BBA3102:COPORATE

GOVERNANCE
ABOUT THE LECTURER

Dr Kakuba Sultan Juma

0701968753

 Email: [email protected]
ROLES OF SHAREHOLDERS
 A shareholder is a person, company, or
organisation that holds stock(s) in a given
company.

 A shareholder must own a minimum of one

share in a company’s stock or mutual fund to
make them a partial owner.

 Shareholders typically receive declared

dividends if the company does well and
succeeds.
ROLES OF SHAREHOLDERS
 Being a shareholder isn’t all just about
receiving dividends.

 Brainstorming and deciding the powers they

will bestow upon the company’s directors,
including appointing and removing them from
office.

 Provide capital for the business

 Checking and making approvals of the

financial statements of the company.
ROLES OF SHAREHOLDERS
 Attend annual general meetings to receive annual reports.

 To keep informed of the performance of the business

 To keep capital invested in the business Receive a share

of the profits.

 To make decisions that affect the long term performance

of a business.

 Deciding on how much the directors receive for their

salary.

 Election of directors: shareholder elect or appoint the

directors of a firm

 Suing for wrongful act

ROLES OF SHAREHOLDERS
 Attend annual general meetings to receive
annual reports.

 To keep informed of the performance of the

business

 To keep capital invested in the business

Receive a share of the profits.

 To make decisions that affect the long term

performance of a business especially on
instances the directors have no power over.

 To appoint the directors of a firm

ROLES OF SHAREHOLDERS
 Shareholders through their self-interest
allocate their money to the most
prosperous ventures and then monitors
these companies to make sure that they
make the best possible use of the money

 Shareholders also invest in a corporation

by buying its stock and receive economic
benefits in return.

 Shareholders provide society with new

knowledge on how it can improve the
allocation and use of scarce resources.
 ROLES OF SHAREHOLDERS
 Shareholders also participate in key
decisions concerning fundamental
corporate changes and election of the
board of directors.

 Dialogue between Companies and

Investors: encourage regular, systematic
contact at senior executive leve1 to
exchange views and information on
strategy, performance, board
membership and quality of management’
THE BOARD OF DIRECTORS
 BOARD OF DIRECTORS ROLES AND RESPONSIBILITIES
 Objectives of the Lecture:
 Understand the role of the board of
directors.

 Identify and explain the fiduciary

duties of the board of directors.

 Gain awareness of the variety of

board models.
 CONT.
 Become familiar with board
accountability, evaluation, and the legal
obligations and liabilities facing outside
directors of public companies.
CONT.
• Become familiar with the best practices
of determining directors’ compensation.

• Identify and describe the determinants

of an effective board of directors.

Identify the board attributes that affect

the quality of monitoring and oversight.

• Illustrate the importance of an

independent board of directors.
 CONT.
• Understand that the board of
directors is ultimately responsible for
the business and its affairs.

• Provide an overview of what the

oversight function entails.

• Become familiar with the best

practices of determining directors’
compensation.
 CONT.
• Identify and describe the
determinants of an effective board of
directors.
 CONT..
 The board of directors is ultimately
responsible for the company’s business
affairs and governance as stated in its
governing documents, including the
articles of incorporation, the by laws,
and shareholder agreements.

 Many state laws require corporations

to form a board of directors to
represent shareholders and make
decisions on their behalf.
 CONT..
The success of the board of directors
depends on the composition,
structure, resources, diligence, and
authority of the entire board, as well
as their working relationships with
other participants of corporate
governance, including management,
external auditors, internal auditors,
legal counsel, professional advisors,
regulators, standard-setting bodies,
and investors.
CONT..
The success of the board of directors
depends on the composition,
structure, resources, diligence, and
authority of the entire board, as well
as their working relationships with
other participants of corporate
governance, including management,
external auditors, internal auditors,
legal counsel, professional advisors,
regulators, standard-setting bodies,
and investors.
 ROLES AND RESPONSIBILITIES OF
BOARDS OF DIRECTORS ARE TO:
Board responsibilities include :
 Exercise leadership, enterprise and
integrity in directing the corporation
towards sustained progress over the long
term.

 Act in the best interest of the corporation

in a manner characterized by transparency,
accountability and fairness.

 Installa process of selection to ensure a

mix of competent directors, each of whom
can add value and contribute independent
judgment to the formulation of strategy
and policy.
ROLES AND RESPONSIBILITIES OF
BOARDS OF DIRECTORS ARE TO:
 Determine the corporation’s purpose and
values as well as its strategies and
general policies to ensure that it survives
and thrives and its assets and reputation
are adequately protected.

 Evaluate and monitor implementation of

strategies and policies, business plans
and operating budgets as well as
management’s over-all performance.

 Ensure that the corporation complies

with all relevant laws, regulations and
codes of best business practice.
ROLES AND RESPONSIBILITIES OF
BOARDS OF DIRECTORS ARE TO:
 Achieving greater levels of performance on a
sustained basis

 Providing a competitive edge to the company

 Ensuring statutory compliances by the company

 Adherenceto the best practices of good corporate

governance

 Development of human capital and succession

planning

 Risk management.
ROLES AND RESPONSIBILITIES OF
BOARDS OF DIRECTORS ARE TO:
 Ensure that the corporation
communicates with shareholders and
other stakeholders accurately,
effectively and sufficiently.

 Servethe legitimate interests of all

shareholders and render an account to
them regularly and fully.

 Identify the corporation’s major

stakeholders and formulate a clear
policy determining how the corporation
should relate with them.
 ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Put in place a system of checks and
balances, which applies in the first
instance to the board, where power and
authority are properly distributed, and
the process is free and open, with
sufficient and meaningful participation
by independent, outside directors.

 Assess regularly its performance and

effectiveness as a whole, and that of the
individual directors, including the chief
executive officer.
ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Appoint the chief executive officer and
senior management, ensure that their
motivation, integrity, competence and
professionalism are maintained at a
very high level, and put in place a
professional development program for
employees and officers, and succession
planning particularly for senior
management.
ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Review regularly the effectiveness of
internal control mechanisms so that
the decision-making capability and the
integrity of corporate operations and
reporting systems are maintained at a
high level at all times.

 Providefor appropriate technology and

systems that ensure for the
corporation a position as a strong and
meaningful competitor.
ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Identify key risk areas and key
performance indicators and monitor these
factors with due diligence.

 Represent shareholders and create

shareholder value.

 Align the interests of management with

those of shareholders while protecting the
interests of other stakeholders (customers,
creditors, suppliers).

 Define the company’s mission and goals.

 ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Establish or approve strategic plans and
decisions to achieve these goals.

 Appoint senior executives to manage the

company in accordance with the
established strategies, plans, policies,
and procedures.

 Ensure the company’s compliance with

applicable laws, rules, and regulations.
 ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Oversee the company’s performance by
setting objectives, establishing short-
term and long-term strategies to achieve
these objectives, and assessing the
performance of senior executives in
fulfilling their responsibilities without
micromanaging.

 Approve major business transactions

and corporate plans, decisions, and
actions according to the bylaws.
ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Review management’s report on the
effectiveness of internal control over
financial reporting.

 Providecounsel to the company’s senior

executives, especially the CEO, on
material strategic decisions and risk
management.

 Approve the company’s major

operating, investing, and financial
activities.
ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Set the tone at the top by promoting
legal and ethical conduct throughout
the company.

 Evaluate
the performance of the board,
its committees (e.g., audit,
compensation, and nominating), and
the members of each committee.
ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Hold the board, its committees, and
directors accountable for the fulfillment of
the assigned fiduciary duties and
oversight functions.

 Approve dividends, financing, capital

changes, and other extraordinary
corporate matters.

 Oversee the sustainability of the company

in creating long-term shareholder value
and protecting interests of other
stakeholders.
ROLES AND RESPONSIBILITIES OF BOARDS
OF DIRECTORS ARE TO:
 Organization and Human Resources:
o Organization development, culture and
structure.

o Directing and motivating senior

management.

o Compensation tools.

o Continued training and education.

o Succession planning.
ROLES AND RESPONSIBILITIES OF BOARDS OF
DIRECTORS ARE TO:
 The Code of Professional Conduct:
o Exercise leadership, enterprise and judgement

in directing the company so as to achieve its

continuing prosperity and act in the best
interests of the company as a whole.

o Follow the standards of good practice set out in

the Institute's 'Good Practice for Directors -
Standards for the Board' and act accordingly
and diligently.
 ROLES AND RESPONSIBILITIES OF BOARDS OF
DIRECTORS ARE TO:
 Servethe legitimate interests of the
company’s shareholders.

 Exercise responsibilities to employees,

customers, suppliers and other relevant
stakeholders, including the wider community.

 Comply with relevant laws, regulations and

Codes of practice, refrain from anti-
competitive practices, and honour obligations
and commitments.
 ROLES AND RESPONSIBILITIES OF BOARDS OF
DIRECTORS ARE TO:
 At all times have a duty to respect the truth and
act honestly in his business dealings and in the
exercise of all his responsibilities as a director.

Not make improper use of information
acquired as a director or disclose, or allow
to be disclosed, information confidential to
the company.

Not recklessly or maliciously injure the
professional reputation of another member
of the Institute of Directors and not engage
in any practice detrimental to the
reputation and interests of the Institute or
of the profession of director.
 CONT.

Ensure that he keeps himself abreast of
current good practice.

Set high personal standards by keeping
aware of and adhering to this Code, both
in the spirit and in the letter, and
promoting it to other directors.
 Apply the principles of this Code
appropriately when acting as a director of
a non-commercial organisation.
 In sum, provide strategic guidance to the
corporation, decide on major capital
expenditures, and determine important
policies that bear on the character of the
corporation with a view towards ensuring
its long-term viability and strength.
 FIDUCIARY DUTIES OF BOARD OF DIRECTORS
 Fiduciary duty means that, as
shareholders’ guardians, directors
must be trustworthy, acting in the
best interest of shareholders, and
investors in turn have confidence in
the directors’ actions.

 The corporate governance

literature presents the following
fiduciary duties of boards of
directors:
 FIDUCIARY DUTIES OF BOARD OF DIRECTORS
1. Duty of Due Care - determines the
manner in which directors should carry out
their responsibilities. Failure to uphold the
set stipulations may constitute a breach of
the fiduciary duty of care of expected
directors.

2. Duty of loyalty - requires directors to

refrain from pursuing their own interests
over the interests of the company. Breach of
loyalty can occur even in the absence of
conflicts of interest if directors consciously
disregard their duties to the company and
its shareowners.
 FIDUCIARY DUTIES OF BOARD OF DIRECTORS
3. Duty of Good Faith – Its an important of
directors fiduciary obligations, and any
irresponsible, reckless, irrational or
disingenuous behaviors or conduct can
breach that fiduciary duty.

4. Duty to promote success – directors

should act in a good faith and promote the
success of the company to benefit of its
shareholders and other stakeholders.
Includes: approving the establishment of
strategic goals, objectives and policies that
promote enduring shareholders value as
well as protect existing value.
FIDUCIARY DUTIES OF BOARD OF DIRECTORS
5. Duty to exercise due diligence, independent
judgment, and skill - directors should be
knowledgeable about the companies’ business and
affairs, continuously update their understanding of
the company activities and performance, and use
reasonable diligence and independent judgment in
making decisions.

6. Duty to avoid conflicts of interests - potential

conflict of interest may occur when director: receives a
gift from a third party he is doing business with,
either directly or indirectly enters into a transaction or
arrangement with that company, obtains substantial
loans from the company, or engages in backdated
stock options.
 FIDUCIARY DUTIES OF BOARD OF DIRECTORS
7. Fiduciary Duties and Business Judgment
Rules - directors operate under a legal
doctrine called “business judgment rules”.

 Under that law directors that make

decisions in good faith, based on rational
reasoning, and an informed manner can be
protected from liability to the company’s
shareholders in the ground that they
appropriately fulfilled their fiduciary duty
of care.
BARRIERS TO BOARD EFFECTIVENESS
 Temptation to micro-manage.

 Ineffective Nominating Committee.

 Lack of Board renewal

 Failure to remove unproductive members.

 Lack of functioning committee structure.

 Lack of strategic plan.

 No plan for synergizing new and old members.

 Lack of a formal plan of board training and

education