Parameters to Consider Before Joining as an Independent Non-Executive Director

This document discusses the parameters that an individual should consider before joining as an independent non-executive director in a company. It covers the duties, responsibilities, and competencies of a director, the role of the audit committee, the board structure and style, and the importance of transparency and accountability in corporate governance.

Corporate Governance
NAME OF STUDENT:
NAME OF COLLEGE:
AUTHORS NOTE:
Running head: CORPORATE GOVERNANCE
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CORPORATE GOVERNANCE
Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Conclusion.......................................................................................................................................7
References........................................................................................................................................9
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Executive Summary
There are various parameters which an individual should analyse before taking a decision to join
an organization as an independent non-executive director. In order to join the company as a
director it is very essential for an individual to gain idea regarding the duties, responsibilities and
competencies of a director. The competencies which are essential for a director are industry,
technical, legal and governance knowledge, strategic expertise, risk management abilities and
ability to manage people and achieve change. In case of Mr Chan, the Director of Finance of
Dim Sum Ltd in Hong Kong, it can be stated that he is suitable for joining as an independent
non-executive director in ABC International Ltd. owing to his high qualifications and
experiences at the higher level. It can be also stated that Mr Chan is also suitable for the post
owing to his relationship with the other member of the board. It is also important for MR Chan to
gain adequate knowledge regarding the functions of the audit committee of the organization in
order to join the company as a director. Mr Chan can also join ABC International Ltd as the
board structure which is followed in ABC International Ltd. is unitary board structure and the
board style which is followed in the company is management board style which will enable him
to effectively contribute to the growth of ABC International Ltd. ABC International Ltd. can be
also considered as ideal organization to join for Mr Chan owing to transparency and
accountability of the company which is evident from the disclosure of company information
through annual reports.
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Introduction
Mr Chan has been approached by the Chairman of ABC International Ltd., Mr. Alan K.M. Yau
regarding joining the company as an independent non-executive director after he was introduced
to Mr Chan by Mr. Johnny Y.K. Ho, the Finance Director of ABC International Ltd. Mr Chan
currently is the Director of Finance in Dim Sum Ltd and is committee associate of Hong Kong
Institute of Certified Public Accountants. Current report focuses on the various parameters which
Mr Chan should consider before deciding whether to join the company as an independent non-
executive director.
Discussion
Duties, rights and competencies of a director
The rights of a director are as follows:
 The right to obtain records in possession of firm regularly to facilitate functions of the
role.
 The right to investigate archives and financial reports of company for a proper purpose.
 The right to be insured across accountability for breaches in contract in some situations.
 Reliance on information and advice.
The responsibilities of a director are as follows:
 Perform in conformity within structure of company and exert power for objective of
which they were given.
 Promote success of company for advantage of its associates.
 Exercising independent judgement and making their own decisions
 Exercising reasonable care, skill and diligence regarding carrying out day to day
responsibilities
 Avoiding conflict of interests in any situation
 Not accepting any kind of advantage from third parties
 Confirming engrossment in prospective or current transactions or agreement within
company
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The duties of a director are as follows:
 A duty to perform in positive confidence and use the power provided for appropriate goal
and for advantage of the company.
 A duty of not making unauthorized use of the information and properties of the company
 Duty to keep proper accounting records
 A duty to exercise independent judgement and not to delegate powers except with proper
authorization.
There are various competencies which a director must possess such as industry, technical, legal
and governance knowledge, strategic expertise, risk management abilities and ability to manage
people and achieve change.
As opined by Aldamen and Duncan (2016) the first and foremost criteria that Mr.Y.K Chan must
should consider before joining ABC International Ltd. as an independent Non-Executive
Director or associate of Audit Committee is his suitability to undertake the above mentioned
responsibilities. As opined by Aziri, Veseli and Veseli (2014) in this context it can be stated that
Mr. Y.K Chan is suitable for the post of Executive Director of ABC International Ltd. or
associate of audit committee of firm as he is a qualified accountant and is also currently
employed as the Finance Director of Dim Sum Ltd and therefore he has all the necessary
qualifications and top level experience of managing a company. Therefore it can be stated that as
Mr. Chan is suitable for the posts offered to him in ABC International Ltd., he can choose to join
the company.
As stated by Lattemann (2014) the other factor which Mr. Chan should determine before taking a
decision to join ABC International Ltd. is his interpersonal relationship ABC chairman and the
other group of directors of the company. In this context it can be stated that Mr. Chan had no
previous interactions with the Chairman of ABC International Ltd, Mr. Alan K.M. Yau, but
recently they both has dinner at the China Club which would help in development of
interpersonal relationship with the chairman of ABC International Ltd. In addition, Mr Chan has
good interpersonal relationship with Mr. Johnny Y.K. Ho, the Finance Director of ABC
International Ltd. as they both serve on committee of Hong Kong Institute of Certified Public
Accountants. Therefore it can be stated that it will easy for Mr. Chan to get accustomed to the
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working of ABC International Ltd. as a result of good interpersonal relationship with the Finance
Director and due to developing relationship with Chairman if he decides to join enterprise.
As stated by Stuebs and Sun (2015) the other factor which Mr. Chan should focus while deciding
whether to join ABC International Ltd. is the knowledge of the business of the company and the
financial situation of the company. In this context it can be stated that though Mr. Chan has no
prior knowledge regarding ABC International Ltd. and its financial situation, he can gather some
knowledge about the company from his father-in-law who holds a few shares of the company
and moreover while having dinner with the Chairman of ABC International Ltd., Mr Chan
gained adequate knowledge regarding the growth of the company, the existing practices of firm
and their future prospects which will accordingly help in in taking the decision regarding joining
the company as the non-executive director or as associate of audit committee.
As stated by Zuckweiler, Rosacker and Hayes (2016) another important factor which Mr. Chan
should consider regarding joining ABC International Ltd. is his availability for the directorship.
In this context it can be stated that Mr Chan is the Finance Director of Dim Sum Limited and
also committee associate of Hong Kong Institute of Certified Public Accountants and therefore it
can be stated that it can be a little difficult for Mr Chan to join ABC International Ltd. owing to
his present commitments.
As stated by El-Helaly, Shehata and El-Sherif (2018) the other important factor which Mr. Chan
must consider before taking a decision to join ABC International Ltd., is his knowledge
regarding the roles, responsibilities and competencies of an Independent Non-Executive Director
as he did not held such posts in his professional career. In this context it can be stated that the
competencies which are required to hold the position of an independent non-executive director
are leadership, strategic thinking and decision making, experience and individual and team work
while key duties and responsibilities for the position is to provide logical direction to firm,
controlling performances of executive management, determining appropriate levels of
remuneration for the executive directors, connecting the board and firm with networks of
potentially useful people and organization, overseeing risk management of the financial
information and systems of the company and overseeing the audit of the company in order to
provide fair information to the stakeholders of the company.
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Committee work
As stated by Thanetsunthorn and Wuthisatian (2016) in order to join ABC International Ltd. as
an Independent Non-Executive Director, Mr Chan should gain an idea regarding the actual tasks
which are performed by the audit committee. In this context it can be said that the audit
committee plays a crucial part in assisting Board of company for fulfilling its oversight
responsibilities in various areas such as the company’s financial reporting, internal control
system of the organization, risk management system of organization and internal and external
audit functions of the organization. The actual tasks which are performed by the audit committee
of the company involves:
 Managing financial reporting and broadcast procedure of company
 Monitoring options of accounting norms and guidelines which are adopted by the
executive board of the company
 Overseeing the hiring process, performance and self-sufficiency of external auditors of
company during audit process
 As opined by Salami, Johl and Ibrahim (2014) overseeing the regulatory compliances of
the company, the ethics followed in the company and the whistle blower hotlines which
are being observed in the company.
 Controlling internal monitoring procedure of company.
 Administering achievement of internal audit operation of company
 Reviewing risk management rules and procedures with board of company and suggesting
any required changes
 As opined by Toprak and Bayraktar (2017) overseeing the transparency of the audit
report and financial report of the company so that the stakeholders of the company are
fully aware of the actual performances and initiatives of the company
 Facilitating communication amid board of directors and internal and external auditors of
company.
As opined by Pham (2016) it is also very important for Mr Chan to determine the interaction of
the company board and internal auditors of the company with the external auditors of the
company. In this context it can be stated that in order to make a decision regarding joining ABC
International Ltd. as an Independent Non-executive director it is very important to actuate
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transparency of financial reporting of company which can be judged by analysing the
relationship between the executive board of the company, the internal auditors of the company
with Deloitte Touche Tohmatsu, Hong Kong, who are the external auditors of ABC International
Ltd.
Board Structure and Style
In order to make a decision regarding joining ABC International Ltd. as an independent non-
executive director it is very important to determine the structure of board which is being
followed in ABC International Ltd as it helps in determining the effectiveness and implications
of corporate governance. As stated by Papac, Klepić and Šunjić (2017) in this context it can be
stated that there are two types of board structure which can be observed in business organization
namely, unitary or single tier board system where administering body of a company consists of
single board and for two tier board system administering body consist of two separate boards,
namely supervisory board and management board. It is manly observed that unitary board
structure offers better correspondence across every board members regarding handling of matters
such as strategy, planning, achievement, resources, code of conduct and interaction with
stakeholders of company. As stated by Garas, Tessema and Tee (2017) in this context it can be
also stated that ABC International Ltd. follows single tier board system, where the board consists
of both executive directors and non-executive directors.
As stated by Hossain and Alam (2018) it is also very important for Mr. Chan to determine the
board style which is followed in ABC International Ltd. as it helps in influencing the power and
authority of the board of the organization. In this context it can be stated that there are various
types of board styles each having distinguishing characteristics namely collective style,
governing boards style, working boards style, advisory boards style, executive boards style, fund
raising boards style and policy board style. In this context it can be stated that the board style
which is being followed in ABC International Ltd. is Executive or Managing boards’ style in
which a group of people actually manages the operations as a collective group instead of a single
CEO. As opined by Ntongho (2016) the managing boards’ style is not similar to governing board
but it might work under one. The managing board of the organization which comprises of both
executive and non-executive directors of company ensure that they make the everyday decision
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of what gets done and the long term decisions regarding how to organize operations for
achieving the goals of the organization.
Transparency and Accountability of the company
As opined by Mugarura (2016) it is also of utmost importance for Mr Chan to the transparency
and accountability of the company in order to take a decision regarding joining the company as
an independent non-executive director. In this context it can be stated that transparency and
accountability are two most vital pillars of corporate governance within an organization. In this
context it can be stated that transparency means to allow its procedures and arrangement visible
to external people and making important broadcast, informing all impacted by the decision of the
company and complying with legal requirements. As stated by Kaur, Kaur and Singh (2018). It is
very important for a company to be transparent in nature in order to instil confidence among the
stakeholders of the company. Transparency is vital element of corporate governance as it insures
that company’s action can be controlled regularly by external party. Accountability means taking
the responsibility and blame of the strategic decisions taken by a company and also taking
responsibility and blame in case of unplanned outcomes of a decision of the company which
increases the confidence of the shareholder of a company to invest more in the company. This
make the process and transaction verifiable, so if a question arises regarding any action then
company can offer justification. Accountability is a very important component in terms of
corporate governance as it encourages investors of the company to invest in the company as they
feel confident at the back of mind that someone in the organization is there to take accountability
and responsibility in case of any undesired circumstances. In context of ABC International Ltd.,
it can be stated that the company is transparent and accountable in nature as it abides by all legal
obligations and listing requirements and it also shares all information with their stakeholders of
the company along with its implications and outcomes through the annual report of the company.
As opined by Ferry and Ahrens (2017) the board members of the company also have sound inter-
personal relationship among each other which highlights the high amount of trust between board
of directors, thereby enabling them to make effective strategic decisions for achieving the goals
and objectives of the company. The amount of trust among the board members helps in instilling
confidence among the shareholders of the company.
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Conclusion
From the above report it can be stated that it is very essential for Mr Chan to analyse his decision
of joining ABC International Ltd. as an independent non-executive director on various
parameters in order to ensure that the correct decision is made in the end. It is very important to
analyse his decision based on various parameters such as duties, rights and competencies of a
director, committee work, board style and structure and transparency and accountability of the
company. Based on the analysis of the above mentioned parameters it can be stated that Mr Chan
can join ABC International Ltd. as independent non-executive director as he not only possesses
desired skills and qualifications which are required for the post but also because the board
structure and style of the company is effective in nature and also because the company is
transparent and accountable in nature. Based on the above report it can be concluded that as Mr
Chan has no previous experience as a director, therefore in order to join the company as an
independent non-executive director it is very essential for Mr Chan to be aware regarding the
various competencies which a director should possess and should also be aware of the various
roles, responsibilities and duties of a director in order to perform his task efficiently as the
director of the company. As Mr Chan has no prior experiences of a director, therefore it is also
very essential for Mr Chan to be aware of the role and functions played by audit committees of
an organization so that he can contribute to the audit process of the organization. Based on he
above report it can be also stated that Mr Chan should be aware of the difference between
independent and non-independent director in order to carry out his responsibilities in a more
systematic manner.
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