(1) Represent shareholders and create shareholder value.

(2) Align the interests of management with those of shareholders while

protecting the interests of other stakeholders (customers, creditors, suppliers).
(3) Define the company’s mission and goals.
(4) Establish or approve strategic plans and decisions to achieve these goals.
(5) Appoint senior executives to manage the company in accordance with the
established strategies, plans, policies, and procedures.
(6) 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.
(7) Approve major business transactions and corporate plans, decisions, and
actions according to the bylaws.
(8) Develop and approve executive compensation, pension, post-retirement
benefits plan, and other long-term benefits, including stock ownership and stock
options.
(9) Review financial reports, including audited annual financial statements,
quarterly reviewed financial statements, and other important financial
disclosures such as management discussion and analysis (MD&A) earnings
releases and reports filed with regulators (SEC) or disseminated to the public.
(10) Review management’s report on the effectiveness of internal control over
financial reporting.
(11) Provide counsel to the company’s senior executives, especially the CEO, on
material strategic decisions and risk management.
(12) Ensure the company’s compliance with applicable laws, rules, and regulations.
(13) Approve the company’s major operating, investing, and financial activities.
(14) Set the tone at the top by promoting legal and ethical conduct throughout the
company.
(15) Evaluate the performance of the board, its committees (e.g., audit,
compensation, and nominating), and the members of each committee.
(16) Hold the board, its committees, and directors accountable for the fulfillment of
the assigned fiduciary duties and oversight functions.
(17) Approve dividends, financing, capital changes, and other extraordinary corporate
matters.
(18) Oversee the sustainability of the company in creating long-term shareholder
value and protecting interests of other stakeholders.
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.

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.

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.

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.
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.

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 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.
Audit Committee – composed of at least three independent directors; should be formed to
implement and support the oversight function of the board, specifically in the areas
related to the internal controls, risk management, financial reporting, and audit
committees.

Compensation Committee – composed of at least three independent directors; serves to

design, review, and implement ‘directors’ and ‘executives’ compensation plans.

Governance Committee - consist of both executives and nonexecutives directors; should

be established to advise, review, and approve management strategic plans, decisions, and
actions in effectively managing the company.

Nominating committee – composed of at least three independent directors; should be

formed to monitor issues pertaining to the recommendations, nominations and elections
activities of directors.

Disclosure committees – this committee is usually led by corporate counsel, CFO’s, or

controllers. It is responsible for reviewing and monitoring the company’s 10-Ks, 10-Qs, and
other SEC fillings, earning releases, materiality issues, conference call scripts, and
presentations to the investors by senior management.

Special committee – the board of directors may form a special committee to assist the
board in carrying out its strategic and oversight function, including financing, budgeting,
investment, mergers and acquisitions.
 One –
Tier
Model

Two-
tier
Model

Modern
Board Model
Board Leadership – The effectiveness of board meetings depends largely on the
leadership ability of the chairperson to set an agenda and direct discussions. The board
agenda is usually prepared by chairperson in collaboration with the CEO.

CEO Duality – implies that the company’s CEO holds both the position of chief executive
and the chair of the board of directors. The are pros and cons of that model, but
investors usually prefer to separate the positions. If they don’t, then it is preferable that
the company’s board consists of a ‘substantial’ majority of independent directors.

Lead Director – demand for Lead Director increased because of the presence of CEO
duality, resulting from growing concern that duality places too much power in the hands
of CEO, which may impede board independence.

Board Composition – in terms of ratio of inside and outside directors, and the number of
directors influence the effectiveness of the board. A board size of nine to fifteen is
considered to be adequately tailored to the number of board standing committees.

Board Authority – is granted trough shareholder elections. SOX substantially expanded

the authority of directors, particularly audit committee members, as being directly
responsible for hiring, firing, compensating, and overseeing the work of the companies’
independent auditors.
Responsibilities – the primary responsibility of the board of directors that the companies
assets are safeguarded and that managerial decisions and actions are made in a manner of
maximizing shareholders wealth while protecting the interests of other shareholders.

Resources – board of directors should have adequate resources to effectively fulfill its
oversight functions. Resources available to the board consist of legal, financial, and
information resources.

Board Independence – implies that, to be independent director shouldn’t have any

relationship with the company other than his or her directorship that my compromise the
director’s objectivity and loyalty to the companies shareholders.

Director compensation – best practices suggest that increases in stock ownership, reduction
in cash payments, and charges in compensation should be aligned with shareholders long-
term interest determined by board, approved by shareholders, and fully disclosed in public
reporting.
 Have been using a plural voting
Traditionally system to elect corporate directors.
It has been argued that a plurality
vote system gives too much power to
executive directors and management
to influence the election of outside
directors.

There have been moves toward

Now requiring majority vote election
procedures for corporate
directors. For example, the California
Public Employees’ Retirement
System (CalPERs) board
adopted a three-pronged plan to
advocate majority vote
requirements.
(1) Create and open and engaging boardroom atmosphere
(2) Maximize the value of the board’s time commitment by
establishing clear roles and responsibilities within an
appropriate structure
(3) Determine the information the board needs and ensure it is
delivered in a timely manner
(4) Dedicate time to strategic issues
(5) Create a transparent, explicit, and accountable executive
pay process
(6) Actively engage in CEO succession planning
(7) Access the strength of the company’s management talent
(8) Monitor the companies enterprise risk management system