1.2 Board structure and members

　　1.2.1 Composition and structure of board

　　<1>Composition

　　a. Chairman: Heading the board of directors and running the board.

　　b. Executive directors: Directors who responsible for the administration of a business.

　　c. Non-executive directors: Directors who do not hold any executive or management position in the company on addition to their role as a member of the board

　　<2>Attributes and skills of broad

　　a. Communication skills, listening, questioning, negotiating, etc

　　b. Decision-making and leadership (especially the chairman and the CEO)

　　c. Relevant expertise in industry, company, functional area and governance

　　d. General business knowledge

　　<3>Balance of board

　　a. Size, greater size can come greater opportunities for representation of varied views but difficult in operation and coherence of decision-making

　　b. Mix/diversity of expertise, male/female, experience, ethnic minorities

　　c. A balance of executive directors and independent NEDs so that no one can dominate the board’s decision making

　　<4>Unitary boards and Two – tier boards

Unitary boards	Two – tier boards
Signal board including EDs & NEDs	Supervisory board & management board
Advantages	Disadvantages
a. All directors have equal legal responsibility, that lead to more involved approach by NEDs and act in independent and supervisory capacity b. Independent directors included in decision-making and access to information, that lead to better decisions c. Presence of non-executive directors with different perspectives and viewpoint will lead to better decisions d. Single board lead to easier co-operation	a. Confusion over authority and therefore a lack of accountability b. Management board may restrict the information passed on to the supervisory board, two boards liaise infrequently c. Supervisory board may not be independent and decision-making may be restricted and delay
Disadvantages	Advantages
a. EDs and NEDs both manager and monitor, it may be too awkward and damage a task b. Time requirement for NEDs to attend meeting and obtain sufficient knowledge c. No specific provision for employees represented on the board may limited upwards communication d. Emphasis the divide between the shareholders and the directors, so shareholders can only make grievance and suggestions in general meetings	a. Clear and formal separation between the monitors and those being monitored b. Effective guard against management inefficiency or worse c. Take account of the needs of stakeholders encourage transparency within the company between boards, employees and shareholders

　　1.2.2 Broad members – chairman and CEO

　　<1>Chairman

　　a. Definition:

　　(a) Heading the board of directors/running the board; provide effectiveness inside and outside the board

　　b. Responsibilities:

　　(a) Running board and setting its agenda; focus on strategic matters and key issues

　　(b) Ensuring directors received accurate and timely information to take sound decisions

　　(c) Ensuring effective communication with shareholders, especially major investors

　　(d) Ensuring sufficient time to discuss critical issues, avoid unrealistic deadline

　　(e) Taking the lead in providing new directors’ introduction program, board development and appraisal

　　(f) Encouraging active engagement by all the members of the board

　　(g) Reporting of and signing in accounts

　　<2>CEO

　　a. Definition

　　(a) Leading the management team at and below level; running the business

　　b. Responsibilities

　　(a) Business strategy and management: proposing and developing the group’s strategy and overall commercial objectives, implementing the decisions of the board and its committees, developing the main policy statement, reviewing organization structure and operational performance

　　(b) Investment and financing analysis

　　(c) Risk management & internal control

　　(d) Make recommendations to board committees on remuneration policy, executive remuneration and terms of employment

　　<3>Division of responsibilities between chairman and CEO

　　There should be a clear division of responsibilities at the head of the company between chairman (running of the board) and CEO (running of the company’s business). The reasons are:

　　a. Avoid unfettered control of decision-making process

　　b. Both jobs are demanding roles and no one person can do both job well

　　c. The separation of roles avoids the risk of conflicts of interest

　　d. The board cannot make the CEO truly accountable for management if it is led by the CEO

　　e. Separation of the roles means that the board is more able to express its concerns effectively

　　f. The UK Combined Code also suggests that the CEO should not go on to become chairman of the same company

　　<4>Alternative arrangement

　　a. The UK Cadbury Report recommendation that if the posts were held by the same individual, there should be a strong independent element on the board with a recognized senior member.

　　b. The UK Higgs Report suggests that a senior independent NEDs should be appointed who would be available to shareholders who have concerns that have not been resolved through the normal channels.

　　1.2.3 Broad members – NEDs (no executive / managerial responsibilities)

　　<1>Purposes of NEDs

　　a. Provide a balancing influence

　　b. Play a key role in reducing conflicts of interest between management (including executive directors) and shareholders

　　c. Provide reassurance to shareholders (particularly institutional shareholders) that management is acting in the interests of organization.

　　<2>Role of NEDs – Higgs report

　　a. Strategy: contribute to, and challenge the direction of strategy, give appropriate advice

　　b. Scrutiny/performance: review the performance of management in meeting objectives, hold management accountable for its decisions taken and results obtained.

　　c. Risk: ensure company has adequate system of internal control and system of risk management in place.

　　d. People: appointment or removal of managers to ensure appropriate succession planning, determine remuneration and appraisals for executives, have an important and inescapable relationship with shareholders

　　<3>Number of NEDs

　　a. Cadbury report: ‘include NEDs of sufficient character and number for their views to carry significant weight’

　　b. New York stock exchange rules: a majority of non-executive directors (more than half the board)

　　c. Singapore code: at least a third of the board should be independent NEDs

　　<4>Independent of non-executive directors

　　a. Requirement of independence

　　(a) The board should include NEDs of sufficient caliber and number, and NEDs should be independent of management and free from financial and other relationship with the corporation

　　(b) It is vital that NEDs is and is seem to be independent

　　(c) The board should identify all independent NEDs in the annual report

　　b. Threats of independence

　　(a) Has been an employee of the group within the last five years

　　(b) Has had a material business relationship with the company within the last three years

　　(c) Received/receive additional remuneration apart from director’s fee; participates in company share option or performance-related pay scheme; or is a member of the company’s pension scheme

　　(d) Has close family ties with any of the directors, senior employees or advisers

　　(e) Holds cross-directorships/has significant links with other directors

　　(f) Represents a significant shareholder

　　(g) Has served on the board for more than ten years

　　c. Safeguards of independence

　　(a) No business, financial or other connection with the company, apart from reasonable fees

　　(b) No cross-directorships or cross-shareholdings (conflict of interest and threat to independence)

　　(c) No share option and pension scheme

　　(d) Appointments for a specified term and reappointment should be decided by the board

　　(e) Take independent advice

　　(f) Independent mind, exercise objective judgment in the best interests of the corporation

　　<5>Advantages of NEDs

　　a. External experience and knowledge which executive directors do not possess

　　b. Provide a wider assurance for third parties, let executive directors more involve in detail operations

　　c. Offer security and assurance for third parties (investors, creditors, etc)

　　d. Well-suit to play certain roles

　　(a)‘father-confessor’: being a confidant for the chairman and other directors

　　(b)‘oil-can’: intervening to make the board run more effectively

　　(c)‘high sheriff’: removing chairman or CEO when necessary

　　e. Dual nature (board member but objective); provide strong and independent element on the board; enable them to monitor the company’s affairs effectively

　　f. Compliance with corporate governance regulations and codes

　　<6>Problems of NEDs

　　a. Lack of independent

　　b. Prejudice in certain company that against recruitment widely

　　c. High-caliber NEDs prefer best-run companies rather than those needed

　　d. Lack of authority or persuasive skills, so difficult to impose their views upon boards

　　e. Limited time to take their responsibility

　　f. Not enough emphasis to the role of preventing trouble