The One-Tier Board (IVOR nr. 85) 2012/2.5.3:2.5.3 Definition of the roles of the board

The One-Tier Board (IVOR nr. 85) 2012/2.5.3

2.5.3 Definition of the roles of the board

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

While the Companies Act 2006 does not mention or describe the board Cadbury1 summarizes the functions of the board as:

a.

defining the company's purpose;

b.

agreeing on strategy;

c.

establishing the company's policies;

d.

appointing the executive directors, i.e. succession;2

e.

monitoring the executive team;

f.

assessing their own performance.

Of course, each company has a formal aim described in the articles of association mentioning the nature of the enterprise (manufacturing, trading, banking). The corporate aim is determined by the founders and sets the limits of what a company can do. Purpose is about developing the goals and the objectives of the company. What does the entrepreneur wish to achieve? The goal is the success of the company, its growth and profitability and usually describes what markets, and what financial targets will be met. Sometimes general aims are added, such as respect for the individual, giving the best customer service and pursuing tasks in a superior fashion.3 The strategy, in the narrow sense, could also be called "tactics" and concerns the company's short-term and long-term goals and the manner of their achievement, what is the core business, what should be disposed of, what should be acquired and how the resources should be allocated. Strategy looks into the future. The policies are about the manner of activity, the standards and values and look at present-day activity. Succession concerns the manner and practice of proposing new board members.

My collective term for the purpose, strategy, policies and succession and remuneration would be strategy in the wide sense.4 My definitions for the Dutch words "strategie" and "beleid" are that there is a "strategy" in the narrow sense, or tactics and that there is a "strategy" in the wide sense, also called "beleid", which is purpose, strategy policy and succession together. I draw this conclusion from the text of article 2.140/250, paragraph 2 ("beleid") and article 2.141/251 (information or "strategisch beleid") DCC in combination with the Frijns Code 11.1.2.

Higgs defines the role of the board as follows:

"The board is collectively responsible for promoting the success of the company by directing and supervising the company's affairs. The board 's role is to provide entrepreneurial leadership of the company within a framework of prudent and effectave controls which enable risk to be assessed and managed. The board should set the company's strategic aims, ensure that the necessaryfinancial and human resources are in place for the company to meet its objectives, and review management performance. The board should set the company's values and standards and ensure that its obligations to its shareholders and others are understood and met."5

In my view the words "entrepreneurial leadership" in the Higgs Review are very important. These words do not appear in any Dutch Code, regulation or opinion as being the task of supervisory directors. It is well known that more money is lost by sluggish leadership than by mistakes. This is an example worth considering for the Netherlands.6

In the CC6 and CC8 the following was added:

All directors must take decisions objectively in the interests of the company.

As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy. Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible. They are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, executive directors, and in succession planning.7

This text was copied from the definition in the Higgs Review of the role of the NED. Interestingly, the words "success of the company" have become a standard expression for defining the duty of directors in section 172 of the Companies Act 2006.

Patrick Dunne says:

"In running training sessions around the world over the past 15 years, I have found the following shorthand helpful when describing the role of a board and the purpose of board meetings:

Right strategy

Ensuring that the right strategy is in place and that it is being executed. Also ensuring that there is a good process in place for developing and monitoring strategy.

Right resources

Making sure that there are the appropriate resources in place to fit with the agreed strategy. The most important of these are people and money.

Keep out of jail

By this I mean that the board needs to ensure that the company complies with the appropriate laws and regulations relating to its industry and location. In other words, 'all the governance stuff ."8

In my view the words "constructively challenge and help develop proposals on strategy" in the UK Codes are a good text and a useful guidance for Dutch supervisory directors in a two-tier system or non-executive directors in a onetier system.

Deze functie is alleen te gebruiken als je bent ingelogd.