Board of Directors and Corporate Governance Model
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By Mansour Baker, SHRM-CP
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Posted 01 June 2021
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Board of Directors typically fall around 5 key dimensions
A corporate governance model consists of the company’s Board of Directors, Board Sub Committees, and Management Committees.
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Exhibit 1
Corporate Governance Model
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Roles assumed by the Board of Directors (BoD) typically fall around 5 key dimensions:
1. Strategy
- Review and approve vision, mission and shareholder objectives
- Review and approve corporate strategy and annual operating plan
- Monitor performance in relation to the corporate strategy and annual operating plan
2. Capital Efficiency
- Review and approve annual corporate budget & financing plans and monitor updates
- Approve major company investments and divestments
- Monitor performance of existing investments
3. Control
- Monitor financial, operational, and Executive Management performance
- Review and approve corporate governance manual, policies, and Delegation of Authority
- Ensure compliance to financial and corporate policies & standards
4. Talent
- Nominate and approve compensation structure of directors, Board Sub Committee members, and senior executives
- Approve succession plans for senior executives
5. Identity
- Approve strategies and guidelines for branding, marketing and communications
Three key guiding principles should be considered when determining Board Sub-Committee grouping:
1. Effective Membership
- Functions requiring similar director experience and capabilities should be grouped together
2. Efficient Decision Making
- Key decisions should be streamlined by assigning them to committees that meet more frequently than the BoD
3. Efficient Integration
- Functions with interrelated topics and that require consistent decisions should be discussed and approved by the same committee
Each of the following three Board Sub-Committees will have a clear and distinct mandate:
1. Executive Committee
- Review strategy, budget, and other major strategic decisions and provide strategic guidance to management
- Act on behalf of the Board to support the organization in executing the strategy and annual operating plan including taking any key decisions between Board meetings
- Approve/ endorse projects, divestments, and asset repositioning
- Approve/ endorse strategic partnerships and financing agreements
- Approve/ endorse major financial decisions
2. Nomination & Remuneration Committee
- Provide recommendations to the BoD regarding the appointment of the CEO and Executive Management
- Develop/approve remuneration policy
- Recommend the remuneration of Board and Executive Management
3. Audit & Risk Committee
- Nominate external auditor and review external audit reports
- Supervise internal audit, review reports, and ensure implementation of corrective measures
- Supervise risk management and approve risk management policies and procedures
- Endorse corporate governance manual and ensure compliance with corporate governance policies
Board of Directors Roles and Responsibilities
The Board of Directors oversees overall company strategy, governance and performance.
General
- Oversee the definition of the long-term strategy its implementation, ensuring the interests of the company and its shareholders are being best served
- Supervise management to ensure they deliver on the approved strategy and plans
Strategy, Partnerships and Financing
- Review the corporate strategy including regular strategy refresh exercises
- Review the annual operating plans
- Review business performance across milestones and targets
- Review annual budgets and material variations from approved budget
- Review the formation and any changes of the organizational structure
- Review and approve/ endorse concepts, feasibility studies and capital deployment for large projects
- Review key decisions, partnerships and investments in line with Delegation of Authority
- Assist in opportunity identification and sourcing of new opportunities
- Review capital structuring including debt financing and equity issuance, and suggest any optimization opportunities
- Support in coordination with external entities
Nomination and Remuneration
- Review remuneration policy & structure ensuring that standards related to performance are followed, disclosed, and their implementation verified
- Review and recommend CEO and Executive Management arrangements for newly-appointed individuals
Audit, Risk and Corporate Governance
- Recommend external auditors
- Review audit reports and financial statements
- Evaluate and approve risk management guidelines & policies and approve annual risk reports & mitigation plans
- Ensure company’s compliance with governance laws, regulations and company governance policies
Support Services and Identity
- Review guidelines, policies and procedures for support services like IT, admin and other activities
- Review strategies and guidelines for branding, marketing, communications and CSR activities
- Review corporate identity and branding
- Ensure sustainability of company's operations
Executive Committee Roles and Responsibilities
The Executive Committee provides strategic guidance to management, reviews strategic decisions and takes urgent decisions required between BoD meetings.
General
- Review strategic decisions suggested by the management and endorse them before raising to the board for approval
- Hold periodic meetings with Executive Management and act on behalf of the BoD to provide strategic guidance to management, discuss work progress/obstacles/problems, and take critical decisions between BoD meetings
Strategy
- Review and recommend the corporate strategy to be presented to the BoD / shareholders for approval
- Review the annual operating plan developed by management and recommend changes before submission to the BoD for approval
- Identify general strategic and market trends and recommend strategic initiatives accordingly
- Review business performance across milestones and targets
- Set standards for the performance of the Executive Management in line with the objectives and strategy of the company
- Review and evaluate the performance of the Executive Management
- Take decisions and immediate steps to deal with pressing business issues, in line with the Delegations of Authority
- Review/ recommend the formation and any changes of the organizational structure
- Review the BoD meeting agenda and any other related matters that the Committee may deem necessary or appropriate
- Refer to the BoD on any related matters considered of great importance
- Support in coordination with external entities
Budget
- Review, evaluate and provide recommendations to the BoD regarding approval of annual budgets
Investments & Partnerships
- Review and approve/ endorse concepts, feasibility studies and capital deployment for large projects
- Review and approve/ endorse asset exit/divestment
- Review and approve/ endorse major partnerships/Joint Ventures
- Review and approve/ endorse large asset purchases and any investments into other companies or projects
Financing
- Approve/ endorse capital structuring including debt financing and equity issuance, and suggest any optimization opportunities
- Approve bank mandates (and endorse authorized signatures prior to BoD approval), medium write-offs, and adjustments that impact the balance sheet
Nomination & Remuneration Committee Roles and Responsibilities
The Nomination & Remuneration Committee provides recommendations to the Board related to the appointment & remuneration of the CEO and Executive Management.
General
- Provide recommendations to the BoD related to the appointment of new Board members, CEO and Executive Management
- Develop/Approve remuneration policy
- Review CEO and Executive Management’s performance, and recommend remuneration for Board committee members, CEO and Executive Management
Nomination
- Propose clear policies and criteria for Board members, CEO, and Executive Management nomination
- Review and endorse list of required capabilities and qualifications for board members and Executive Management
- Review periodically the effectiveness of Board Committees and Executive Management, and provide recommendations related to size, composition, modus operandi, and other changes
- Manage and supervise succession plans for key positions (i.e., executives such as the CEO and COO)
- Assist the BoD in evaluating the performance of members of the BoD’s committees and the Executive Management
- Ensure an effective methodology for onboarding new Board members is employed
- Suggest relevant continuous educational/development programs for Board members
- Lead the identification and assessment of potential new recruits for the Board, CEO, and Executive Management positions
Remuneration
- Review and recommend remuneration policy & structure ensuring that standards related to performance are followed, disclosed, and their implementation verified. The policy should ensure:
- Consistency with the company's strategy and objectives
- Consistency with the size, nature and degree of risks of the company
- Attraction and retention of talented Executive Management members and motivating them to drive company's success and enhance long-term shareholder value
- Review cases for suspension/refund of payment of bonus if decisions were potentially based on inaccurate information
- Review CEO & Executive Management’s performance, and recommend to BoD their remuneration in accordance with approved policy
- Review and recommend CEO and Executive Management arrangements for newly-appointed individuals and review any changes to arrangements. Arrangements include contract terms, annual bonuses, and participation in the company's short and long-term incentive plans
- Provide recommendations related to the evaluation, promotion, salary increments, bonuses, and salary adjustments for the company's senior executives, and raise recommendations to the BoD
- Review the compensation and retirement plan, incentive policies and plans related to employees
- Provide the BoD and the Executive Management with adequate information and external advice to ensure that informed decisions are made regarding wages
Audit & Risk Committee Roles and Responsibilities
The Audit & Risk Committee reviews financial reports, supervises internal audit system, nominates external auditor, and approves risk management policies.
General
- Supervise/monitor performance of internal audit, review audit reports, and endorse financial statements
- Evaluate and approve risk management guidelines & policies and approve annual risk reports & mitigation plans
- Ensure company’s compliance with governance laws and regulations and endorse governance manual
Audit
- Recommend external auditors
- Supervise the internal audit department
- Review, evaluate, and recommend improvement to the internal audit procedure
- Monitor effectiveness of internal control, legal compliance, and reporting systems
- Endorse internal audit policies, ensuring implementation of corrective measures prior to BoD approval
- Recommend to the BoD the appointment, dismissal, and remuneration of external auditors
- Supervise the work of external auditors and approve any change to their scope
- Review audit plan together with the external auditor
- Review external audit reports and follow up on any recommended actions
- Endorse annual financial statements prior to presentation to BoD
- Endorse financial reporting and accounting policies, and recommend improvements to BoD
Risk
- Approve annual risk reports and mitigation plans
- Approve risk management and control guidelines and policies
- Monitor and evaluate risk management policies
Corporate Governance
- Ensure compliance with the corporate governance laws and regulations
- Endorse corporate governance manual prior to BoD approval
- Ensure strong transparency and easy shareholder access to information
- Ensure that BoD and all committees are functioning as per defined laws and regulations and in accordance with their intended role
Design of management committees are based on three key guiding principles.
Provide coordination platform
- Provide a platform for functions to work in an integrated manner and to regularly meet, collect input, discuss, and approve decisions that would impact them
Enable CEO to focus on strategic concerns
- Limit CEO’s involvement in tactical decisions and process related details to enable him to maintain high focus on strategic concerns
Minimize bureaucracy and increase efficiency in decision making
- Group topics that require similar functions and experiences within the same committee while ensuring only the minimum required attendees are included
