A company’s code of conduct for its executive management and employees may be expanded into a broader code of corporate governance. Alternatively, the code of conduct and the code of corporate governance may be two separate documents. The broader code would include topics detailed in Issue 5 of The Bulletin but would also address areas such as the board mission, the roles and responsibilities of the board and its committees, the rights of shareholders, the company's philosophy regarding executive compensation, and the roles and responsibilities of senior executives (including the role of and interaction with auditors).
With respect to a code of corporate governance, examples of relevant topics include the following:
- Director qualifications and responsibilities and the process for selecting, inviting, orienting and continuously educating new directors.
- Board size, election term, term limits, mandatory retirement, and the mix of inside and outside directors, including the definition of independence.
- Separation of chairman and CEO or lead director, if the company has adopted either of these governance structures.
- Scope of board oversight. For example:
- Responsibility for evaluating, approving and monitoring the strategic plan to create and preserve shareholder value, and for considering the interests of other stakeholders (e.g., creditors, employees, etc.) in the company’s plans.
- Responsibility for providing oversight on identifying and managing major risks, including understanding management’s definition of risk appetite or tolerance.
- Responsibility for providing oversight on significant proposed investments, divestitures, financings and other major corporate transactions.
- Responsibility for evaluating operational performance and for ensuring a culture of effective internal financial controls, clear and candid communications, ethical behavior, and transparent and “plain English” public reporting.
- Formal evaluation of the CEO, succession planning, management development and executive compensation.
- Number, structure and composition of committees, including their processes, the related management support roles, assignment and rotation of committee members and committee meeting frequency, length and agenda.
- Shareholder rights, including voting practices (cumulative and confidential voting, one share/one vote, etc.), voting powers, meetings, proxy proposals and anti-takeover devices.
- Other matters, such as board compensation reviews, executive sessions of outside directors, access to and use of internal and outside advisors, evaluating board and director performance, attendance of non-directors at board meetings, board access to senior management, handling of disclosures regarding corporate governance, directors’ liability, board meetings and agenda, board materials and presentations, and board interaction with institutional investors, customers, employees, the press and others.
While far from exhaustive, the above examples illustrate the broader scope of a code of corporate governance.
The Bulletin (Volume 1, Issue 5 Supplement)