October 2003
1. General Comments
- State and federal laws mandate certain actions and conduct by a company’s Board of directors
and executive offices.
- When there is no law which mandates a specific action for a particular situation, decision, function or
conduct, then a discretionary decision and choice must be made by the company’s Board or officers as
to how best to act. In many situations, there are several alternative choices available, and no one choice
is necessarily the only “right” choice or the “best” choice. What is the best choice
for one company may not be the same best choice for another company. “Corporate governance best
practices” is the concept and process of the Board making the discretionary choice and decision,
for the best interest of the company and its shareholders.
- A company needs to have a Board of Directors which is actively engaged in hiring key management
personnel, setting policies and goals, overseeing the implementation of policies and goals, and making
major decisions.
- It is up to the company’s Board to establish the “best” Board structure and Board
operations to enable the Board to best perform its role, for the benefit of the company and its
shareholders. Again, what is the best structure and operations for one company’s Board may not be
the best way for another company’s Board to be structured and operated.
- The following outline identifies many of the topics, areas and functions which the Board should undertake
and perform, in order to be structured and to operate most effectively for the company.
2. Board of Directors Role
and Functions
- Ultimate control.
- Establishment of major policies and goals for company.
- Oversight as to company’s implementation and performance of company’s policies and goals.
- Select, evaluate and compensate company’s CEO and other top executives.
- Understand, make inquiry, and give guidance as to company’s strategic plan and annual business plan
and budget, and the implementation and performance of such plans and budget.
- Oversee company’s long range planning, business focus, and CEO’s succession planning.
3. Policies to be Established
by Board of Directors
- Code of ethics/conduct.*
- Senior officer code of ethics. *
- Insider trading compliance policy. *
- Whistle blowing policy.*
- Regulation FD disclosure policy. *
- Asset protection policy – confidentiality, computer security, document retention, etc.
* required for public company
4. Committees Appointed by
Board of Directors
- Audit Committee (3 independent directors; financial expertise)
- Compensation Committee (independent directors)
- Corporate Governance Committee (independent directors)
- Special Committee (e.g., management leveraged buy out; conflict of interest situation; to analyze
and make recommendations concerning a specific project; etc.)
- Each Committee to operate pursuant to a Charter, approved by the Board.
5. Composition and Operation of
Board of Directors
- Establish right size.
- Have appropriate areas of expertise on the Board
- Have appropriate number of independent directors (at least a majority).
- Have designated leadership (e.g., if an employed Chairman of the Board, then have a lead director
or presiding director for executive session).
- Have appropriate frequency of Board meetings (e.g., bi monthly or quarterly).
- Have appropriate duration of Board meeting (e.g., half day or all day).
- Have appropriate written materials for Board meeting (e.g., meeting agenda and Board booklet be circulated
a week in advance; directors review materials in advance of the meeting, etc.).
- Have opportunity for directors to have advance input as to the meeting agenda.
- Have independent/outside directors meet privately (excluding employed directors) during a portion of the
Board meeting.
6. Disclosure Information for
Investors
- Private company: Complete and accurate financial statements (annual and quarterly); annual company
report (business focus, progress, plans, management personnel, financial needs, etc.)
- Public company: Compliance with SEC filing requirements and stock exchange requirements as to financial
reports, quarterly and annual reports, 8K events, press releases, officers’ certifications,
Regulation FD disclosures, insider trading reporting, disclosure controls policy, audit committee oversight,
code of conduct/ethics exception reporting, and special disclosures required by Sarbanes Oxley Act).
Provided By DLA Piper