September 2011 - MINDA Malaysian Directors Academy ...

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article threeMALAYSIAN DIRECTORS ACADEMY 8Underpinnings Roles and Responsibilities of Board of Directors.Most of the articles on boards of directors have been prescriptive in nature focusing on what are the duties of directorsshould be. There are extensive articles published that deal with the legal liabilities of directors. The main reason of thistrend in the literature is based on the assumption that the interest of the investors must be protected. This protectionis against the promoter who would knowingly sell stocks for more than it is worth; executives or directors who couldmisappropriate corporate assets; a harmful collusion between management and majority shareholders; and ‘insiders’whose privileged information could allow them to knowingly buy shares from investors for less than their worth. 2 The needto protect investors has grown because of the dwindling control of ownership as conceptualised by classic study by Berleand Means. According to Berle and Means:As the ownership of the corporate wealth has become more widely dispersed, ownership of that wealth and control over ithave come to lie less and less in the same hands. Under the corporate system, control over industrial wealth can be and isbeing exercised with a minimum of ownership interest. Conceivably it can be exercised without any such interest. Ownershipof wealth without appreciable control and control of wealth without appreciable ownership appear to be the logical outcomeof corporate development. 3Berle and Means contend that the enormous power held by those who manage the corporation must be regulated for theprotection of those whose investments are involved. Based on this concern by Berle and Means, Peter Drucker contendsthat “it is becoming increasingly clear that top management will not -- and in large corporation must not -- be permittedto operate without an effective board”. 4 The board of directors must consider the interests of the various stakeholders ofIs Board of Directors Relevant?the corporation. There are many researchers who have done work on the area and the table below shows the matrix ofcontributions by the various researchers.ByDatuk Dr Syed Muhamad Syed Abdul KadirMatrix Matrix of of Contributions by Researchers 5 5BOARD MANAGERIAL FUNCTIONSDecision AreasDetermination of objectivesApproval of major policiesApproval of company orgApproval of budgetsApproval of major programsSelection outsider auditorSelection of sales rep.Matters requiring share-holders' actionsAnalysisFuturity (Forecasting)ReviewingComparisonUse of committeeAvailability of informationPlanningControlBoard OperationVanceWommackTashakori & BoultonPriceMaceLynchLoundonLewisLaggesKoontzDruckerCopeland & TowlBakerBacon & BrownAndrewx x x x x x x x x x x x x x xx x x x x x x x x x x x x x xx x x x x x x x x x x x x xx x x x xx x x x x x x x x x x x x x xx xxx x x x x x x x xx x x x x x x x x x x x x x xx x x x x x x x x x x x x xx x x x x x x x x x x x x x xx x x x x x x x x x x x x x xx x x x x x xx x x x x x x x x2Lynch, J., Activating the Board of Directors – A Study of the process of increasing Board Effectiveness, Unpublished DBA dissertation,Harvard University,The1979.table above shows the findings of the researchers that the Board Managerial functions can be3Berle, A and Gardiner C. Means., The Modern Corporation and Private Property, New York: The Macmillan Company, 1968. (Revisedcategorized into four main areas namely the decision making, planning, control, and board operation. WithEdition)4the exception of few functions, the rest are (i.e. the functions) equally agreed upon by the researchers.Drucker, P., The Practice of Management, New York: Harper and Brothers Publisher, 1954.5Syed Muhamad Abdul Decision Kadir., making Board on of the Directors eight strategic and Organisational areas can be inferred Performance, as the choices Ph.D dissertation which are concerned published with by Garland the Publishing,Inc. New York & London., viable long 1991 term pg. health 45. of the organization. As the representatives of the owners/shareholders, board of5 Syed Muhamad Abdul Kadir., Board of Directors and Organizational Performance , Ph.D dissertation published byGarland Publishing, Inc. New York & London., 1991 pg. 45.
article threeThe table above shows the findings of the researchers thatthe Board Managerial functions can be categorised into fourmain areas namely the decision making, planning, control,and board operation. With the exception of few functions,the rest are (i.e. the functions) equally agreed upon by theresearchers.Decision making on the eight strategic areas can be inferredas the choices which are concerned with the viable longterm health of the organisation. As the representativesof the owners/shareholders, board of directors have toanalyse and scrutinise the proposals submitted by theoperating management on the strategic areas in order toreach the decision best suited for the company.Planning can be considered a vital function of a companyboth as a method of adapting to market forces and as ameans of shaping the market and the total environment –the “what”. Boards of directors do not design or formulatethe planning system for the organisation, but by requiringthe operating management to submit or conduct long-termevaluation and forecasting of opportunities, boards areactually instituting planning requirements in the companies– the “how”. As more analysis is performed by boardsof directors on the activities of the company, there is agreater tendency to seek the best probable solution andan increased likelihood the company performance can beenhanced.The control function can encompass many different forms,including financial, human resources and administration.This function is meant to ensure that the company’sresources are utilised for tasks that are consistent withthe needs and goals of the company – the “what”. As suchboards of directors must be conversant with and fullyaware of what is going on in the company. By reviewingcurrent policies, programmes, and overall performance ofthe company, and by comparing the current results withthe budgeted and previous results, the “how”, boards ofdirectors can become conversant on the operation of thecompany.generalised that by performing these strategic functionseffectively, boards can ensure that the company is “doingthings right and doing the right thing”.The strategic management functions discussed abovewould contribute significantly to ensure that the companywould attain certain level of effectiveness. It is equallyimportant the boards of directors are conversant with theunderpinnings of company/organisational effectiveness.There is no one best criterion to assess company/organisational effectiveness, most researchers tend toagree the company/organisational effectiveness refersto the degree of long-term goal attainment. As such it isexpected that the boards of directors have to ensure thatthe companies always attain a high level of effectiveness.It is interesting to note that boards of directors can play aneffective role to ensure that the company is “doing thingsright and doing the right thing”. The above elaborationtends to answer the issue of “doing the right thing” whereboards of directors will perform the strategic managementfunctions which will lead for the company to have properstrategies, planning functions, control mechanisms andinformation flows. The strategic management functionsare well established discipline and the frameworks areeasily available. It is not surprised to notice most boards ofdirectors undertake the strategic management functionsbut the results tend to be diverse even in the same industryor sector. One of the main contributing reasons for this is“doing things right” is company specific unlike “doing theright thing”.It is argued that boards of directors that focus on “doingthe right thing” – the “what” satisfy their existence to be anecessary entity but not sufficient to justify their effectiveexistence. However, to make them relevant, boards ofdirectors have to focus on “doing things right” – the “how”besides “doing the right thing” – the “what”. “Doing thingsright” will differentiate between a dynamic and effectiveboards of directors and the ineffective boards of directors.9BOARD VIEW_SEPTEMBER 2011Board’s operation refers to the manner in which boardswould organise themselves to perform their strategicmanagement functions for the company, the “what’. Boardsorganise themselves to secure information through formalor informal meeting, creation of committees to undertakespecific duties, to engage consultant to perform specifictasks which are relevant to the company. These functions,identified by the various researchers, are considered asstrategic roles of the board as they are identified as activitiesthat will ensure the existence of effective boards. It can beHow to be RelevantThe process to ensure the existence of a relevant boardstarts at the point of selection. It is essential that theNomination Committee of the board assesses the potentialcandidate to be a member of the board of the company.Some of the areas that should be considered are in terms ofthe person’s caliber, credibility and possesses the necessaryskills and experience to bring an independent judgment onthe issues of strategies, performance and resources of the6Drucker, P. Management: Tasks, Responsibilities, Practices, New York: Harper and Row Publishers, 1974.7Price, J.L., “The study of Organisational Effectiveness”, The Sociological Quarterly, Vol. 13 No. 1, Winter 1972, pp3-15; Mohr, L.B.,“The concept of organisational goals”, The American Political Science Review, Vol. 68 No. 2 June 1973, pp470-471.
Page 2 and 3: CONTENTSEDITORIAL TEAMMALAYSIAN DIR
Page 4 and 5: FEATURED ARTICLES _ARTICLE ONEMALAY
Page 6 and 7: FEATURED ARTICLES _ARTICLE TWOMALAY
Page 10 and 11: article threeMALAYSIAN DIRECTORS AC
Page 12 and 13: article fourMALAYSIAN DIRECTORS ACA
Page 18 and 19: FEATURED ARTICLES _ARTICLE FIVEMALA
Page 20 and 21: article fiveMALAYSIAN DIRECTORS ACA
Page 22 and 23: BOOK REVIEWMALAYSIAN DIRECTORS ACAD
Page 24 and 25: PROGRAMME HIGHLIGHTS 2011MALAYSIAN
Page 26 and 27: PROGRAMME HIGHLIGHTS 2011MALAYSIAN
Page 28: AND OUR CLIENTS ARE...AgrobankAmana

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