Non Executive Directors Are Responsible For Determining Appropriate Levels Of Remuneration Accounting Essay

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Non-executive directors have the responsibility to contribute to the development of companies strategies. Also they formulate the strategy of the organization. Also the non-executive directors should scrutinize the performance of management in meeting agreed goals and objectives of the company and monitoring them, and where necessary removing, senior management and in succession planning non-executive directors should satisfy themselves that financial information is accurate and that financial controls and systems of risk management are tough and defensible. They should be competent enough to monitor the integrity of the financial statements of an organization, and be able to review significant financial reporting judgments. They should also review the company's internal financial control system and check the effectiveness of the whole system.

Non-executive directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning. Non-executive directors should also provide independent views on organizations' resources, appointments, and standards of conduct. Non-executive directors are the custodians of the governance process. They are not involved in the day-to-day running of business but monitor the executive activity and contribute to the development of strategy. Also the role of non executive director requires the person to be flexible in context of availability.

Two reports on corporate governance have added weight to the significance and authority of the role of non-executive directors. Which are the Cadbury report and the Higgs report. The Cadbury Report (1992) was commissioned by the Stock Exchange in response to a spate of company failures in the aftermath of the 1980s boom, collapses in which it was clear that boards of directors were not fully in control, or even aware, of what was happening to the companies they were accountable for. As regards the role played by non-executive directors, the Cadbury Committee made the following observations whilst it is the board as a whole which is the final authority. Executive and non-executive directors are likely to contribute in different ways to its work. Non-executive directors have two particularly important contributions to make to the governance process as a consequence of their independence from executive responsibility. Neither is in conflict with the unitary nature of the board. There should be a division of responsibilities at the head of the company to ensure that no one individual has powers of decision. There should be no domination of one person in taking company decisions. This is no one should be able to dominate the company decisions. A majority of non-executive directors to be independent. Most non-executive directors must be independent so that no biasness will be there. Because non-executive directors only bring independent judgment to the company. There should be at least three non-executives on the audit committee. This is to ensure the audit committee is independent and there won't be any biasness.

A majority of non-executives on the remuneration committee non-executives should be selected by the whole board. Whilst it is the board as a whole which is the final authority, executive and non-executive directors are likely to contribute in different ways to its work. Non-executive directors have two particularly important contributions to make in the governance process as a consequence of their independence from executive responsibility. Neither is in conflict with the unitary nature of the board. The first is reviewing the performance of the board and of the executive. If the chairman is also the chief executive, board members should look in to a senior non-executive director, who might be the deputy chairman, as the person to whom they should address any concerns about the combined office of chairman or chief executive and its consequences for the effectiveness of the board. The second is taking a lead where potential conflicts of interest arise. An important aspect of effective corporate governance is the recognition that the specific interests of the executive management and the wider interests of the company may at times diverge, for example, over takeovers, boardroom succession or director's pay. Independent non-executive directors whose interests are less directly affected are well placed to help resolve such situations.

The Cadbury Report recommendations for non-executives were that non-executive directors should bring an independent judgment to bear on issues of strategy, performance, resources, including key appointments and standards of conduct. If over 20 percent of non-executives on major listed companies have served for more than ten years, the willingness of these companies to subject themselves to the scrutiny of independent judgment.

Non-executive directors should bring an independent judgment to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct. It is recommended that the number of non-executive directors on a board should be such that their views will carry significant weight in the board's decisions. To meet recommendations on the composition of sub-committees of the board, all boards will require a minimum of three non-executive directors, one of whom may be the chairman of the company provided he or she is not also its executive head. An essential quality which non-executive directors should bring to the board's deliberations is that of independence of judgment. It is recommended that the majority of nonexecutives on a board should be independent of the company. This means that apart from their directors' fees and share holdings, they should be independent of management free from any business or from other relationship which could materially interfere with the exercise of their independent judgment.

Recruitment and appointment

There should be a nomination committee of the board to conduct the process for board appointments and make recommendations to the board. The nomination committee should consist of a majority of independent nonexecutive directors. It may include the chairman of the board, but should be chaired by an independent non-executive director. A statement should be made in the annual report setting out the composition, terms of reference, and activities of the nomination committee and the process used for appointments. A summary of the principal duties of the nomination committee is offered. The nomination committee should evaluate the balance of skills, knowledge and experience on the board and prepare a description of the role and capabilities required for a particular appointment.

On appointment, non-executive directors should receive a letter setting out what is expected of them. A specimen letter of appointment is set out in the review. The nomination committee should provide support to the board on succession planning. Chairmen and chief executives should consider implementing executive development programs to train and develop suitable individuals in their companies for future director roles. The board should set out to shareholders why they believe an individual should be appointed to a non-executive director role and how they meet the requirements of the role. A small group of business leaders and others will be set up to identify how to bring to greater prominence candidates for non-executive director appointment from the non-commercial sector. Over the course of the last decade, a number of high profile corporate scandals have brought into question the role of a non-executive director. The issue of corporate governance was brought sharply into focus with the high profile collapse of US firms Enron and WorldCom in 2001, the repercussions of which were felt far and wide.

The aftermath of these events resulted in fundamental changes to the role of the non-executive director (NED), with individuals holding these posts becoming increasingly accountable and subject to corporate governance checks and balances. Prompted by a string of further corporate scandals, the UK government instructed Derek Higgs to lead an independent review of the role and effectiveness of NEDs. The resulting 2003 Higgs Report helped to give greater clarity of the role and responsibilities of the NED. Becoming a NED 20 year ago was regarded in some quarters as a ticket to a free lunch four times a year while receiving a decent fee for your troubles. Part of the 'old boy network', it was a role some took on without much thought or consideration. Although these candidates were in the minority, there was a common misconception among some NEDs that they had a different type of legal responsibility to the executive director; that somehow they were less accountable than their executive colleagues.

In this light it is clear to see that the NED has always added value to the company with which it is involved. The Higgs Report helps to recognize this by highlighting the contribution NEDs make to the boardroom. NEDs in properly managed companies that follow the spirit, as well as the letter of corporate governance legislation, can add further value as they can provide impartial and objective advice with a fresh outlook on the direction of the company. Meeting once a year may be enough for smaller companies to ensure transparency between directors and shareholders, but for the larger company more frequent meetings are required.

The board and independence.

Higgs suggest that not less than a third of the Board should be non-executive directors, to half of the Board, excluding the Chairman, being made up of independent non-executive directors. The operation of the Board as well as the number of meetings, attendance by individual directors etc. should be published in the annual report. Non-executive directors should constructively challenge and contribute to the development of strategy. They should scrutinize the performance of management and monitor the reporting of performance. They should check the accuracy of financial information as well as the forcefulness of financial controls and systems of risk management, and are responsible for executive directors' appropriate levels of remuneration and have a prime role in appointing and removing senior management as well as in succession planning.

http://www.againstcorruption.org/BriefingsItem.asp?id=13017

Remuneration

The remuneration of a non-executive director should be sufficient to attract and fairly compensate high quality individuals. It may comprise an annual fee, a meeting attendance fee, and an additional fee for the chairmanship of committees. Non-executive directors should have the opportunity to take part of their remuneration in the form of shares. Non-executive directors should not hold options over shares in their company.

If, exceptionally, some payment is made by means of options, shareholder approval should be sought in advance and any shares acquired by exercise of the options should be held until one year after the non-executive director leaves the board. Where a company releases an executive director to serve as a non-executive director elsewhere, it should include in its remuneration policy report whether or not the director will retain the related remuneration

The non-executive directors should meet as a group at least once a year without the chairman or executive directors present and the annual report should include a statement on whether such meetings have occurred. Prior to appointment, potential new non-executive directors should carry out due diligence on the board and on the company to satisfy themselves that they have the knowledge, skills, experience and time to make a positive contribution to the board. Guidance on pre-appointment due diligence is offered .All non-executive directors should take decisions objectively in the interests of the company.

The nomination committee should consist of a majority of independent non-executive directors. It may include the chairman of the board, but should be chaired by an independent non-executive director. The chairman and members of the nomination committee should be identified in the annual report and should make publicly available their terms of reference explaining clearly their role and the authority delegated to them by the board.

Question2.

a) TELEKOM MALAYSIA BERHAD (31st December 2009.

b) Registered office (pag28)

Level 51, North Wing, Menara TM

Jalan Pantai Baharu

50672 Kuala Lumpur

Malaysia

c) Thursday 6 May 2010 10.00 AM, at the Multi-Purpose Hall, Menara TM, Jalan Pantai Baharu, 50672 Kuala Lumpur, Malaysia. (Page 4)

d) I) Proposed Renewal of the Shareholders' Mandate for Recurrent Related Party Transactions of Revenue or Trading Nature (Proposed Renewal of Shareholders' Mandate)

ii) Proposed Amendments to the Articles of Association of the Company

e) Proposed Amendments to the Articles of Association of the Company

f) 21clear days.

g) 17 clear days.

h) Messrs PricewaterhouseCoopers (page 29)

(Chartered Accountants)

Level 10, 1 Sentral

Jalan Travers Kuala Lumpur Sentral

50706 Kuala Lumpur

Malaysia

i) Idrus Ismail

Zaiton Ahmad

j) A Company Secretary is responsible for organizing board meetings, informing board of directors about the impending meeting, formulating the agenda of the meeting with Chairman and/or Chief Executive, compiling the minutes of the meeting and maintaining minute books. A Company Secretary has to ensure that Annual General Meetings (AGM) is held as per the Companies Act and the companies' Article of Association. He or She is responsible for issuing notices of meetings, distribution of proxy forms, helping directors update themselves and getting prepared in case any shareholder ask questions, helping directors prepare briefing material and ensuring that security arrangements are done for the meeting. During the meeting, they have to ensure that proxy forms are processed properly, voting is carried out properly and recording the minutes of the meeting.

A Company Secretary has to ensure that the Memorandum and Articles of Association is properly complied with. In case any amendments are issued, they have to make sure that they are implemented in the right manner. He has to maintain relations with Stock exchange. He is responsible for maintaining the statutory registers regarding the members, company charges, directors and secretary, directors' interests in shares and debentures, interests in voting shares and debenture holders.

http://www.altiusdirectory.com/Business/company-secretary-duties-roles.html

k) They retire by rotation.

Retirement after appointment to fill casual vacancy (52-59)

L) The Director primarily responsible for the financial management of Telekom Malaysia Berhad, do solemnly and sincerely declare that to the best of my knowledge and belief, the financial statements set out on pages 183 to 309 are correct, and make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960. (Page 310) This ensures directors are accountable to the shareholders for any questions on the financial statements.

M) Non-Executive Directors provide considerable depth of knowledge collectively gained from experiences in a variety of public and private companies. The Independent Non-Executive Directors are independent of Management and free from any business or other relationship which could materially interfere with the exercise of their independent judgment. They provide unbiased and independent views in ensuring that the strategies proposed by the Management are fully deliberated and examined, in the interest of shareholders, employees, customers and the many communities in which the Group conducts its business. The independence of the Non-Executive Directors is constantly reviewed and benchmarked against best practices and regulatory provisions. The Board has determined that the main responsibilities of the Senior Independent Non-Executive Director (SID) are to ensure that the views of each Non-Executive Director are given due consideration and to provide a communication channel between Non-Executive Directors and shareholders. This communication channel is in addition to normal channels already in place. The SID is also expected to promote high standards of corporate governance and ensure that the Company's obligations to shareholders are understood and met. (Page 70)

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.