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Relations with shareholders

  • There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.
  • The board should use general meetings to communicate with investors and to encourage their participation.

Commitment

• All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively.

Development

• All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.

Information and Support

• The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties.

Evaluation

• The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors

Re-election

• All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.

In the United States, the Council for Institutional Investors24 provides its members with CG basics introductory guides, including how-to’s on proxy voting, securities litigation, and shareholder resolutions.

As has already been made clear, CG has several fundamental principles. First of all, leadership is a key factor. An effective board should direct every company and be collectively responsible for a company’s long-term success. Boards should steer the company to meet its business purpose in both the short and long terms. There should be a clear division of responsibilities between the running of the board and the running of the company’s business, and no one should have unrestricted decision powers. The chairman should be responsible for the leadership of the board, and nonexecutive directors should challenge boards effectively while helping with their company’s strategic direction. Significantly, capability and effectiveness matter greatly; the board and its committees should have an appropriate mix of experience, skills, and independence to empower their members to discharge their duties and responsibilities well. There should be a formal and transparent procedure for the appointment of new directors to the board. Directors should be nominated by the Nomination Committee, and the shareholders should vote for re-election of the directors at regular intervals, subject to continued satisfactory performance. It is also important that the board regularly evaluates its own performance as well as the performance of its committees and individual directors. Directors should devote adequate time to the company to comply effectively with their responsibilities and should regularly update and revive their skills and knowledge.

In terms of accountability, boards should communicate with shareholders and other stakeholders at regular intervals, in order to provide a balanced and clear assessment of how the company is achieving its business purposes and prospects. Such communication and dialogue should be based on a mutual understanding of objectives, and in that regard, the annual general meeting is an appropriate place for the board to communicate with shareholders and other investors and to encourage their involvement. Boards should assess the extent of the risks they intend to take in achieving their strategic objectives and should also observe sound risk management and internal control systems. It is also important that they establish formal and transparent arrangements in relation to corporate reporting, risk management, and internal control principles. Additionally, the level of remuneration is significant; the procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors should be formal, and no director should be involved in deciding his or her own remuneration. The levels of executive remuneration should be sufficient to attract, retain, and motivate directors of the quality needed to lead companies effectively, and companies should avoid paying more than is needed for this purpose. A large part of executive pay should be designed so as to link rewards to corporate and individual performance.

 
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