Board Of Directors

SUBMITTED TO : MAM SIDRA GULAM RASOOL

 SUBMITTED BY
GROUP A
Name Roll no Section

Niha Fatima 05 Morning

Ayesha Akram 12 Evening

Tamsila Gill 04 Morning

Ayesha Khalid 07 Morning

Mahnoor Saleem 10 Evening

Uzma Nasir 7 Evening

TABLE OF CONTENT
 Board as the principal instrument of governance.
 Types of ineffective boards
 Powers of a board
 Delegation of powers by the board.
 Functions of a board
 Tools available to a board.
 Responsibility & Accountability
 Collective Responsibility of a Board.
 Borrowing powers of the board
 Types of boards
 Balance on the board
 Balance of representation

•
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 Balance of talents.
 Balance of power. Balance of views
 Gender Balance
 Causes of absence of balance in a board
 Board Meetings
 Cadbury Code for boards of directors
 Good Board Room Practices
 Role of chairman of a board
 Role of chief executive officer
 Duality of office
 chairman and CEO.
 Appointment of key officials.
 Board as the principal instrument of
Governance
• The shareholders own the company but do not run it. Management runs the company but does not own it.
• In between these two groups lies bridge called board of directors whose member are appointed by the former group and
supervise the latter group. This is the principal responsibility of board of directors which makes it the focus of good
governance in accompany.
• A company has a responsible and effective board, the quality of its governance will be good and its stakeholder will generally
be happier. In this case the overall reputation in the market and performance of company will be improve, larger and access
capital, and availability of better worker.
• The board of company is irresponsible or ineffective, the interest of its stakeholder will suffer. In this case the overall
performance of company will deteriorate due to unavailability of capital ,poor market reputation, unhappy staff.
 The fulfillment of board’s role as the principal
instrument of corporate governance demands
• It should provide entrepreneurial leadership to the company. Entrepreneurs bare expected to take the risk to earn profits; hence

entrepreneurial leadership entails exposing the company to certain risk in order to earn decent profit.

• It should set strategic i.e. long term objectives of the company and to plan for their achievement.

• It must arrange resources needed to implement the strategic plans.

• It should review the performance of management to ensure that board’s plan are effectively and efficiently implemented.

• It should set the company’s values and standards. This involves value of statement, code of conduct for managers and

employees, vision and mission.

 Types of Ineffective Boards
• Theoretically ,the shareholders elect the members of board. However in
practice, whatever nominees are proposed for election by the sitting board of
directors generally get elected.
• The culture of “executive directors or controlling shareholders electing the
whole board” has led to the emergence of following types of board that
generally contribute nothing to the quality of company’s governance.
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Powers Of A Board
• The board of directors of a company normally has absolute powers to conduct
the affairs of the company. In other words , whatever a company is
authorized to do by its memorandum of association. the board can do it on
behalf of the company. However, these are the collective powers of the board,
i.e. these can only be exercised by the board acting collectively. The mode of
acting collectively is to a pass resolution at a properly convened board
meeting.
Board of directors draws its powers sources
1: The company's constitution
In case of Pakistan, this means the Articles and Memorandum of Association of
the company which clearly lay down, inter alia, the powers of the directors and
how these may be exercised
2: The Law In case of Pakistan
this refers to Companies Act which provides a standard set of Articles in its
Table A. Accordingly to the Law, the provisions of a company's own' Articles of
Association overrule the provisions of the Companies Act, in so far as they are
generally within the framework of law governing the companies
Board of directors draws its powers sources
3: Resolutions passed by shareholders
In certain cases, shareholders may grant such powers to the directors that were
not previously available to the directors (i.e. they were not assigned to directors
by the company's Articles of Association) by passing a special resolution to that
effect. Similarly, at least theoretically, directors' powers may be curtailed by
shareholders by passing a special resolution.
4: Industry Practices
sometimes directors' powers are defined by the practice prevailing in a
particular industry. For example, the boards of banks generally have greater
latitude in decision making as opposed to other companies.
Delegation of powers by the board
• In certain cases, the board may delegate one or more of its collective powers
to an individual (or a committee) who may or may not be a member of the
board. The instrument that gives powers to the board (like Companies Act, or
company's own articles of association) generally allows the board to delegate
its powers to others. This can however only be done collectively by the Board
by passing a resolution with requisite majority
The board should pay due attention to the
following when delegating powers to someone else
a .Is it necessary to delegate this power?
b. Is the method used for delegating the power appropriate? This means proper
passage of necessary resolution, or preparation of relevant documents like
terms of reference, to ensure that the exact scope of delegation is clearly
understood by all concerned.
c. Since the responsibility of the delegator does not end with delegation, it is
necessary for the board to put in place a system of oversight and accountability
to ensure that the delegated powers are not misused, or abused
FUNCTIONS OF A BOARD
• The Board of directors of a company has three main functions: oversight,
directional and advisory.
1. The Oversight Function of the Board
This refers to supervision or oversight that a board carries out over the
management of the company and includes the following activities:
a. Approving and monitoring company's strategic plans.
b. Approving annual budgets and plans, including operational and capital
budgets.
c. Engaging external auditors and liaising with them in relation to audit of
annual financial reports.
The Oversight Function of the Board
d. Ensuring the integrity and reliability of company's annual report that may
cover financial as well as operational matters.
e. Review of major operational activities to ensure that they are proceeding
according to the approved plan.
The Directional Function of the Board
• His refers to the directions and instructions issued by the board to company's
management about the manner in which it may conduct itself. It includes the following
activities
a. Setting the company's Mission Statement, Vision Statement, Value Statement and
formal Code of Conduct. These statements define the company's overall policy and
provide the framework within which all connected with the company must conduct
themselves.
b. Appointment of CEO and other senior executives of the company, including the
executive directors.
C. Planning for succession of these senior executives.
d. Appointing various committees like audit committee, executive committee,
remuneration committee, etc. and defining their terms of reference.
The Advisory Function of the Board
• This refers to provision of general guidance to the management, keeping them
informed of what is happening in the rest of the corporate world, and offering
specialized help in certain areas. For example, if the Board has a tax expert
among its members, he may offer special advice to the finance department.
  Tools available to a Board
• Composition of a board
The best and most important tool is member of the board.
1. If directors are competent persons they can ensure functions are performed in a
satisfactory and professional manner.
2. If the directors are unqualified person with no comprehension of affairs of the
company, they will obviously not be able to measure up the challenge of an effective
board.
• Independence of a board

A board must be independent. They should not be dependent on any particular

shareholder, stakeholder, external party, investor and organization. They should be free to
take decision for the common good of the company.
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• Committees
A company may comprise wholly of directors or members from outside of board as well to examine a
matter in a greater detail and come up with summarized report or recommendations for the
consideration of the board.
• External help
Board can seek assistance from external experts to ensure that they are able to take correct decision.
For example: If board make the policy related to remuneration of employees then Board can hire an
external HR expert to carry out a survey of salaries in particular industry and provide recommendations.
• Government interventions
A board may also use government or society’s help in conducting affairs. In certain situations it become
necessary to resort to government help like changes in law or taxation regime, collecting information
from Pakistan’s embassies abroad.
  Responsibility and Accountability of BOD
Responsibility refers to acts and duties that must be performed by a person or a body.
i.e.(BOD present annual report to shareholders)
There are two types of responsibilities of BOD:
1. Collective responsibility
2. Individual responsibility
Accountability refers to the requirement of having to explain and give an account of
what has been done by a person.
i.e.(shareholders can ask them question regarding their performance)
Note: Board is only responsible for its act and accountable to the company.
  Collective responsibility
1. Acting in the best interest of the company
2. Accountability of the owners
3. Statutory duties
4. Fiduciary or trustee-ship duties
1. Acting in the best interest of the company
Directors are collectively required to act in the best interest of company to work for the
achievement of collective interest of all stakeholders. They should refrain from taking any
decisions which may harm the company's overall interest, its Financial position or
performance.
2. Accountability to the Owners:
Directors are required to present an account of their conduct to the Shareholders. This can be done
formally and informally
In Formal terms, Directors issue periodic report like quarterly report, half yearly report or annual report
to the Shareholders and In Informal communications includes publishing newsletters, sending special
letters or holding meeting with specific shareholders.
3. Statutory duties
• Maintain proper minutes of all meeting and Send copy of periodic report to SECP.
• Maintain proper books of accounts and audit at proper time

4. Fiduciary or trustee-ship duties

Fiduciary duties are owed by all trustees by reason of their position, which imposes a duty of undivided
loyalty and good faith towards the beneficiaries. The trustees are, therefore, required to suppress their
own interests and fulfil their obligations with the beneficiaries' best interests at heart.
BORROWING POWERS OF A BOARD
• One of the powers that a board of directors has is to borrow funds on behalf
of the company. The Company's Act does not place any limitation on the
amount of borrowings that a company can make. The Prudential Regulations
issued by the State Bank of Pakistan do place some restrictions on the amount
of loan a bank or other financial institutions governed by the SBP can lend to a
company, but that does not preclude the company from borrowing from non-
bank lenders. Generally, the articles of association of a company also fail to
place a limit on a company's borrowing power.
BORROWING POWERS OF A BOARD
• Many companies have gone to insolvency due to over-borrowing in Pakistan as well as in most other countries of the
world. It is believed that had the directors exercised more care and vigilance, these companies could have been saved.
One way to ensure such vigilance would be to formally place a restriction on the borrowing powers of a board
• .a. Should the borrowing limit be in absolute rupee terms, or in terms of ratio? An absolute rupee limit on borrowings
would be unrealistic as different sized companies require different levels of borrowings. If the limit is designated in the
form of a ratio. what should that ratio relate to? Generally, it is felt that no company should be allowed to borrow
more than its equity.
• .b. Should the limit be placed on short term borrowing. long term borrowing or all borrowing? Companies with
different nature of business have different borrowing needs. Applying one standard borrowing limit to all companies
may not be workable. For example, manufacturing companies have greater need for long term borrowing while trading
companies have higher requirements of working capital. necessitating higher short term borrowing.
• c. It may be possible to regulate the borrowings of listed companies to some extent. but it would be very difficult to
monitor borrowings by other companies, particularly private limited companies. It does seem unfair to impose
restrictions on listed companies and allow all other companies to continue borrowing with impunity.
 TYPES OF BOARDS
• There are two ways of classifying boards: according to its composition and
according to the tenure of its members. Classified according to composition, a
Board may be unitary or two tiered. Classified according to tenure of its
members, a board may be common tenure or staggered board.
 TYPES OF BOARDS
• unitary board
This board does not have tiers or divisions. All members of the board are equi-
status and participate in the deliberations of the board simultaneously. Most
companies in Pakistan have unitary or single-tier boards.
• Two-tier Board

A two-tier board has two distinct tiers: the upper tier is often called Supervisory
Board and the lower tier is called Management Board. The Supervisory Board
comprises
 Principal advantages of two tier boards
• a. It provides greater power to non-executive directors by placing the
Management Board under the Supervisory Board and thereby making them
accountable.
• b. It allows for better and more comprehensive representation of various
stakeholders.
• c. It results in a clear division of work between the supervisory and
management tiers, hence promotes the quality of decision making at both
forums
problems associated with two-tier boards
a. The size of the board becomes large. In Germany where two-tier boards are
common, the average size of boards of listed company is above 20.
b. A larger board is difficult to handle, and costs a lot more.
c. A large board also dilutes the effect of better directors.d. Since all major
decisions have to go through two stages, decision making process becomes
relatively slower
TYPES OF BOARDS
• Common Tenure Board
All the directors in such a board have the same fenure. They are elected at the
same Time (at annual general body meeting of the shareholders) for the same
duration of tenure and refire at the same time at the end of their tenure. Thus if
the tenure of the board is say four years, elections are held every four years. All
the directors retire at the end of the four year tenure and a whole new set of
directors is elected every four years
• Staggered Board

Under this arrangement, only a part of the board (usually half) retires at the end
of a stated tenure while the duration of each director remains fixed. To
understand this arrangement
Staggered Boards are said to offer the f
advantages
• The board enjoys a degree of stability as the entire board does not go out at
any one time. This ensures that there is continuation of policies and no radical
changes ensue after each election.
• Frequent re-elections infuse new members into the board, thereby enabling
it to get new blood, fresh ideas and better exposure to the outside world.
However, the above advantages are available only if the system is operated in
its true spirit. If the same directors are to be re-elected year after year (as
indeed is the case in most companies in Pakistan) the staggered boards serve
no real purpose.
BALANCE ON THE BOARD
• The key to success of a board is to have a balanced board. A board is said to
be balanced if it has the right blend and proportion of the different attributes
needed in its members. History of companies has amply demonstrated that
each board of directors should be balanced in four respects: representation,
talents, power and attitudes, and gender.
Balance of Representation
• This means all the stakeholders should have adequate representation on the
board. With only shareholders allowed to vote in directors, and controlling
shareholders stage- managing AGMs in an orchestrated manner, most companies
in Pakistan lack à balance of representation. A small percentage of listed
companies may have long term creditors represented on the board, but the
other stakeholders like employees (other than executive directors), business
associates and public at large are seldom represented on the board. Neither the
Companies Ordinance, nor the Articles of Association of most companies provide
for any mechanism that would ensure representation of all stakeholders at a
board. Sadly, the Code of Corporate Governance issued by Securities & Exchange
Commission of Pakistan (SECP) also fails to address this serious lapse.
Balance of Talents or Abilities
• This means having a blend of all the necessary talents and technical expertise
needed to lead the company. This requires the presence of managerial, legal,
financial, operational, social, marketing and industry-specific technical experts
on the board. The argument that companies have managers who carry these
skills does not hold well. If the board does not have the talent to understand
and scrutinize the proposals made by the managers, it will simply not be able
to perform its basic function of control. While it is understandable (if not
pardonable) that controlling shareholders in Pakistan refuse to allow a
balance of representation on the board, the alarming absence of balance of
talents in most boards is truly surprising. This can only be attributed to the
desire of controlling shareholders to have no opposition at the board.
Balance of Power
• This means having an adequate number of truly independent non-executive directors on a board
who enjoy sufficient power to overturn the proposals put forward by executive or representative
non-executive directors. Perhaps this requires a bit of explanation. An executive director is part of
company's management, while a non- executive director (NED) sits only on the board and takes
no part in company's day to day operations. Now an NED may be a representative non-executive
director (RNED) or independent non-executive director (INED). A representative NED represents a
particular stakeholder and acts only for the protection and furtherance of interests of that
stakeholder, e.g. a director nominated by a lending institution on a debtor company's board.
Similarly, non-executive directors nominated by majority shareholders often - and in case of
Pakistan always -'act only to serve the interest of that group of shareholders. An independent
NED does not represent any particular stakeholder and is expected to act for the collective
interest of all stakeholders
Balance of Attitudes or Views
• This means having diversity of views at the board that ensures presence of a
wide range of social, moral and managerial attitudes of directors. If all, or
majority of, the directors are timid, complying sort of individuals with no
courage to stand upto the chairman, the board will inevitably become a
rubber stamp board. Similarly, if the majority of directors are radicals with no
one to mitigate the impact of their adventurous spirit, the company can land
into more trouble than it can handle. A good board requires a balanced
combination of people who are motivated differently: some by profit, some by
caution, some by social justice, some by excellence, some by growth, some by
experimentation, etc
Gender Balance on Boards
• Gender Balance on Boards Nowadays, there is a move in many European
countries that boards of listed companies should have adequate number of
female directors to ensure a reasonable balance of gender. Female directors
are not only seen as representatives of women, but also as more mindful of
the interest of employees and the less privileged members of the society. In
Pakistan, many principal shareholders nominate their female relatives like
wives or daughters) on the board, but such nominations do not serve the real
purpose. Most of such women are ineffective and represent the view point of
their appointers rather than females per se.
CAUSES OF ABSENCE OF BALANCE IN A BOARD
• he prime cause of poor governance in Pakistani listed companies is
unbalanced boards. And the prime cause of lack of balance in Pakistani boards
is absence of sufficient number of INEDS, who have:
• a. the knowledge and talents to participate meaningfully in board proceedings
• b. an understanding of the individual interests of all stakeholders and are
willing to work for their protection.
• c. the independence and courage to differ with the management where it is
necessary, and
• d. the power to over-rule the representative directors where the collective
interest of all stakeholders so demands
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A not-so-cursory look at the published list of directors of most listed companies in Pakistan
reveals that the following trends are prevalent:
a. Directors who are technically designated as independent non-executive directors are seldom
independent. In almost all cases they are representative directors, protecting the interest of a
particular stakeholder stakeholders are represented on the board: the controlling shareholders
and major lenders.
b. Majority of the directors are family members or close associates of controlling's shareholders
c. No attention is paid to having a pool of talents at the board. The general preference is to have
well paid managers (who are subservient to the controlling stakeholder) over having competent
and qualified INEDs.
d. No attempt is made to ensure that the board comes in touch with other stakeholders and
learn about their preferences and interests.
Board meetings
• A board of directors conduct its affairs through board meetings. All their deliberations and decisions
are taken at board meetings. Law requires that these meetings be held at suitable frequency and
fully recorded.
• Frequency and preparation for meetings

The meeting between board of directors should be held at least once in even quarter of every
financial year.
A meeting notice shall be delivered to directors at least seven days prior to the board meeting except
in case of emergency meeting.
The chairman of the company should direct the meeting of board of directors. He shall be responsible
for the recording of minutes and shall deliver them to officers and directors no later than 30 days.
Significant issues that must be placed before
the board
• Annual business plans , cash flow projections, forecasts, and long term plans, budgets
including capital , manpower and overhead budget , along with variance analysis.
• Quarterly operating results of the listed company as a whole and in terms of its operating
division or business segments.
• Internal audit reports, including cases of fraud or irregularities of a material nature;
management letter issued by the external auditions;
• Detail of joint venture of collaboration agreement or agreements with distributors,
agents ,etc.;
• Promulgation or amendment of a law , rules or regulation , enforcement of an
accounting standard and such other matters as may affect the listed company
Related party transactions
All companies registered under the Companies Ordinance 1984 should present all
transaction with related parties for review and acceptance by Board of Directors.
• Before placing these details before the board , they should be presented before
the Audit Committee of company .
• Board of directors shall accept the pricing method of related party transaction on
the basis of terms equivalent to those firms that exhibit an arm’s length
transaction.
• Every listed company should maintain a part wise record of transaction along with
the necessary documents like name of related party ; relationship nature with
related party ; nature and amount of transaction along with its terms and
conditions of transaction.
Cadbury code for board of directors
A code of cooperate governance published by the Cadbury Committee in the
UK 1992 provided the following guidelines for board of directors;
• The board should meeting regularly so as to ensure that the directors retain
full and effective control over the company .
• It should monitor the performance of the executive management. System and
procedure should be designed for this purpose ; merely holding of quarter
meetings where some departmental heads make eye-pleasing presentations is
not enough. A comprehensive system of reporting and analysis should be put
in place.
Good board room practices
The Cadbury Code also provides guidelines for good board room practices as
follow:
• All the directors , particularly the non-executive directors , should be able to
continue efficiently to the decisions making process. To this end, they must be
supplied with sufficiently timely information, in advance of board meeting,
relating to the matters the board will be discussing at the next meeting.
• There should be written procedures for the conduct of the board meetings
and compliance to these procedures should be monitored by an appropriate
committee of the board.
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• All directors should be given the some information and the same quantum of
time to consider it before the meeting.
• As for as possible, post-facto approval of action already taken by the
management should not be given by the board.
• The decision about what is to be placed on agenda should be taken by the
chairman in consultation with the company secretary.
• If the board appoints any committee, for a short period of time, a special
assignment, or standing committee, it must clearly spell out its function,
terms of reference and powers in a suitable document, approved by the
board.
ROLE OF CHAIRMAN OF THE BOARD
e Chairman of the board is also considered the chairman of the company. His functions
include:
a. Running the board, chairing all its meetings, setting its agenda, conducting its
proceedings, and leading all discussions at board and shareholders' meetings.
b. Ensuring that directors get adequate and timely information.
c. Acting as a bridge between the board and shareholders. Any query from a shareholder
should be addressed to the chairman who would get the appropriate member of the board
or management to attend to it.
d. Evaluating the performance of the board as a whole and of each of its individual
members. This is a delicate task and the chairman may find it helpful to form a formal
committee to look after this aspect's.
e: Act as an arbiter for any issues between different members of the board or management.
ROLE OF THE CHIEF EXECUTIVE OFFICER
• also known as CEO, managing director or president, a company's chief
executive officer is head of its management. He is responsible for the
management of the company and all its operations. All the executive directors
and senior managers directly or indirectly report to him. He is answerable to
the Board in respect of all operational and managerial matters - every one
else in the company's management is answerable to him
• most CEOs are also a member of the company's board, either through
election or, if so provided by the company's articles of association, by virtue of
being CEO. In many companies the offices of Chairman and CEO are held by
the same person.
DUALITY OF OFFICE: CHAIRMAN AND CEO
Until recently (2012), many companies used to assign the responsibilities of Board's
Chairman and Company's Chief Executive Officer to the same person. This duality of
office was permitted by the Company Law and articles of association of most
companies. The following arguments were given in favor of this arrangement:
a. It speeds up the decision making process as CEO is generally quite close to the
management and as a chairman is able to persuade the board to follow g particular
course of action.
b. It saves the cost to the company as often Chairman and CEO draws salary for only
one office.
c. He has greater influence on the company and is able to conduct its affairs more
effectively.
The latest revision to the Code of Corporate Governance issued by
Securities and Exchange Commission of Pakistan
a. It provides an extra layer of answerability, making the CEO more careful.
b. The chairman should be a non-executive director, i.e. removed from the
management of the company. This adds an element of independence and
increases his effectiveness. Combining the two offices may grant a level of
authority to a person which may easily lead to abuse of power.
c. A non-executive chairman is more likely to listen attentively to the grievances of
stakeholders. A CEO/Chairman is likely to dismiss such grievances with impunity.
Again, stakeholders feel greater confidence in taking their problems to a non
executive chairman than a person who apparently represents the management of
the company and is likely to defend it rather than entertain complaints against it.
APPOINTMENT AND APPROVAL OF KEY OFFICIALS
• Appointment terms
The appointment, remuneration and terms and conditions of employment of the Chief Financial Officer (CFO),
the Company Secretary and the head of internal audit of listed companies shall be determined by the CEO with
the approval of the Board of Directors.
• Qualifications for CFO and Company Secretary thank you

CFO and should be a 'member of recognized body of professional accountants'; or he should be a recognized
university graduate having five years' experience in dealing corporate and financial affairs at listed company or a
financial institution. The Company secretary should fulfill the same condition i.e. 'a member of recognized body
of professional accountants or corporate/ chartered secretaries; or a person should be graduate in Business
Administration or commerce or law from HEC recognized university and hold five years related experience.
• Requirement of attending the board meetings

The CFO and Company Secretary of listed company should attend the meeting of Board of Directors. However,
they can vote at the meetings only if they are elected directors.
THANK YOU!