LEGAL VIEWPOINT: Role of Board of Directors in Joint stock companies

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By Dr AbdelGadir Warsama, Legal Counsel

By Dr AbdelGadir Warsama, Legal Counsel
Asia 728x90

A basic principle of corporate governance (CG) relates to the Board of Directors of the company, wherein the company shall be headed by an effective, collegial and informative Board of Directors. You need to ask yourself, where do I or we stand in this?

To achieve the goal, all members of the Board of Directors should understand the role and responsibilities of the Board as stipulated in the Company Law, the Articles & Memorandum of Association of the company, the corporate governance code and the established customary corporate culture.

This vision, in particular, highlights that the role of the Board is different from the role of the shareholders of the company (whose interest the Board serves) and also the role of the executives and officers working in the company. As we know, members of the Board are originally shareholders chosen to run the show on their behalf. However, in particular, members of the Board of Directors should clearly understand the Boards fiduciary duties of care and loyalty to the company and the shareholders. Members of the Board are responsible both individually and collectively for performing these responsibilities, which cannot be transferred or delegated to other persons or to other bodies of the company.

When a new Board Director is appointed, the Chairman of the Board, assisted by the advisors of the company, should review the Boards role and duties with all new members of the Board of Directors with the main objective, among other things, of covering the legal and regulatory requirements and the principles enumerated in the Code of Corporate Governance.

The company should have a written “Appointment agreement” with each member of the Board of Directors which includes the directors powers and duties and possibly other matters relating to his appointment including his term, the time commitment envisaged, the committee assignment if any, his remuneration and expense reimbursement entitlement, and his access to independent professional advice when and if needed.

The Board should consider adopting a formal “Board Charter” or other statement specifying matters reserved to the Board. This should include, but need not be limited, to the specific items stated in the Company Law. An alternative is a formal statement or by-law stating the functions and authority delegated to the officers as mentioned in the Company Law. 

The Board should be collegial and deliberative, to gain the benefit of each member of the Board of Directors judgment and experience. The Chairman should take an active lead in promoting mutual trust, open discussion, constructive dissent and support for decisions after they have been made. The Board should meet frequently, usually and preferably more than the minimum required by law.

All members of the Board should attend the meetings, and the Board should maintain frequent informal communication between meetings. Unexcused absence(s) is not welcomed as it may disturb the functions of the Board of Directors and indicates that the person is not the type of those needed for efficient Board as stipulated in the Corporate Governance Code. Regarding attendance, more control measures are required and continuous unexcused absence could lead to termination of membership.

Commitment and accountability reflects the effectiveness of the Board and are essentially required and should be observed by all members of the Board, taking in account that they are supposed to excel and give good example “good idol” to all related parties in the company, the shareholders and community stakeholders. If you are a Board member, you need to ask yourself where you stand and are you effective enough to make your Board more effective, as required form all in the company. Always remember, you are a leader in a leading position and you are accountable for this.

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