the roles and responsibilities of 21 st century directors

The Roles and Responsibilities of 21st Century Directors

John F. LevyBoard Advisory(O): (908) 518-0781(O): (201) [email protected]

Back in the Day◦Was Ceremonial

Sarbanes Oxley◦Then Compliance

New World Order◦Now Competitive Advantage

John F. LevyBoard Advisory

www.BoardAdvisory.net 2

Creating a Competitive Advantage

Dutch East India Trading Company

Need for CapitalLimited InvestorsDirect contact between managers and investors

More shareholdersJohn F. Levy

Board Advisorywww.BoardAdvisory.net 3

History of Directors

Comes from the Latin fides, meaning faith, and, and fiducia, meaning trust.

Act at all times for the sole benefit and interests of another,.

Highest standard of care at either equity or law.

Highlighted by good faith, loyalty and trust.



Fiduciary

Director duties are governed by the corporate law of the state of incorporation.

Under Delaware law the business is managed by or under the direction of the Board of Directors.

In this capacity, members of the Board serve as fiduciaries of the Company and its shareholders.



Duties of Directors

The Duty of CareThe Duty of LoyaltyThe Duty of Disclosure



Directors’ Fiduciary Duties

Directors do not act in good faith when there is:

fiduciary conduct motivated by an actual intent to do harm;

“gross negligence”; or intentional dereliction of duty.



Good Faith

The courts will not second guess directors’ decisions if the directors can demonstrate that they complied with the duties of care, loyalty and disclosure in good faith.



Business Judgment Rule

A full, complete and considered process

Consider utilizing legal, financial and other expert advice

Complete agendas Materials in advance of meetings Sufficient time for discussion Complete minutes



Documenting Board Compliance

Set StrategyUnderstand RiskMonitor ExecutionSelect, Assess, Evaluate and Compensate the CEO

Comply with Laws and Regulations



The Role of the Board

Tough times require additional Board involvement attention

Government, shareholders and activists are watching

Board are focused on RiskCash forecasting and management are Board issues John F. Levy


Director’s Immediate Concerns

Board Chairperson or Lead Director

Governance CommitteeCompensation CommitteeAudit CommitteeOther Committees



Board Structure and Committees

ShareholdersBoard of Directors

Chairman/Lead Director

Governance and

Nominating Committe

e

Compensati

on Committe

e

Audit Committe

e

Internal Audit

CEO

Management and

EmployeesJohn F. Levy


Typical Company Structure

Each Committee is responsible to a Charter.

The Charter lists the responsibilities and expectations of each committee.

Charters may be detailed or broad.

Charters are typically available on company websites or in public filings.



Board Charters

Public companies must disclose:

Audit committee financial expert by name,

Independence, If no expert the public company

must disclose this fact and explain why.



Financial Expert

An understanding of: GAAP and the ability to assess

the general application GAAP; Internal controls and

procedures for financial reporting; and

Audit committee functions. John F. Levy


Financial Expert(continued)

Must have obtained by : principal financial officer, principal accounting officer, controller, public accountant or auditor or similar or actively supervision;

oversee or assess the performance of companies or public accountants;

or other relevant experience.John F. Levy


Financial Expert(continued)

NONE

Higher Standard



Additional Responsibilities of the Audit Committee Financial

Expert

Annual Board evaluation◦Entire Board◦Each Director

Skills Assessment ◦Skills Required◦Skills of Existing Board

Board Dynamics◦Big Name - Small Company◦Team Players◦Building Consensus



Assessing and Building a Board

On Boarding◦The Company◦The Industry◦The Role of Board Members◦Committee Responsibilities and Committee Charters

Ongoing Training◦Keeping Current◦New Committee Assignments◦Ongoing Education



Training Issues

Tone at the TopContinuing role with the Company

See the “big picture” IndependentAdults in the room



Why Board Members are Responsible for Ethics

Failure to see ethical issueNot trained to look for ethical issues

Don’t want to “rock the boat”Close relationships with CEOsShort-term focus



Why Boards Fail Ethically

Healthy relationships, personal, professional and business, are built on trust.

Unethical behavior violates our trust.



Ethics is Good Business

Must become a competitive advantage Under Delaware law, fiduciaries for the

shareholders Protected by the business judgment rule Primary role must be to set strategy Improve selection process and training Potential to create great wealth, job

creation and innovation. Work hard, faithfully and diligently and

make ethical decisions to stop repeating past mistakes.



Conclusion

the roles and responsibilities of 21 st century directors

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