Page 41 - FINAL CFA II SLIDES JUNE 2019 DAY 6

LOS 24.d: Describe responsibilities of the board of directors and explain
qualifications and core competencies that an investment analyst should READING 24: CORPORATE GOVERNANCE
look for in the board of directors.
LOS 24.e: Explain effective corporate governance practice as it relates to
the board of directors and evaluate strengths and weaknesses of a
company’s corporate governance practice.
The Board of Directors –Responsibilities!

• Institute corporate values and corporate governance mechanisms that will ensure business is conducted in a proficient, ethical, and fair manner.
• Ensure that the firm meets and complies with all legal and regulatory requirements in a timely manner.
• Create long-term strategic objectives for the company that are consistent with the shareholders’ best interests.
• Determine management’s responsibilities and how managers will be held accountable. Performance should be measured in all areas of a company’s
operations.
• Hire, appropriately compensate, and regularly evaluate the performance of the chief executive officer (CEO).
• Require management to supply the board with complete and accurate information in order for the board to make decisions for which it is responsible
and adequately monitor company management.
• Meet regularly to conduct its normal business, and attend extraordinary sessions when necessary.
• Ensure board members are adequately trained to perform board functions.

In order to determine the effectiveness of a board of directors, investors or investment analysts must assess:
• The composition of the board of directors and whether or not directors are independent.
• Whether the board has an independent chairman.
• Qualifications of directors.
• How the board is elected.
• Board self-assessment practices.
• Frequency of separate sessions for independent directors.
• Audit committee and audit oversight.
• Nominating committee.
• Compensation committee and the compensation awarded to management.
• Use of independent or expert legal counsel.
• Statement of governance policies