BOARD SELECTION AND PERFORMANCE EVALUATION

BOARD SELECTION:

Board of directors is a group of people elected by the owners of a business entity or

shareholders who have decision-making authority, voting authority, and specific
responsibilities which in each case is separate and distinct from the authority and
responsibilities of owners and managers of the business entity. Directors are the members of
the board of directors. The members of the board can be insider or outsider. Insiders are those
who are somehow related to the corporation and may be referred to as executive directors.
Outsiders are not related to the company, they may be referred as non executive directors or
the independent directors. The legal responsibilities of boards and board members vary with
the nature of the organisation, and with the jurisdiction within which it operates.

The structure and powers of a board are determined by an organization's bylaws. Bylaws can
set the number of board members, how the board is elected (e.g., by a shareholder vote at
an annual meeting), and how often the board meets. A board of directors (B of D) is an
elected group of individuals that represent shareholders. The board is a governing body that
typically meets at regular intervals to set corporate management and oversight policies. Every
public company must have a board of directors. Some private and non profit organizations
also have a board of directors.

Internal board members are not usually monetarily compensated for their work, but outside
board members are paid. The board makes decisions concerning the hiring and firing of
personnel, dividend policies and pay outs, and executive compensation. A board member is
likely to be removed if they break foundational rules, for example, engaging in a transaction
that is a conflict of interest or striking a deal with a third party to influence a board vote. A
board of directors is elected by shareholders but nominated by a nominations committee. In
general, the board makes decisions as a fiduciary on behalf of shareholders. Issues that fall
under a board's purview include the hiring and firing of senior executives, dividend policies,
options policies, and executive compensation. In addition to those duties, board of directors
are responsible for helping a corporation set broad goals, supporting executive
responsibilities, and ensuring the company has adequate, well-managed resources at its
disposal.

COMMITTEES: Committees appointed by the Board focus on specific areas and take
informed decisions within the framework of delegated authority, and make specific
recommendations to the Board on matters in their areas or purview. All decisions and
recommendations of the committees are placed before the Board for information or for
approval. Committees review items in great detail before it is placed before the Board for its
consideration. These committees prepare the groundwork for decision making and report at
the subsequent board meeting.

Many committees on corporate governance have recommended in one voice the appointment
of special committees for (i) nomination, (ii) remuneration and (iii) auditing. These
committees would lessen the burden of the board and enhance its effectiveness. When these
committees are peopled with independent directors selected for their competence,
professional expertise in their chosen fields and long years of work experience would help the
respective committees decide issues objectively and in a manner that would promote the long
term interests of the organisation
NOMINATION COMMITTEE: The term nomination committee refers to a committee that
acts as part of an organization's corporate governance. A nomination committee evaluates a
firm's board of directors and examines the skills and characteristics required of board
candidates. The committee selects non-executive directors. It works on an ad-hoc basis. The
committee is usually chaired by the CEO. The selection process is supposed to be based on
merit through a proper interview. Also referred to as nominating committees or nominating
and governance committees, they are often made up of the chair of the board, the deputy
chair, and the chief executive officer (CEO).
There are usually at least two members on each committee, although the exact number of
people who serve on the committee tends to differ based on the type and size of the
organization. The length of time each member serves on the committee also varies depending
on the nature of the entity. Independent search firms help to find out competent persons.
Basically, they are professional people and, if utilised properly, they can perform the value-
added role. In many cases, the shareholders take some interest in the selection of right
persons. Many of the independent members do not get sufficient opportunities to show their
worth and expertise. Nomination committees may also have other duties, which vary from
company to company.

REMUNERATION COMMITTEE: Remuneration committee will be responsible for

working out remuneration packages “to attract, retain and motivate executives of the quality
required”. The committee should decide where to position their company relative to other
companies, and take account of comparable remuneration and relative performance. The
committee would make its well considered recommendations to the board for the final
decision. The following responsibilities are normally assigned to a remuneration committee,
which should have a written terms of reference:
 Remuneration packages and service contracts of the CEO and other senior executives.
 Remuneration packages for non-executive directors
 Remuneration policies and practices for the company
 Any company share and other incentive schemes
 Company superannuation and pension arrangements.

AUDIT COMMITTEE:

This is one of the most crucial committees of Board of Directors. It generally consists of
three independent and non-executive members. The committee meets regularly, not less than
twice a year. It is appointed by the board and is responsible to it. The audit committee has a
number of functions and recommendations to make, including the scope, the method and the
procedure of auditing, resolving conflicts in financial matters, audit fees and change or
reappointment of members, systemic review of the financial system, interim and final
accounts, and so forth. It is an independent committee and has considerable leverage in
maintaining checks and balances. The committee is supposed to settle disputes that arise
between the team of external auditors and the management. The committee takes a neutral
stand. It is supposed make important financial disclosures which are helpful for the company
to understand its financial strength and for the investors to know about the real worth of the
company. In some cases, it is a practice to engage both internal and external auditors to
evaluate the financial position of a company.

Audit Committee Assistance for Board of Directors:

 The integrity of the financial statements of the Company
 The effectiveness of the internal control over financial reporting
  The independent registered public accounting firm’s qualifications and independence
 The performance of the Company’s internal audit function and independent
registered public accounting firms
 The Company’s compliance with legal and regulatory requirements
 The performance of the Company’s compliance function

BOARD EVALUATION:

Board Evaluation refers to measures that aid effectiveness, transparency and accountability of
board members, especially in the aspect of board governance. Organizations whether profit or
non-profit need to periodically evaluate the board, check their activities in order to be certain
that the board is geared towards effective corporate governance. Evaluating the performance
of the board is an important mechanism for scrutinizing the activities of the board and
enhancing their transparency and accountability to stakeholders. Board evaluation is crucial
for every company that strives for excellence and coordinated governance. There must be
standards or benchmarks for board evaluation in every organization.

 The standards that steer a board into an effective board evaluation include
 The presence of clear and precise job descriptions for the board
 Availability of corporate strategies
 Presence of a board chairman and competent senior staff
 Corporate governance that aligns with the vision of the organization.

With the goal of increasing the effectiveness of the Board of Directors and its relationship to
management, the Corporate Governance and Nominating Committee assists the Board in
evaluating its performance as a whole and the performance of its committees. Each Board
committee is also responsible for conducting an annual evaluation of its performance. The
effectiveness and contributions of individual directors are considered each year when the
directors stand for recombination. The Corporate Governance and Nominating Committee
will determine whether the new board membership is compatible with continued service on
the Company’s Board. It is the policy of the Board that non-executive directors may not serve
on the board of more than four other publicly held companies without the prior approval of
the Board of Directors, except that any new board members shall be given a reasonable
transition period to come into compliance with the policy. Board evaluation and assessment is
quite important. The organization or the board does not need to wait for the period of crisis
before evaluation takes place. Board evaluation is directly linked to the level of success of
results that the organization would record, it is also linked to the performance of the
organization.
 The importance of board Evaluation are
 effective corporate management
 good organizational results or outcomes
 effective financial stewardship
 accountable and competent leadership
 Teamwork
 regard for work norms and culture
 minimized conflict
 positive interaction between stakeholders and employees, among others.
One important factor that fuels board evaluation is the desire of owners of founders of an
organization to make board members effective and accountable. Board evaluation is
important for improved organizational performance.
 CEO Performance Evaluation: At the beginning of each year, the CEO presents his
or her performance objectives for the upcoming year to the non-employee directors
for their approval. At the end of the year, the non-employee directors then meet
privately to discuss the CEO’s performance for the current year against his or her
performance objectives. The non-employee directors use this performance evaluation
in the course of their deliberations when considering the compensation of the CEO.
The non-employee directors and the CEO then meet to review the CEO’s performance
evaluation and compensation.
With the goal of increasing the effectiveness of the Board of Directors and its
relationship to management, the Corporate Governance and Nominating Committee
assists the Board in evaluating its performance as a whole and the performance of its
committees. Each Board committee is also responsible for conducting an annual
evaluation of its performance. The effectiveness and contributions of individual
directors are considered each year when the directors stand for recombination. The
CEO and other members of senior management must seek the approval of the Board
(or the Board committee to which this responsibility has been delegated), before
accepting outside board memberships with for-profit entities. Non-employee
directors must advise the Chairman of the Board and the Chair of the Corporate
Governance and Nominating Committee if they are being considered for election or
appointment to a board of directors of another publicly-held company. The Corporate
Governance and Nominating Committee will determine whether the new board
membership is compatible with continued service on the Company’s Board.

 Evaluation Process: Board evaluation process involves the assessment of the board
in relation to the roles and performances. Areas relating to corporate governance are
evaluated by the board while consultants or members of staff evaluate programs and
services in an organization. The major areas that evaluation process focus on are;
board management, board development, board goals, missions and strategies and
senior staff. Evaluating board management include an assessment of board meetings
and the evaluation of how individual directors perform in the board as well as their
collective performance.
The six step evaluation process the board can adopt include
 Determine why the evaluation is important, the purpose of the evaluation.
 Select an appropriate evaluation model or structure.
 Get an evaluation design.
 Gather relevant information that will enhance an effective evaluation.
 Analyze the information gathered
 Carry out implementation.
In the aspect of analyzing the data gathered, an organization might need the expertise of
an independent or external consultant. The results of the analysis alongside other factors
would then inform the decision of an organization and the steps to take.