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Discuss the managerial role of Board of Directors (BoDs).  What in your opinion should be the managerial role of BoDs in the present context?  Explain giving examples.

1.   Discuss the managerial role of Board of Directors (BoDs).  What in your opinion should be the managerial role of BoDs in the present context?  Explain giving examples.

1.   Board of directors.

A group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues. Such issues include the hiring/firing of executives, dividend policies, options policies and executive compensation. Every public company must have a board of directors.
In general, the board makes decisions on shareholders' behalf. Most importantly, the board of directors should be a fair representation of both management and shareholders' interests; too many insiders serving as directors will mean that the board will tend to make decisions more beneficial to management. On the other hand, possessing too many independent directors may mean management will be left out of the decision-making process and may cause good managers to leave in frustration

A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet.
In an organization with voting members, e.g., a professional society, the board acts on behalf of, and is subordinate to, the organization's full assembly, which usually chooses the members of the board. In a stock corporation, the board is elected by the stockholders and is the highest authority in the management of the corporation. In a non-stock corporation with no general voting membership, e.g., a university, the board is the supreme governing body of the institution; its members are sometimes chosen by the board itself.
Typical duties of boards of directors include:
•   governing the organization by establishing broad policies and objectives;
•   selecting, appointing, supporting and reviewing the performance of the chief executive;
•   ensuring the availability of adequate financial resources;
•   approving annual budgets;
•   accounting to the stakeholders for the organization's performance.
•   setting their own salaries and compensation
The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types.
Typically the board chooses one of its members to be the chairman, who holds whatever title is specified in the bylaws.
The directors of an organization are the persons who are members of its board. Several specific terms categorize directors by the presence or absence of their other relationships to the organization.
An inside director is a director who is also an employee, officer, major shareholder, or someone similarly connected to the organization. Inside directors represent the interests of the entity's stakeholders, and often have special knowledge of its inner workings, its financial or market position, and so on.
Typical inside directors are:
•   A Chief Executive Officer (CEO) who may also be Chairman of the Board
•   Other executives of the organization, such as its Chief Financial Officer (CFO) or Executive Vice President
•   Large shareholders (who may or may not also be employees or officers)
•   Representatives of other stakeholders such as labor unions, major lenders, or members of the community in which the organization is located
An inside director who is employed as a manager or executive of the organization is sometimes referred to as an executive director (not to be confused with the title executive director sometimes used for the CEO position). Executive directors often have a specified area of responsibility in the organization, such as finance, marketing, human resources, or production.
An outside director is a member of the board who is not otherwise employed by or engaged with the organization, and does not represent any of its stakeholders. A typical example is a director who is president of a firm in a different industry.
Outside directors bring outside experience and perspective to the board. They keep a watchful eye on the inside directors and on the way the organization is run. Outside directors are often useful in handling disputes between inside directors, or between shareholders and the board. They are thought to be advantageous because they can be objective and present little risk of conflict of interest. On the other hand, they might lack familiarity with the specific issues connected to the organization's governance.
Recapping the terminology:
•   director - any member of the board of directors
•   inside director - a director who, in addition to serving on the board, has a meaningful connection to the organization
•   outside director - a director who, other than serving on the board, has no meaningful connections to the organization
•   executive director - an inside director who is also an executive with the organization. The term is also used, in a completely different sense, to refer to a CEO
•   non-executive director - a director who is not an executive with the organization
Individual directors often serve on more than one board. This practice results in an interlocking directorate, where a relatively small number of individuals have significant influence over a large number of important entities. This situation can have important corporate, social, economic, and legal consequences, and has been the subject of significant research


1. Diversity of the Board as a whole: it represents a variety of skills, experience, interests and professional and social backgrounds.
2. Structure: it is organized in such a way that individuals and committees assume a proper, active role in its functions.
3. Member Involvement: its members have  as a top priority of their volunteer commitment, demonstrate a high degree of interest in their role and responsibilities, and are genuinely concerned about the school's problems and prospects.
4. Knowledge: its members are well informed about the Outward Bound® School's operation and the social forces that are affecting service delivery.
5. Rapport: its members have mutual respect for each other regardless of differences of opinion and maintain a productive working relationship with each other.
6. Sensitivity: it is representative of, and sensitive to, different constituencies and viewpoints.
7. Sense of Priorities: its members are concerned with important and long-range issues not trivial matters.
8. Direction: its president is respected and is skilled in making certain that various points of view are expressed and satisfactory decisions are reached.
9. Strength: it is strong enough to achieve effective policy decisions.
10. Financial Support: it contains a reasonable number of members who obtain financial support for the school.
11. Board/Executive Director Relationship: it has a productive working relationship between the Executive Director and Board Members.
12. Accomplishment: it has a genuine sense of progress and achievement and members gain satisfaction from their services
Your board needs to have diversity. A great board has several members that all have different backgrounds and ways of thinking. This creates checks and balances for your board that will help with making decisions.
An important component for a great board is that it has some wealthy people on it. Rich people hang out with other rich people, and this can come in pretty handy when you need to raise a lot of money for your cause, especially at the beginning.
A great board is not just wealthy, but they have a lot of passion and belief in what your nonprofit does. They need to believe in your cause as much as you do. They must know that what they are doing is making a positive difference in the community and world.
This goes back to what I said about how rich people hang out with other rich people. You need to make sure that your board members are great networkers. They need to be able to go to make good contacts, build rapport with people, and make friends. This seems easy, but not very many people have this ability.
17."Can-Do Attitude"
And most important of all, they need to have a "Can Do" attitude. They need to be positive, optimistic, and enthusiastic about your nonprofit. They must be able to look at problems and challenges and be able to find a way to overcome them.
These  characteristics all seem pretty simple, but to find a board of directors where every member has all of these is very rare. An important point about finding people who have these characteristics is that you first have to be a person that has them. You aren't going to be able to recruit these people for your board, if you first don't practice them yourself.

role of board of directors.

ROLE  of boards of directors include:
•   governing the organization by establishing broad policies and objectives;
•   selecting, appointing, supporting and reviewing the performance of the chief executive;
•   ensuring the availability of adequate financial resources;
•   approving annual budgets;
•   accounting to the stakeholders for the organization's performance.
•   setting their own salaries and compensation
The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types.
The Role of the Board of Directors

The role of the board of directors in enterprise-wide risk oversight has become increasingly
challenging as expectations for board engagement are at all time highs.

Risk is a pervasive part of
everyday business and organizational strategy. But, the complexity of business transactions, technology
advances, globalization, speed of product cycles, and the overall pace of change have increased the volume
and complexities of risks facing organizations over the last decade. With the benefit of hindsight, the global
financial crisis and swooning economy of 2008 and the aftermath thereof have shown us that boards have a
difficult task in overseeing the management of increasingly complex and interconnected risks that have the potential to devastate organizations overnight. At the same time, boards and other market participants are
receiving increased scrutiny regarding their role in the crisis. Boards are being asked – and many are asking
themselves – could they have done a better job in overseeing the management of their organization’s risk
exposures, and could improved board oversight have prevented or minimized the impact of the financial
crisis on their organization?
Clearly, one result of the financial crisis is an increased focus on the effectiveness of board risk oversight
practices. The New York Stock Exchange’s corporate governance rules already require audit committees of
listed corporations to discuss risk assessment and risk management policies. Credit rating agencies, such as
Standard and Poor’s, are now assessing enterprise risk management processes as part of their corporate
credit ratings analysis. Signals from some regulatory bodies now suggest that there may be new regulatory
requirements or new interpretations of
existing requirements placed on boards
regarding their risk oversight
responsibilities. More importantly, while
business leaders know organizations must
regularly take risks to enhance stakeholder
value, effective organizations recognize
strategic advantages in managing risks.

Treasury Department s are
considering regulatory reforms that would
require compensation committees of public
financial institutions to review and disclose
strategies for aligning compensation with
sound risk-management. While the focus
has been on financial institutions, the link
between compensation structures and risk-
taking has implications for all
organizations. Governements  indicated potential new
regulations may be emerging for greater
disclosures about risk oversight practices of
public companies. the SEC
issued its first set of proposed rules that would expand proxy disclosures about the impact of compensation
policies on risk taking and the role of the board in the company’s risk management practices. Legislation has
also been introduced in Congress that would mandate the creation of board risk committees.
"…….I want to make sure that shareholders fully
understand how compensation structures and
practices drive an executive's risk-taking.
The Commission will be considering whether greater
disclosure is needed about how a company — and
the company's board in particular — manages
risks, both generally and in the context of setting
compensation. I do not anticipate that we will seek to
mandate any particular form of oversight; not only is
this really beyond the Commission's traditional
disclosure role, but it would suggest that there is a
one-size-fits-all approach to risk management.
Instead, I have asked our staff to develop a proposal
for Commission consideration that looks to providing
investors, and the market, with better insight into
how each company and each board addresses these
vital tasks."
The challenge facing Boards is how to effectively oversee the organization’s enterprise-wide risk
management in a way that balances managing risks while adding value to the organization.

Although some organizations have employed sophisticated risk management processes, others have managed risks
informally or on an ad hoc basis. In the aftermath of the financial crisis, executives and their boards realize
that ad hoc risk management is no longer tolerable and that current processes may be inadequate in today’s
rapidly evolving business world. Boards, along with other parties, are under increased focus due to the
widely-held perception that organizations encountered risks during the crisis for which they were not
adequately prepared.
Increasingly, boards and management teams are embracing the concept of enterprise risk management
(ERM) to better connect their risk oversight with the creation and protection of stakeholder value. ERM is
a process that provides a robust and holistic top-down view of key risks facing an organization.

enterprise risk management (ERM)
In today’s environment, the adoption of ERM may be the most effective and attractive way to meet ever
increasing demands for effective board risk oversight. If positioned correctly within the organization to
support the achievement of organizational objectives, including strategic objectives, effective ERM can be a
value-added process that improves long-term organizational performance. Proponents of ERM stress that
the goal of effective ERM is not solely to lower risk, but to more effectively manage risks on an enterprise-
wide, holistic basis so that stakeholder value is preserved and grows over time. Said differently, ERM can
assist management and the board in making better, more risk-informed, strategic decisions.
An entity’s board of directors plays a critical role in overseeing an enterprise-wide approach to risk
management. Because management is accountable to the board of directors, the board’s focus on effective
risk oversight is critical to setting the tone and culture towards effective risk management through strategy
setting, formulating high level objectives, and approving broad-based resource allocations.

Enterprise Risk Management – Integrated Framework highlights four areas that contribute to board
oversight with regard to enterprise risk management:
• Understand the entity’s risk philosophy and concur with the entity’s risk appetite. Risk appetite is
the amount of risk, on a broad level, an organization is willing to accept in pursuit of stakeholder value.
Because boards represent the views and desires of the organization’s key stakeholders, management
should have an active discussion with the board to establish a mutual understanding of the organization’s
overall appetite for risks.
• Know the extent to which management has established effective enterprise risk management of
the organization. Boards should inquire of management about existing risk management processes and
challenge management to demonstrate the effectiveness of those processes in identifying, assessing, and
managing the organization’s most significant enterprise-wide risk exposures.

Enterprise risk management is a process, effected by the entity’s board of directors,
management, and other personnel, applied in strategy setting and across the enterprise,
designed to identify potential events that may affect the entity, and manage risk to be within the
risk appetite, to provide reasonable assurance regarding the achievement of objectives
• Review the entity’s portfolio of risk and consider it against
the entity’s risk appetite. Effective board oversight of risks is
contingent on the ability of the board to understand and assess an organization’s strategies with risk exposures. Board agenda time and information packets that integrate strategy and operational initiatives with enterprise-wide risk exposures strengthen the ability of boards to ensure risk exposures are
consistent with overall appetite for risk.
• Be apprised of the most significant risks and whether
management is responding appropriately.
Risks are
constantly evolving and the need for robust information is of high demand. Regular updating by
management to boards of key risk indicators is critical to effective board oversight of key risk exposures
for preservation and enhancement of stakeholder value.
Boards of directors often use board committees in carrying out certain of their risk oversight duties. The use
and focus of committees vary from one entity to another, although common committees are the audit
committee, nominating/governance committees, compensation committees, with each focusing attention on
elements of enterprise risk management. While risk oversight, like strategy, is a full board responsibility,
some companies may choose to start the process by asking the relevant committees to address risk oversight
in their areas while focusing on strategic risk issues in the full board discussion.
While ERM is not a panacea for all the turmoil experienced in the markets in recent years, robust
engagement by the board in enterprise risk oversight strengthens an organization’s resilience to
significant risk exposures. ERM can help provide a path of greater awareness of the risks the
organization faces and their inter-related nature, more proactive management of those risks, and more
transparent decision making around risk/reward trade-offs, which can contribute toward greater likelihood
of the achievement of objectives.
Below are four governance models. The board of directors must decide which model is best for them.
1) Manager Focus – With this model, the manager dominates the board. We can all think of situations where we have had one dominant individual in a group. In this case the board functions are an advisory board and reacts to the views of the manager. It is essentially a “rubber stamp” for the CEO. This model often emerges when you have a charismatic CEO who is very dominant and proactive in running the organization. In most cases this is not a good model for a value-added business.
2) Proactive Board – This model is of a proactive board that speaks as one voice. It speaks as one voice for the board and often has a proactive manager that also speaks with one combined voice for the organization. This is a good model because the manager and the board are on the same page and speak with a single voice. This model is proactive in taking advantage of emerging opportunities and is especially valuable for entrepreneurial businesses.
3) Geographic Representation – This model focuses on the members/investors whom the board member represents. With this model, the board member feels that he/she has been elected to the board to represent individuals in a geographic location or special interest group. To better understand this model, think of an individual running for a political office and then representing the interests of the individuals located in that geography. This is often found in large boards, typically of 24 to 50 individuals. With a large group like this there is a temptation for the directors to represent the interests of the members/investors in their geographic area or special interest group rather than the best interests of the company. This is not a model that works well for most value-added businesses.
4) Community Representation – In this situation the board member is representing the community rather than the organization. An example of this is a school board where an individual is elected to represent certain interests within the community.
These four models are ways in which the board and its organization function. Often you have directors who have previously been on boards where they have been chosen to represent a certain group or have been a rubber stamp for the manager. So it is natural for a director to think that this is how all boards function. But it is a good practice for boards to actively investigate and discuss the models presented above and choose the right one for their situation. This is usually a model where the directors are all active and present a single voice of what is best for the organization. What is best for the organization will usually also be good for the various members/investors and the stakeholders in the community.
•   review with management the company’s risk appetite and risk tolerance, the ways in which risk is measured on an aggregate, company-wide basis, the setting of aggregate and individual risk limits (quantitative and qualitative, as appropriate), the policies and procedures in place to hedge against or mitigate risks, and the actions to be taken if risk limits are exceeded;
•   review with management the categories of risk the company faces, including any risk concentrations and risk interrelationships, as well as the likelihood of occurrence, the potential impact of those risks and mitigating measures;
•   review with management the assumptions and analysis underpinning the determination of the company’s principal risks and whether adequate procedures are in place to ensure that new or materially changed risks are properly and promptly identified, understood and accounted for in the actions of the company;
•   review with committees and management the board’s expectations as to each group’s respective responsibilities for risk oversight and management of specific risks to ensure a shared understanding as to accountabilities and roles;
•   review the company’s executive compensation structure to ensure it is appropriate in light of the company’s articulated risk appetite and to ensure it is creating proper incentives in light of the risks the company faces;
•   review the risk policies and procedures adopted by management, including procedures for reporting matters to the board and appropriate committees and providing updates, in order to assess whether they are appropriate and comprehensive;
•   review management’s implementation of its risk policies and procedures, to assess whether they are being followed and are effective;
•   review with management the quality, type and format of risk-related information provided to directors;
•   review the steps taken by management to ensure adequate independence of the risk management function and the processes for resolution and escalation of differences that might arise between risk management and business functions;
•   review with management the design of the company’s risk management functions, as well as the qualifications and backgrounds of senior risk officers and the personnel policies applicable to risk management, to assess whether they are appropriate given the company’s size and scope of operations;
•   review with management the means by which the company’s risk management strategy is communicated to all appropriate groups within the company so that it is properly integrated into the company’s enterprise-wide business strategy;
•   review internal systems of formal and informal communication across divisions and control functions to encourage the prompt and coherent flow of risk-related information within and across business units and, as needed, the prompt escalation of information to management (and to the board or board committees as appropriate); and
•   review reports from management, independent auditors, internal auditors, legal counsel, regulators, stock analysts, and outside experts as considered appropriate regarding risks the company faces and the company’s risk management function.
In addition to considering the foregoing measures, the board may also want to focus on identifying external pressures that can push a company to take excessive risks and consider how best to address those pressures. In particular, companies have come under increasing pressure in recent years from hedge funds and activist shareholders to produce short-term results, often at the expense of longer-term goals. These demands may include steps that would increase the company’s risk profile, for example through increased leverage to repurchase shares or pay out special dividends, or spinoffs that leave the resulting companies with smaller capitalizations. While such actions may make sense for a specific company under a specific set of circumstances, the board should focus on the risk impact and be ready to resist pressures to take steps that the board determines are not in the company’s or shareholders’ best interest.


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Leo Lingham


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