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The board of directors is a group of individuals elected by the shareholders of a company to oversee the management of the company and make strategic decisions on its behalf. The board is responsible for setting the overall direction and policy of the company, and for ensuring that the company’s management is operating in the best interests of the shareholders.

The roles and responsibilities of the board of directors include:

  1. Setting the overall strategy and direction of the company
  2. Approving major business decisions and transactions
  3. Overseeing the performance of the management team
  4. Ensuring that the company is compliant with relevant laws and regulations
  5. Approving the company’s financial statements and budget
  6. Appointing and removing members of the management team
  7. Setting the compensation and performance objectives for the management team

Non-executive directors are members of the board of directors who are not part of the company’s management team. They are often brought onto the board to provide independent perspective and expertise, and to act as a “sounding board” for the management team.

The roles and responsibilities of non-executive directors include:

  1. Providing independent perspective and expertise to the board
  2. Acting as a “sounding board” for the management team
  3. Assisting with the selection and appraisal of the CEO
  4. Monitoring the performance of the management team
  5. Reviewing and approving major business decisions and transactions

Advantages & disadvantages of non-executives directors

There are both advantages and disadvantages to having non-executive directors on the board. Some of the advantages include:

  1. Improved independence and objectivity: Non-executive directors are not part of the company’s management team and are not involved in the day-to-day operations of the company. This allows them to provide an independent perspective and to challenge the assumptions and decisions of the management team.
  2. Enhanced expertise: Non-executive directors bring a range of expertise and experience to the board, which can be beneficial in making informed decisions.
  3. Improved governance: Non-executive directors can help to improve the governance of the company by providing oversight and ensuring that the company’s management is acting in the best interests of the shareholders.

Some of the disadvantages of non-executive directors include:

  1. Limited influence: Non-executive directors do not have the same level of influence as executive directors and may not be able to directly impact the day-to-day operations of the company.
  2. Limited accountability: Non-executive directors do not have the same level of accountability as executive directors and may not be held responsible for the performance of the company.
  3. Conflicts of interest: Non-executive directors may have conflicts of interest due to their other business or personal relationships, which could impact their ability to act in the best interests of the company.

Differences between chairman & CEO

The chairman and the CEO are two key leadership positions within a company. The chairman is responsible for overseeing the board of directors and for ensuring that the board is functioning effectively. The CEO is responsible for managing the day-to-day operations of the company and for implementing the strategy and policies set by the board.

There are different approaches to the roles of the chairman and CEO. In some cases, the roles are combined and held by the same individual. In other cases, the roles are split, with the chairman and CEO being two separate individuals.

Splitting roles of chairman & CEO

There are both advantages and disadvantages to splitting the roles of chairman and CEO. Some of the advantages of splitting the roles include:

  1. Improved independence: Splitting the roles allows for greater independence between the board of directors and the management team, which can improve oversight and decision-making.
  2. Enhanced expertise: Splitting the roles allows for the appointment of individuals with different expertise and experience, which can bring a range of perspectives to the table.
  3. Improved accountability: Splitting the roles allows for clearer lines of accountability, with the CEO being responsible for the day-to-day operations of the company and the chairman being responsible for overseeing the board.

Some of the disadvantages of splitting the roles include:

  1. Confusion: Splitting the roles can lead to confusion about who has ultimate authority and responsibility within the organisation.
  2. Increased costs: Splitting the roles may result in higher costs, as two individuals will need to be compensated for their roles rather than one.
  3. Reduced efficiency: Splitting the roles may result in reduced efficiency, as there may be overlap or duplication of effort between the chairman and CEO.

Board committees

Board committees are subgroups of the board of directors that are responsible for specific areas of oversight and decision-making. Board committees can help to improve the efficiency and effectiveness of the board by allowing for more in-depth focus on specific issues.

Nominations committee

Some of the main activities and responsibilities of the nominations committee include:

  1. Identifying and evaluating potential candidates for the board of directors
  2. Making recommendations to the board regarding the appointment of new directors
  3. Reviewing the composition and effectiveness of the board

Remuneration committee

Some of the main activities and responsibilities of the remuneration committee include:

  1. Setting the compensation and performance objectives for the management team
  2. Reviewing and approving the compensation packages for the management team
  3. Ensuring that the company’s compensation practices are aligned with its overall business strategy

Director’s remuneration package

The components of a director’s remuneration package may include:

  1. Salary: This is the base payment received by directors for their services.
  1. Bonus: Directors may be eligible for a bonus based on the performance of the company or on their individual performance.
  2. Stock options: Directors may be granted stock options, which give them the right to purchase company stock at a discounted price in the future.
  3. Restricted stock: Directors may be granted restricted stock, which is company stock that is subject to certain vesting conditions.
  4. Other benefits: Directors may also receive other benefits such as healthcare coverage, travel expenses, and retirement benefits.

Non-executive director’s remuneration package

The components of a non-executive director’s remuneration package may include:

  1. Fee: Non-executive directors may be paid a fee for their services, which may be based on the number of meetings attended or the time spent on board-related activities.
  2. Equity: Non-executive directors may be granted stock options or restricted stock as part of their compensation package.
  3. Other benefits: Non-executive directors may also receive other benefits such as healthcare coverage, travel expenses, and retirement benefits.

Summary

In summary, the board of directors is responsible for overseeing the management of the company and making strategic decisions on behalf of the shareholders. Non-executive directors are members of the board who are not part of the company’s management team and are brought onto the board to provide independent perspective and expertise. There are both advantages and disadvantages to having non-executive directors on the board, and the roles of chairman and CEO can be combined or split depending on the needs of the organisation. Board committees are subgroups of the board that are responsible for specific areas of oversight and decision-making, and the components of a director’s remuneration package may include salary, bonus, stock options, restricted stock, and other benefits. The components of a non-executive director’s remuneration package may include a fee, equity, and other benefits.

Whether a CEO or chairman, a director or non-executive director, all roles require leadership skills.

This content can be used as part of the Strategic Business Leader (SBL) module for the Association of Chartered & Certified Accountants (ACCA) examination.
Click here to read more tips & content covered in the Strategic Business Leader module.
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