The Board of Directors should be small enough in numbers for efficient decision-making and large enough for its members to contribute experience and knowledge from different fields and to allocate management and control functions among themselves. The size of the Board should match the needs of the individual company.
The Board of Directors should form committees as required under the law amongst its members responsible for carrying out an in-depth analysis of specific business or passing resolutions as required or exercising its supervisory function. They should appoint the members as well as the chairman of each committee and determine their roles, responsibilities etc., The Board may combine the functions of several committees to fulfill their objectives. The committees may report to the Board of Directors on their activities and findings. The overall responsibility for duties delegated to the committees may remains with the Board.Board Composition:
The majority of the Board should be composed of non-executive directors.Meetings:
The Board of Directors should meet at least four times a year. The Chairman should ensure that deliberations are held at short notice whenever necessary.Responsibilities of a Chairman:
- for preparation and conduct of meetings.
- to make the information available in good time, relevant aspects of the company for decision-making and supervision
- to present at the meeting
- to ensure the presence of the persons who are indispensable for answering questions in greater depth
The board should determine whether a single person (with joint responsibility) or two persons (with separate responsibility) should be appointed to the chair of the board and the top position of the Executive Management. If, for reasons specific to the company or because the circumstances relating to availability of senior management makes it appropriate, the board decides that a single individual should assume joint responsibility at the top of the company, it should provide for adequate control mechanisms. The board may appoint an experienced non-executive member (“lead director”) to perform this task. Such person should be entitled to convene on his own and chair meetings of the Board when necessary.Committees: Composition of the Committees:
It is recommended that a majority of the members of certain committees be Independent.Who is an Independent Director?
Independent members shall mean non-executive members of the Board of Directors who never were or were more than three years ago a member of the executive management and who have no or comparatively minor business relations with the company.Types of Committees:
- Audit Committee:Composition: The Committee should consist of non-executive, preferably independent members of the Board of Directors. A majority of members, including the Chairman, should be financially literate.
Role of Audit Committee:
- The Audit Committee should form an impression of the effectiveness of the external audit (the statutory auditors or, if applicable, the group auditors), and the internal audit as well as of their mutual cooperation.
- The Audit Committee should additionally assess the quality of the internal control system, including risk management and should have an appreciation of the state of compliance with norms within the company.
- The Audit Committee should review the individual and consolidated financial statements as well as the interim statements intended for publication. It should discuss these with the Chief Financial Officer and the head of the internal audit separately, if occasion warrant, with the head of the external audit.
- The Audit Committee should decide whether the individual and consolidated financial statements be recommended to the Board of Directors for presentation to the General Shareholders’ Meeting. The Audit Committee should assess the performance and the fees charged by the external auditors and ascertain their independence. It should examine compatibility of the auditing responsibilities with any consulting mandates.
- Compensation CommitteeComposition: A majority of the Compensation Committee should consist of non-executive and independent members of the Board of Directors.
Role of Compensation Committee:
- The Compensation Committee should take care that the company offers an overall package of remuneration, which corresponds to performance and the market, in order to attract and retain persons with the necessary skills and character.
- The remuneration should be demonstrably contingent upon sustainable company success and the individual contribution by the person in question. False incentives should be avoided.
- The dilution effect caused by share option schemes for senior managers should be minimized and the conditions for exercising options shall not be modified subsequently in favour of the option holders.
- Contracts of employment with top managers should contain such provisions on termination of employment as are commensurate with market conditions and which protect the company’s interest.
- In case of early termination of a top management contract only such severance compensation should be paid which is either owed due to the contract or which has been negotiated in compatibility with the interests of the company.
- Nomination CommitteeComposition: As a general practice, the majority of the Nomination Committee should consist of non-executive and independent members from the Board of Directors.
Role of Nomination Committee:
- The Nomination Committee should lay down the principles for the selection of candidates for election or re-election to the Board of Directors and prepare a list of selection in accordance with these criteria.
- The Nomination Committee may also be assigned responsibilities in connection with the selection and assessment of candidates for top management.