ACCA SBL Syllabus B. Governance - Board Of Directors - Notes ^{1 / 12}

Roles and Responsibilities

1. Provide entrepreneurial leadership

2. Represent company view and account to the public

3. Determine the company’s mission and purpose

4. Select and appoint the CEO, chairman and other board members

5. Establish appropriate internal controls

6. Ensure that the necessary financial and human resources are in place

7. Ensure that its obligations to its shareholders and other stakeholders are understood and met

8. Set the company's strategic aims

In the UK listed companies have to state in their accounts that they comply with the following regulations:

1. Separate MD & chairman

2. Minimum 50% non executive directors
   (NEDs)

3. Independent chairperson

4. Maximum one-year notice period

5. Independent NEDs (three-year contract, no share options)

This is the single board structure with sub-committees.

This is where all directors, including managing directors, departmental directors and NEDs all have equal legal and executive status in law.

This does not mean that all are equal in terms of the organisational hierarchy, but that all are responsible and can be held accountable for board decisions.

Advantages

1. NEDs are empowered, being accorded equal status to executive directors.

2. The presence of NEDs can bring independence, experience and expertise

3. Board accountability is enhanced as all directors are held equally accountable under a ‘cabinet government’ arrangement

4. Reduced likelihood of abuse of power by a small number of senior directors

5. Often larger than a tier of a two-tier board so more viewpoints are expressed and more robustly scrutinised

6. All participants have equal legal responsibility for management of the company and strategic performance

Disadvantages

1. A NED or independent director can not be expected to both manage and monitor

2. The time requirement on NEDs may be onerous

Two-­tier boards

The board is split into multi-tiers, separating the executive from directors.

These are predominantly associated with France and Germany.

This two-tier approach can take the form of a:

• Management or executive board

  Responsible for managing the enterprise with the CEO to co­ordinate activity.

  Responsible for the running of the business.
  Composed entirely of executive directors.

• Supervisory board 
  Appoints, supervises and advises members of the management board. 

  A separate chairman co­ordinates the work and members are elected by shareholders at the AGM

  Has no executive function.

  It reviews the company's strategy.

Advantages of 2-tier boards

1. Clearly management and owners separation

2. Clear stakeholder involvement

3. Separate meetings means freedom of expression

4. Owners control management by power of appointment