FOLLOWING up on our previous articles, we will provide you the procedures, guidelines and checklist in the coming articles that will assist you in the successful development and implementation of an effective code of corporate governance for banks. This is based on best practices in more than 25 countries and in well-established corporations worldwide. This code of corporate governance guide contains the following paragraphs with detailed explanation of the requirements and how best to go about implementing them, with a focus on banks: Board of Directors, Board in Action, Audit Committee, Nominating Committee, Remuneration Committee, Shareholders, and Code of Conduct.

Board of Directors

According to Bank for International Settlements, the board has overall responsibility for the bank, including approving and overseeing the implementation of the bank’s strategic objectives, risk strategy, corporate governance and corporate values. The board is also responsible for providing oversight of senior management. Banks should have in place internal controls that are adequate for the nature and scale of their business. These should include clear arrangements for delegating authority and responsibility; separation of the functions that involve committing the bank, paying away its funds, and accounting for its assets and liabilities; reconciliation of these processes; safeguarding its assets; and appropriate independent internal or external audit and compliance functions to test adherence to these controls as well as applicable laws and regulations.

Corporate laws must identify the responsibilities of the board of directors with respect to corporate governance principles to ensure that there are effective controls over every aspect of risk management. These controls are the responsibility of the board of directors and deal with organizational structure, accounting procedures, checks and balances and safeguarding of assets and investments. To achieve a strong control environment, the board of directors and senior management of a company should understand the underlying risks in their business and that they are both committed to, and legally responsible for, the control environment.

Responsibilities of the Board

To promote safe and sound operating practices, it is imperative that the board assumes its role independent of the influence of the management. Members of the board should know their responsibilities and powers in clear terms. Further, it should be ensured that the board focuses on policy making and general direction, oversight and supervision of the affairs and business of the company and does not play any role in the day-to-day operations, as that is the role of the management.

The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders. The following gives accounts of board’s responsibilities as defined by various international bodies and best practices:
Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders.

Where board decisions may affect different shareholder groups differently, the board should treat all shareholders fairly.

The board should ensure compliance with applicable law and take into account the interests of stakeholders.

The board should fulfill certain key functions, including:
Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures.
Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.

Reviewing key executive and board remuneration, and ensuring a formal and transparent board nomination process.
Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions.

Prof. Hubert Rampersad is President of the Technological University of the Americas and for more information please contact Abiodun Fawumi Publisher of Ekocity Magazine.