The independent director on the board is outside expert. Formally, he is not included in the structure of the senior management of the association. In addition, he does not have a personal interest in this business (a high degree of remuneration, stocks, premiums, and so on). However, in practice independent director - This is the most important link in decision making. He is responsible for internal audit, control in terms of the implementation of management decisions, risk management, internal control and so on. It would be advisable to consider all the components of this topic separately.
Functions and role of an independent director
Everyone knows that the executive director is directly involved in the operational activities of the company. So, unlike him, an independent director performs control functions related to the main activities. Powers of an independent director in the Supervisory Board of OJSC characterized by the following functions:
- Revealing a strategy.
- Analysis of the results of activities.
- Risk management.
- Motivation of top managers.
- Disclosure of Information.
It would be advisable to consider in detail these items separately.
Definition of the strategy and analysis of the results of activities
The definition of a strategy should be understood as assistance directed towards top managers related to the development of a structure’s strategy, including through constructive opposition. To analyze the results of activities means to analyze the results of the activities of top-level managers, as well as to check in terms of compliance with the goals and objectives of the company. In case of urgent need independent director undertakes to initiate the replacement (dismissal) of members of the higher management according to pre-developed succession planning procedures.
Risk management and motivation of managers
Under risk management should be considered the control of the reliability of the financial information of the structure, the reliability of the risk management system and financial control. How so independent director can motivate top managers? In this case, motivation should be understood as the implementation of an appropriate motivational policy before determining the necessary level of motivation for executive directors. The authority of an independent director includes initiating the replacement (dismissal) of top-level management members in case of urgent need, strictly according to succession planning procedures developed in advance by the company.
Disclosure
Independent director Undertakes to monitor the effectiveness of the company’s reporting system and its compliance with the transparency policy In addition, he should assist in the voluntary disclosure of information. One of the most important tasks of an independent director is to include in the report for the annual period the most complete information for shareholders, which will allow them to fully realize the assessment of the structure’s performance for the year.
Independent Director Competency
The competence of the independent director also includes the following points:
- Entry into board of directors.
- Participation and preliminary preparation and subsequent implementation of the shareholders meeting.
- Analysis of the prospects for the structure of the issue of securities or the implementation of major transactions, as well as their direct implementation.
- Audit activities, disclosure of information on the activities of the structure.
- Addressing issues related to social responsibility, as well as managing culture in a corporate sense.
Independent Director of Law
It is interesting to know that the motto of independent directors is “professionalism and honesty”. In addition, their inherent features are independence and autonomy in decision-making. As a rule, independent directors have an impeccable business reputation.
It is important to know that the independence status in this case is directly related to a particular society (all are included here types of AO: opening, closed, as well as companies with a limited or additional type of liability). This status is considered valid from the moment a certain person is elected to the board of directors and until a statement regarding a change in status or resignation of powers of this board member.
Independence criteria
It is important to know that an independent director satisfies certain independence criteria in accordance with the Code of Corporate Conduct proposed by the Federal Commission for the Securities Market of the Russian Federation. Among them are the following items:
- Independent Director - Not affiliate manager (official) of the association.
- Over the past three years, an independent director has not been and does not currently act as a manager (official) or employee of the association, as well as an official or employee of the managing structure of the company.
- An independent director does not act as an official of another association, in which absolutely any of the officials is on the remuneration and personnel committee of the board of directors.
- Independent Director - Not affiliate society.
- An independent director is not a representative of the state.
Additional criteria
You need to know that, in addition to the above, an independent director is characterized by the following criteria:
- In his possession there is no ownership interest in the structure, which would be sufficient to independently nominate to the board of directors.
- He is not given remuneration for various kinds of services (for example, consultations) that he provides for the benefit of the company. However, an exception to this rule is remuneration for taking part in the Board of Directors.
- He is not a representative of the interests of contractors and consultants who work with the company.
- He has a good business reputation. He has the qualities of a leader and the experience of an entrepreneur, and also adheres to ethical standards at the highest level.
- He publicly declares his status before being elected to the Board of Directors.
Legislative reinforcement
In accordance with 208-FZ dated 12/26/1995 “On Joint-Stock Companies” an independent director is defined for voting purposes related to matters related to transactions with related parties. According to the legislative act, an independent director should be understood as a member of the supervisory board (board of directors) of the association, who is not and has not been for one year prior to the decision on the implementation of the transaction:
- A person who exercises the functions of the sole executive body of the association (this should include his manager), a member of the executive body of collegial importance, as well as a person who holds a position in the management bodies of the managing structure.
- The person whose parents, spouse, half and full sisters and brothers, children, adopted and adopt are persons who occupy certain positions in the above management bodies of the association, managing the structure of the association or are directors of the company itself.
- Affiliate association. The exception in this case is members of the supervisory board (board of directors) of the organization.
Professional ethics
In this chapter, it is advisable to consider the professional ethics of an independent director, which includes the following points:
- In the process of fulfilling his own duties, an independent director should be guided by the principles of objectivity, honesty, professionalism and constructiveness.
- The performance by an independent director of his duties must be in good faith, and also comply with current legislation. In addition, he undertakes to devote sufficient time and attention to the execution of his own instructions of the professional plan for thoughtful and informed decision-making.
- An independent director should approach the performance of his own professional duties on the basis of the principles of loyalty, prudence and disclosure of information (they are discussed in detail in previous chapters).
- An independent director must strictly observe the current requirements of the law, as well as make quite reasonable efforts within his competence.
- In the decision-making process, he first of all undertakes to make sure that the adoption of these decisions will benefit directly the structure, its shareholders, as well as other persons interested in running this business. Thus, an independent director must ensure a reasonable balance in terms of interests.
- An independent director is not entitled to use his own official position to the detriment of the structure and its shareholders. In addition, the goals of both direct and indirect benefit are absolutely excluded for any dependent subject or for themselves. The exception in this case is the receipt by this entity of remuneration for activities in committees under the board of directors or directly on the board of directors.
- An independent director undertakes to abide by the rule of independence, which serves as one of the most important conditions for his activity.
- An independent director is obliged to try as soon as possible to obtain the maximum complete information on the activities of the structure in order to carry out effective activities in the structure of the board of directors.
- He needs to make decisions solely in the interests of the organization, as well as its shareholders.