Board Functions & Duties Study Guide PDF

Board Functions & Duties PROFESSOR RICHARD POWERS PROFESSOR MICHAEL PARENT Academic Directors Directors Education Program Rotman School of Management University of Toronto Does Corporate Governance generate value? What do institutional investors think?...

Board Functions & Duties PROFESSOR RICHARD POWERS PROFESSOR MICHAEL PARENT Academic Directors Directors Education Program Rotman School of Management University of Toronto Does Corporate Governance generate value? What do institutional investors think? YES Probably 1 2 3 4 5 6 7 8 9 10 Source: Institutional Shareholders Services (ISS) Investors Public Equity Holdings (end 2022) (Source OECD) Canada is leading the charge in corporate governance best practices…WHY? Over 50 members representing significant investors in Canada But there are still some work to do… 2023 Board Games Scores 22nd Edition 117 5 40 35 35 34 30 27 Number of companies 25 68 21 21 20 19 15 12 12 11 10 7 5 5 5 1 1 0 1-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 66-70 71-75 76-80 81-85 86-90 91-95 96-100 Score – Rotman School of Management – David Beatty Partnerships with 11 universities across Canada Over 8500 graduates to date  Types of Boards Public Private Family Not-for-Profit Agencies, Boards and Commissions (ABCs) Advisory Boards PUBLIC BOARDS Characteristics of Public Boards PRIVATE BOARDS Private Boards often include the Founders and Investors Challenges of Private, PE and Institutional Investor Boards Conflicts with Agency Fiduciary Principle Responsibilities FAMILY BOARDS Characteristics of Family Boards Family Equity Succession Members v Ownership v Planning Independents Votes NOT-FOR-PROFIT BOARDS Characteristics of NFP Boards CEO/ Executive Founders Donors Benefactors Director Representative Charitable v Independence v Skills Based Administrative Differences v For-Profit Boards Size (Fundraising Component) Working v Governance Boards Resources Remuneration AGENCIES, BOARDS AND COMMISSIONS (ABCs) Characteristics of Crown Boards Single Appointments Political Shareholder – are Orders in CEO Selection Appointments the Government Council Skills Based Independence Remuneration  Not a Fiduciary Board Non-Binding on CEO Advisory Boards Often Includes Investors, Friends Skills-Based Prelude to Formal Fiduciary Board  Hindsight Board Functions Oversight (David Beatty) Foresight  Hindsight Audit AGM Oversight 3 Lines of Sight Management Policies (David Beatty) Planning and Monitoring Strategic Plan Organizational Culture Foresight Risk Evaluation Succession (CEO and Board) The Information Chasm ASK BETTER QUESTIONS! The CEO’s Job Unlike any other executive, the CEO must engage with a wide array of constituencies: Shareholders, investors, regulators, customers, employees, the board, media, government, community organizations, the public, and many other stakeholders. They are the internal and external face of the organization, in good times and bad. For the first time in their careers, they have a group of bosses (the board), not just one. Their scarcest resource is time...the job is all-consuming.  How CEOs spend their time 10 hours per day on average / 62.5 hours per week. 80% of weekend days, and 70% of vacation days. ~half the time at HQ, half the time in other locations. Slept on average 7 hours a night, exercised for 45 minutes. Most work is face-to-face: 61% of all interactions. 15% on phone, reading, or writing. 24% on electronic communications. ~72% of work time in meetings. 5% of the time (~40 hours per quarter) with the Board & Directors.  Experience / General 4 ability Execution skills Characteristics that Predict a CEO Charisma / Strategic interpersonal skills skills Dambisa Moyo: THREE other questions to ask: 1. Will you attest to your past behavior? Is there anything in your past that could embarrass us? 2. What is the worst thing you have ever done to another human being? 3. How would you navigate a specific moral or ethical dilemma?  Arrogance – you think you’re right and everyone else is wrong. Melodrama – you need to be the center of attention. Volatility – you’re subject to mood swings. Excessive Caution – you’re afraid to make decisions. Habitual Distrust – you focus on the negatives. Aloofness – you’re disengaged and disconnected. Mischievousness – you believe that rules are made to be broken. Eccentricity – you try to be different just for the sake of it. Passive Resistance – what you say is not what you really believe. Perfectionism – you get the little things right and the big things wrong. Eagerness to Please – you try to win the popularity contest. Top reasons for involuntary/premature termination of the CEO Illegal behavior Interpersonal problems and/or inappropriate behaviors Indecision, decision deadlocks and crises. Overconfidence. Illness / death. Poor financial performance. Lack of clear, mutually-identified and agreed-upon performance goals. So how do you add value as a Director? Well…that’s exactly what the next 11 days are all about! Thank You!