but independent, working relationship with the CEO n Act as an inform link between board, management, government and other stakeholders n Harness the collective skills of the Board and the executive team DSM 504

Role of the chair (cont. . ) n Ensure timeliness and relevance of information and materials to the board n Encourage Directors to have full participation in board deliberations n Heads the board evaluation processes n Efficiently conduct board meetings n Be available n guide the board decision making process n Chair the Annual General Meetings DSM 504

ROLE OF THE MANAGEMENT DSM 504

Role of Management n Management is the crucial link in translating the plans and strategies approved by board members into result oriented action, n n n it is accountable to the board for running the organization efficiently, effectively and productively, for running the day-to-day affairs of the organization within the policy guidelines, strategies, plans and targets set by the board body Management is the responsibility of the Executive Director/manager and his team of managers. DSM 504

Role of Management (cont…) n Oversee the day to day management of the n n n corporation business affairs Facilitate the preparation of the budget for discussion of the board and establishment of internal controls Implement and communicate policies and strategies adopted by the board Prepare proposals for consideration by the Board Attend to personnel matters, including hiring and firing of staff Develop and recommend to the board appropriates strategies and annual plans for the corporation DSM 504

Role of Management (cont…) n Consistently strive to achieve the corporations financial and operating goals and objectives n Ensure continuous improvement in the quality and value of products and services provided by the corporation n Ensure that the corporation has a effective management team structure, including effective management succession and exit plans DSM 504

Role of Management (cont…) n Participate in the formulation and the implementation of the corporate policies n Maintain a conducive work environment for attracting, retaining and motivating employees n Foster a corporate culture that promotes ethical practices within the corporation DSM 504

Characteristics of Good Governance n Timely and accurate information is disclosed on all matters relating to the acquisition, use and control of funds, performance and governance of the organisation n Strategic guidance and effective monitoring of the organisation and all its systems, procedures, activities, contracts, relationships and the impact the organisation and its work has on its wider stakeholders ensuring full accountability n Recognition and protection of stakeholders DSM 504

Characteristics of weak governance n Rubber stamp boards – a board is a legal necessity n Boards with conflicts of interest – joining a board purely for personal gain n Boards with confusion of roles between the board, ED and staff n Idle boards who just do not perform their roles - no reading, no added value etc DSM 504

Characteristics of effective boards n Able to attract and retain talented, trustworthy, reliable and n n committed persons to the board Has appropriate mechanism for introducing or inducting Directors into their roles to facilitate their effective contributions Provision of accurate, timely and relevant information to the board of all information material and relevant to its role. Realistic definition of the roles, functions of relationships between the board, chairman and board members, chairman and Executive Director, board and management etc Proper recording of minutes showing resolutions and indicating action to be taken. DSM 504

Effective Boards cont. n Effective boards are: n Heterogeneous-composed of Directors of different skills, n n n backgrounds and experiences Flexible – composed of Directors who are independent, not bound by allegiances inside the organization. Task oriented – discussions are centred on achieving specific and common objectives Led democratically – each Director’s opinion is freely presented, analyzed and explained Work plan – uses a work plan to guide its activities Assessment – carries out an annual assessment of its activities Meetings – handles meetings professionally DSM 504

Effective Board Meetings n Effective board meetings n Minimum four meetings n Date and time to be decided b the board or chairperson n Give notice of meeting – at least 14 days n Enough to keep continuity n Few enough so that management can get on with the job DSM 504

Effective Board Meetings (cont. . ) The meeting n Must be properly organized with adequate preparation n Decision to be made pre-determined n Should be effectively chaired n Should have effective participation by members n Time should be observed n Should have all information made available DSM 504

n What steps do you take when preparing for a board meeting and making follow ups on board resolutions DSM 504

BOARD DEVELOPMENT AND EVALUATION DSM 504

Induction and Development Induction n n Organised by the Chairman Meet all key players Visit major sites Review all relevant papers Development n n n From evaluation Up-skilling Development of the Board as a whole DSM 504

n. BOARD EVALATUON AND INDIVIDUAL DIRECTORS PERFORNCE EVALAUTION DSM 504

n A formal evaluation ensures that the Board and management is adding value to the organisation and fulfilling its responsibilities to the organisation and to the stakeholders DSM 504

Purpose: n To enhance performance, effectiveness and contribution of each Director/manager, manager and also improve the effectiveness of board and organisation as whole in fulfilling its role n Formal feedback provides an objective framework for analytical feedback to the board and the members n To identify skill gaps in the composition of the board, and provide an important input into the selection and appointment process n Should be done at least once a year but should not replace informal feedback on performance on an ongoing basis DSM 504

Should Director/managers who are providing voluntary service be questioned about their performance, should we just be grateful to them? DSM 504

BOARD ASSESSMENT n Healthy process to ensure board effectiveness and achievement of targets. n Increasing correlation between effective boards and organization performance. n Important to commit time at least once per annum. DSM 504

n To encourage positive attitude towards evaluation, the purpose of evaluation needs to be communicated clearly n Who should be evaluated n n n The board in general The chair The CEO Individual Director Staff DSM 504

n Must be for positive outcomes and improved performance n Evaluation responses should be confidential n Methodology n n n Self evaluation Evaluation by peers, Evaluation by a consultant Evaluation by staff 360 degrees feedback DSM 504

EVALUATION OF THE BOARD AS A WHOLE Y Use an agreed questionnaire Y Use an outside facilitator who has board experience Y Circulate the questionnaire and then each returns to Y Y facilitator Facilitator determines problem areas or matters of concern Facilitator leads board through discussion and resolution Ensure adequate time - not at a normal board meeting Record results / agreements DSM 504

EVALUATION OF INDIVIDUAL BOARD MEMBERS X Use an agreed form - transparency X Each member compiles form for every member of the board - annotate self evaluation X All forms returned to the Chairman X Chairman appraises the individual Director/managers X Deputy Chairman or elected member does Chairman’s appraisal DSM 504

The Challenge of the 21 st Century Board 1. 2. 3. 4. 5. To set the direction To establish the framework To inculcate values To motivate/inspire To deploy resources DSM 504

The Calling of the 21 st Century Board n To obtain extraordinary results from ordinary people n To lead by walking the talk n To guide strategic clarity and focus n The board has a helicopter vision n Management have the organization “feel” DSM 504