Independence promotes integrity, accountability and effective oversight. We will address experience and resources in later discussions.
The term "Board Member" refers to all individuals who sit on the Board, including:
An Independent Board Member is defined as one who has no direct or indirect material relationship with the Company, its subsidiaries, or any of its members other than as a Board Member or Shareowner of the Company. Stated simply, an Independent Board Member must be free of any relationship with the Company or its senior management that may impair the Board Member's ability to make independent judgments or compromise the Board Member's objectivity and loyalty to shareowners.
There are many different types of relationships between Board Members and the Company that may be material and preclude a finding of independence, including employment, advisory, business, financial, charitable, family, and personal relationships.
In making determinations regarding Independence, the Board shall consider all relevant facts and circumstances and shall apply the following guidelines:
The Board should be comprised of a substantial majority of Independent Board Members. A Board with this makeup and one which is diverse in its composition is more likely to limit undue influence of management and others over the affairs of the Board. The decisions of such a Board will be more likely to aid the Company's long-term success.
Things to consider for investors:
I. Executive Board Members
The other two are not independent.
I. All board members, including executive board members, independent board members, and non-executive board members, meet quarterly to discuss issues facing the company.
II is false: Non-executive board members are not independent: they may represent interests that may conflict with those of those shareowners.
III is false: If a board member servers as the CEO, the member is not considered independent.
IV. It's OK that a board has some members who are aligned with a company-related entity. However, they should recuse themselves on issues that may create a conflict.
I. Executive Board Members
The CEO is an executive board member and the Union representative is a non-executive board member. IV is not a defined category on a board.
I. his daughter works for the company as a secretary.
All of these relationships are considered "material relationships."
I. The Board reports on their activities to Shareowners every six months.
I: The Board should report to Shareowners at least annually.
A. unacceptable because it is universally prohibited in all jurisdictions.
A is incorrect; there are some jurisdictions that allow the combining of the two positions.
B is incorrect because it is not the effectiveness of the chief executive that is being questioned. The main issue is whether the board's independence would be compromised.
Which of the following actions would provide the greatest improvement in the corporate governance of this company?
A. The Chairman of the Board should be an independent director.
If the chair of the board is a former chief executive of the company, it may hamper efforts to undo the mistakes made by him or her as chief executive. It is not clear if it is better to have all members elected annually (more flexibility to meet changes in the marketplace) or if it is better to have staggered board terms (better continuity of board expertise). All members of the audit committee should be independent members of the board.