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Karl
Senior Member
USA
914 Posts |
 Posted - Apr 10 2005 : 12:57:43 AM
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Board members must be adequately paid
John L Thompson
Saturday, April 09, 2005
John L Thompson
At the very pinnacle of the decision-making process in a company sits the board of directors. Although the owners of the company are the shareholders, they are far removed from the serious decision-making process because they meet as a group usually only once a year at the annual general meeting (AGM). The board comprises people selected by the shareholders and elected for a term at the AGM. It has the job of deciding the company's leadership and direction and must report annually through the chairman to the shareholders in the annual report and financial statements issued prior to the AGM. The shareholders expect that the company will be properly run and make a profit to give them adequate returns on their investments.
Responsibility
It is the duty of the board of directors to run the company profitably for the benefit primarily of the shareholders, and secondarily, the other stakeholders such as the employees, lenders, creditors and suppliers. Each director owes his tenure to the success of the enterprise. The Companies Act 2004 has placed major responsibilities for the integrity of a company on its board of directors. Section 174 of the Act states:
"(1) Every director and officer of a company in exercising his powers and discharging his duties shall -
(a) act honestly and in good faith with a view to the best interest of the company; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, including, but not limited to the general knowledge, skill and experience of the director or officer." .
"(4) In determining what are the best interests of the company, a director or officer may have regard to the interests of the company's shareholders and employees and the community in which the company operates."
If these duties and responsibilities are not discharged or are performed negligently, the law imposes major sanctions on those found in breach. Additionally, the shareholders may seek redress in court against directors who perform negligently.
Quality
The quality of the decisions of the directors depends on the quality of the people making those decisions. Therefore, the company must have good quality people as its directors who can be relied on to take full responsibility for the business and make good quality decisions. And it's well known that good quality people do not come cheap.
The Code of Corporate Governance that has been drafted by the Corporate Governance Committee of the Private Sector Organisation of Jamaica (PSOJ) states at Principle B 1:
"Levels of remuneration should be sufficient to attract, retain and motivate the directors of the quality required to run the company successfully, but companies should avoid paying more than is necessary for this purpose. A proportion of executive directors' remuneration should be structured so as to link rewards to corporate and individual performance."
Low fees
It might surprise most people in business that the fees paid at present to non-executive directors in both the private and public sectors in Jamaica are scandalously low. Directors' fees of between $3,000 and $5,000 per monthly board meeting are the norm. Most companies deduct income tax from these fees at source and hence the director gets the fee net of taxes. A monthly board meeting might last between three to five hours depending on the number of issues on the agenda. Before each meeting, directors receive board papers that must be carefully read, and therefore the preparation time for a meeting might consume a few hours.
Most boards have committees that meet separately in addition to the regular board meeting. One may consider board membership as sporting trophies for the display of prestige. There can hardly be any serious thought given for the grave implications of the decisions each director is a party to.
This low level of remuneration can lead non-executive directors to make corrupt compromises that can be detrimental to the company but beneficial to certain powerful interests. In other words, they can easily be bought and sold.
John L Thompson is an attorney-at-law and notary public. He is a member of the Corporate Governance Committee of the Private Sector Organisation of Jamaica (PSOJ) which recently drafted a Code on Corporate Governance that is to be implemented by 2007.
jlthompson@cwjamaica.com
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Karl |
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Board members must be adequately paid
