1. This presentation is made possible by the support of the American People through the United States Agency
for International Development (USAID). The contents of this presentation are the sole responsibility of Rick
Rasmussen and do not necessarily reflect the views of USAID or the United States Government.
Board of Directors
1

2. US Corporate Structure
Shareholders
Board of
Directors
Office of the
CEO
Executive
Staff
Investors put money into a company
Elect a board of directors to oversee their
interests
Hiring a CEO
Who manages and oversees the operation,
making money and returning value to
shareholders

3. Board of Directors
• Shareholders own the company
• They elect a board to govern, direct and manage the corporation
• Elections held at an annual shareholders meeting
– One to three directors minimum, depending on state laws
– Directors elected at the first annual meeting of shareholders and at
each successive annual meeting for one-year terms
• Classified board
• Multi-year terms (typically 3)
• Staggered elections by year
• The purpose of a classified board is to smooth transitions and make
takeover attempts more difficult

4. Board oversees shareholder interests by….
• Reviewing and establishing broad policies and objectives
– Strategic Plan
– Approving annual budgets
• Selecting, appointing, supporting and reviewing the performance of
the CEO
• Ensuring the availability of adequate financial resources;
• Accounting to the stakeholders for the organization's performance;
• Setting the salaries and compensation of company management;

5. Tenets of Corporate Governance
• Role and responsibilities of the board:
– Review and challenge management performance with
appropriate levels of independence and commitment
• Integrity and ethical behavior:
– Integrity in choosing corporate officers and board members
– A code of conduct for directors and executives that promotes
ethical and responsible decision making

6. Tenets of Corporate Governance
• Rights and equitable treatment of shareholders:
– Help shareholders exercise their rights
– Openly and effectively communicating information
– Encouraging shareholders to participate in general meetings
• Interests of other stakeholders:
– Organizations have legal, contractual, social, and market
driven obligations to non-shareholder stakeholders
– including employees, investors, creditors, suppliers, local
communities, customers, and policy makers.

7. Tenets of Corporate Governance
• Disclosure and transparency:
– Implement procedures to independently verify and safeguard
the integrity of the company's financial reporting
– Timely and balanced disclosure of material matters
concerning the organization
– All investors sould have access to clear, factual information.

8. Board Composition
• Usually an odd number (3, 5, 7) to ensure a majority
during board up votes
• Inside directors
– An employee, officer, or major shareholder.
– They represent the interests of company stakeholders and
typically have special knowledge of the company’s inner
workings, finances or markets.
• Outside directors
– Bring outside experience and perspective to the board. They
keep a watchful eye on the inside directors and on the way the
organization is run

9. Typical evolution of a board
• Initial company formation:
– One to three members
– CEO plus one founder and one advisor
• First investment
– Three to five members
• CEO
• CTO or co-founder
• Two investors (or nominees)
• Advisor (outside board member)

10. Board Evolution
• Second Investment
– Five to seven members
• CEO
• CTO or co-founder
• One or two first round investors
• One or two second round investors
• One or two advisors (outside board members)
• Be mindful of investor vs. “company” representation
• Majority rules
• Often a contentious issue during funding negotation

11. Chairman of the Board
• Not required by law
• The chairman is the highest officer of a board
• Elected or appointed
• Presides over board meetings
• Often representative to outside world and spokesperson
• US – often the CEO
• UK – generally not the CEO

12. Governing metrics...
• ISAR Benchmarks
– Guidance on Good practices in Corporate Governance
Disclosure.
• Auditing
• Board and management structure and process
• Corporate responsibility and compliance
• Financial transparency and information disclosure
• Ownership structure and exercise of control rights

13. United States, United Kingdom
• The"Anglo-American model" of corporate governance
emphasizes the interests of shareholders
• A single-tiered Board of Directors dominated by non-
executive directors elected by shareholders.
– Non-executive directors are expected to outnumber
executive directors and hold key posts, including audit and
compensation committees.

14. Continental Europe
• Typically require a two-tiered Board
• Executive Board
– Company executives
– Runs day-to-day operations
• Supervisory board,
– Represent shareholders and employees,
– Made up entirely of non-executive directors
– Hires and fires the members of the executive board
– Determines their compensation
– Reviews major business decisions

15. Japan
• Corporate governance is considered weak with
– lack of board independence
– few outside directors,
– insufficient disclosure
– prevalence of cross-shareholdings
• The evolution of corporate governance in Japan
towards international standards continues.

16. Who’s Company is it?
0% 20% 40% 60% 80% 100%
Japan
Germany
France
UK
US
Shareholders
All Stakeholders

17. Closed Joint Stock Company
• Used in Russia and CIS states
• Two types of JSC:
– Closed joint stock company (CJSC)
– Open joint stock company
– Both individuals and legal entities may own shares in a JSC.

18. Structure of your board
• CEO
• Chairman of the board
– Optional and honorable position
• Secretary
– Minutes required. Keep them sparse
• Otherwise, open to your discretion
– Key executives
– Key investors
– Industry experts
– ….

19. Board composition types
• CEO friendly
– Your buddies
– Happy to be there
– Supportive and you’re safe
• Independent professionals
– There to challenge you
– Making outside connections
– Giving you tough advice
– May fire you if things aren’t going well
• CEO decides. Best companies are built on challenges

20. Board meeting format
• Robert’s Rules of Order
• Call to order
• Standard order of business
– Approval of minutes of last meeting
– Reports of officers, boards and standing committees
– Reports of special (select and ad hoc committees)
– Unfinished (old) business and general orders
– New business
• Set next meeting and adjourn
• Off-of-the-record discussions

21. Corporate Obligations Regarding Annual
Shareholder Meetings
• Fixed date for annual meeting
• DE law allows for virtual annual meetings
• Shareholders not permitted to call a meeting unless
authorized by the articles
• State the quorum for meetings in the articles of
incorporation
• Shareholders can vote via proxy, by mail ballot,
telephone, or online