Retrieved from " https: The examples and perspective in this section deal primarily with the United Kingdom and do not represent a worldwide view of the subject. Shareholder-elected board members Shareholder-elected board members are elected by the shareholders at the general meetings.
Shareholder-elected board members serve a one-year term and can be re-elected at the general meeting. Board members must retire at the first general meeting after reaching the age of One shareholder-elected board member did not seek re-election. Thus, two board members were elected by the shareholders for the first time. The Board has determined which competencies should be present at the Board. The competence profile is reviewed annually by the Board.
To ensure that discussions include multiple perspectives representing the complex, global pharmaceutical environment, the Board aspires to be diverse in gender and nationality. On this background, it is the aim that by the Board consists of at least two shareholder elected Board members with Nordic nationality and at least two shareholder elected Board members with another nationality than Nordic - and at least three shareholder elected Board members of each gender.
According to the Danish Companies Act the employees of Novo Nordisk are entitled to be represented by half of the total number of board members elected by the shareholders. At the time of election in there were seven board members elected by the shareholders, and consequently, the employees elected 4 board members. Board members elected by the employees serve for a four year term and have the same rights, duties and responsibilities as shareholder-elected board members.
Employee elected board members may be re-elected. To be eligible for election the employee has to have been employed by the company for at least one year and be at least 18 years of age. The election is carried out by an election committee that is responsible for ensuring that the election is done correctly.
The election committee amongst other things handle the distribution of voting form and counting of votes. In , the election was conducted by electronic voting. Candidates are elected by simple majority. If there are no more candidates than seats, the candidates are elected automatically. When the election has been completed the election committee publishes the result and ensures that the employee elected board members are registered as board members of the company with the Danish Business Authority.
The employee elected board members take office on the day of the Annual General Meeting. New board members undergo an induction programme equivalent to two full days during their first year on the Board and subsequently participate in educational activities as required to update and refresh their competences and knowledge, including issues related to environmental and social risks and opportunities.
The Board ordinarily meets seven times a year, including a strategic session over two to three days. In , the Board conducted seven Board meetings. Please refer to the Annual Report on pp for a detailed attendance overview, including attendance at committee meetings.
The setup of a board of directors vary widely across organizations and may include provisions that are applicable to corporations, in which the "shareholders" are the members of the organization.
A difference may be that the membership elects the officers of the organization, such as the president and the secretary, and the officers become members of the board in addition to the directors and retain those duties on the board.
These ex-officio members have all the same rights as the other board members. Members of the board may be removed before their term is complete. Details on how they can be removed are usually provided in the bylaws. If the bylaws do not contain such details, the section on disciplinary procedures in Robert's Rules of Order may be used.
Theoretically, the control of a company is divided between two bodies: In practice, the amount of power exercised by the board varies with the type of company. In small private companies, the directors and the shareholders are normally the same people, and thus there is no real division of power.
In large public companies , the board tends to exercise more of a supervisory role, and individual responsibility and management tends to be delegated downward to individual professional executives such as a finance director or a marketing director who deal with particular areas of the company's affairs. Another feature of boards of directors in large public companies is that the board tends to have more de facto power.
Many shareholders grant proxies to the directors to vote their shares at general meetings and accept all recommendations of the board rather than try to get involved in management, since each shareholder's power, as well as interest and information is so small.
Larger institutional investors also grant the board proxies. The large number of shareholders also makes it hard for them to organize. However, there have been moves recently to try to increase shareholder activism among both institutional investors and individuals with small shareholdings. A contrasting view is that in large public companies it is upper management and not boards that wield practical power, because boards delegate nearly all of their power to the top executive employees, adopting their recommendations almost without fail.
As a practical matter, executives even choose the directors, with shareholders normally following management recommendations and voting for them. In most cases, serving on a board is not a career unto itself. For major corporations, the board members are usually professionals or leaders in their field. In the case of outside directors, they are often senior leaders of other organizations. Nevertheless, board members often receive remunerations amounting to hundreds of thousands of dollars per year since they often sit on the boards of several companies.
Inside directors are usually not paid for sitting on a board, but the duty is instead considered part of their larger job description. Outside directors are usually paid for their services. These remunerations vary between corporations, but usually consist of a yearly or monthly salary, additional compensation for each meeting attended, stock options, and various other benefits. In some European and Asian countries, there are two separate boards, an executive board for day-to-day business and a supervisory board elected by the shareholders and employees for supervising the executive board.
In these countries, the CEO chief executive or managing director presides over the executive board and the chairman presides over the supervisory board, and these two roles will always be held by different people. This ensures a distinction between management by the executive board and governance by the supervisory board and allows for clear lines of authority. The aim is to prevent a conflict of interest and too much power being concentrated in the hands of one person.
There is a strong parallel here with the structure of government, which tends to separate the political cabinet from the management civil service. Until the end of the 19th century, it seems to have been generally assumed that the general meeting of all shareholders was the supreme organ of a company, and that the board of directors merely acted as an agent of the company subject to the control of the shareholders in general meeting.
However, by , the English Court of Appeal had made it clear in the decision of Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame  2 Ch 34 that the division of powers between the board and the shareholders in general meaning depended on the construction of the articles of association and that, where the powers of management were vested in the board, the general meeting could not interfere with their lawful exercise.
The articles were held to constitute a contract by which the members had agreed that "the directors and the directors alone shall manage.
Under English law, successive versions of Table A have reinforced the norm that, unless the directors are acting contrary to the law or the provisions of the Articles, the powers of conducting the management and affairs of the company are vested in them. A company is an entity distinct alike from its shareholders and its directors. Some of its powers may, according to its articles, be exercised by directors, certain other powers may be reserved for the shareholders in general meeting.
If powers of management are vested in the directors, they and they alone can exercise these powers. The only way in which the general body of shareholders can control the exercise of powers by the articles in the directors is by altering the articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they disapprove.
They cannot themselves usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholders. It has been remarked [ by whom?
In most legal systems, the appointment and removal of directors is voted upon by the shareholders in general meeting [a] or through a proxy statement. For publicly traded companies in the U. Directors may also leave office by resignation or death.
In some legal systems, directors may also be removed by a resolution of the remaining directors in some countries they may only do so "with cause"; in others the power is unrestricted.
Some jurisdictions also permit the board of directors to appoint directors, either to fill a vacancy which arises on resignation or death, or as an addition to the existing directors. In practice, it can be quite difficult to remove a director by a resolution in general meeting.
In many legal systems, the director has a right to receive special notice of any resolution to remove him or her; [b] the company must often supply a copy of the proposal to the director, who is usually entitled to be heard by the meeting. A recent study examines how corporate shareholders voted in director elections in the United States. Also, directors received fewer votes when they did not regularly attend board meetings or received negative recommendations from a proxy advisory firm.
The study also shows that companies often improve their corporate governance by removing poison pills or classified boards and by reducing excessive CEO pay after their directors receive low shareholder support. Board accountability to shareholders is a recurring issue. In , the New York Times noted that several directors who had overseen companies which had failed in the financial crisis of — had found new positions as directors.
The exercise by the board of directors of its powers usually occurs in board meetings. Most legal systems require sufficient notice to be given to all directors of these meetings, and that a quorum must be present before any business may be conducted. Usually, a meeting which is held without notice having been given is still valid if all of the directors attend, but it has been held that a failure to give notice may negate resolutions passed at a meeting, because the persuasive oratory of a minority of directors might have persuaded the majority to change their minds and vote otherwise.
In most common law countries, the powers of the board are vested in the board as a whole, and not in the individual directors. Because directors exercise control and management over the organization, but organizations are in theory run for the benefit of the shareholders , the law imposes strict duties on directors in relation to the exercise of their duties.
The duties imposed on directors are fiduciary duties, similar to those that the law imposes on those in similar positions of trust: The duties apply to each director separately, while the powers apply to the board jointly.
Also, the duties are owed to the company itself, and not to any other entity. Directors must exercise their powers for a proper purpose. While in many instances an improper purpose is readily evident, such as a director looking to feather his or her own nest or divert an investment opportunity to a relative, such breaches usually involve a breach of the director's duty to act in good faith.
Greater difficulties arise where the director, while acting in good faith, is serving a purpose that is not regarded by the law as proper. The case concerned the power of the directors to issue new shares. An argument that the power to issue shares could only be properly exercised to raise new capital was rejected as too narrow, and it was held that it would be a proper exercise of the director's powers to issue shares to a larger company to ensure the financial stability of the company, or as part of an agreement to exploit mineral rights owned by the company.
But if the sole purpose was to destroy a voting majority, or block a takeover bid, that would be an improper purpose. Not all jurisdictions recognised the "proper purpose" duty as separate from the "good faith" duty however. Directors cannot, without the consent of the company, fetter their discretion in relation to the exercise of their powers, and cannot bind themselves to vote in a particular way at future board meetings.
This does not mean, however, that the board cannot agree to the company entering into a contract which binds the company to a certain course, even if certain actions in that course will require further board approval.
The company remains bound, but the directors retain the discretion to vote against taking the future actions although that may involve a breach by the company of the contract that the board previously approved. As fiduciaries, the directors may not put themselves in a position where their interests and duties conflict with the duties that they owe to the company.
The law takes the view that good faith must not only be done, but must be manifestly seen to be done, and zealously patrols the conduct of directors in this regard; and will not allow directors to escape liability by asserting that his decision was in fact well founded. Traditionally, the law has divided conflicts of duty and interest into three sub-categories. By definition, where a director enters into a transaction with a company, there is a conflict between the director's interest to do well for himself out of the transaction and his duty to the company to ensure that the company gets as much as it can out of the transaction.
This rule is so strictly enforced that, even where the conflict of interest or conflict of duty is purely hypothetical, the directors can be forced to disgorge all personal gains arising from it. However, in many jurisdictions the members of the company are permitted to ratify transactions which would otherwise fall foul of this principle. It is also largely accepted in most jurisdictions that this principle can be overridden in the company's constitution. In many countries, there is also a statutory duty to declare interests in relation to any transactions, and the director can be fined for failing to make disclosure.
Directors must not, without the informed consent of the company, use for their own profit the company's assets, opportunities , or information. This prohibition is much less flexible than the prohibition against the transactions with the company, and attempts to circumvent it using provisions in the articles have met with limited success.
In Regal Hastings Ltd v Gulliver  All ER the House of Lords, in upholding what was regarded as a wholly unmeritorious claim by the shareholders, [h] held that:.
And accordingly, the directors were required to disgorge the profits that they made, and the shareholders received their windfall. The decision has been followed in several subsequent cases,  and is now regarded as settled law. Directors cannot compete directly with the company without a conflict of interest arising. Similarly, they should not act as directors of competing companies, as their duties to each company would then conflict with each other. Traditionally, the level of care and skill which has to be demonstrated by a director has been framed largely with reference to the non-executive director.
However, this decision was based firmly in the older notions see above that prevailed at the time as to the mode of corporate decision making, and effective control residing in the shareholders; if they elected and put up with an incompetent decision maker, they should not have recourse to complain. However, a more modern approach has since developed, and in Dorchester Finance Co Ltd v Stebbing  BCLC the court held that the rule in Equitable Fire related only to skill, and not to diligence.
With respect to diligence, what was required was:. More recently, it has been suggested that both the tests of skill and diligence should be assessed objectively and subjectively; in the United Kingdom, the statutory provisions relating to directors' duties in the new Companies Act have been codified on this basis. In most jurisdictions, the law provides for a variety of remedies in the event of a breach by the directors of their duties:. Historically, directors' duties have been owed almost exclusively to the company and its members, and the board was expected to exercise its powers for the financial benefit of the company.
However, more recently there have been attempts to "soften" the position, and provide for more scope for directors to act as good corporate citizens. For example, in the United Kingdom, the Companies Act requires directors of companies "to promote the success of the company for the benefit of its members as a whole" and sets out the following six factors regarding a director's duty to promote success:.
This represents a considerable departure from the traditional notion that directors' duties are owed only to the company. Previously in the United Kingdom, under the Companies Act , protections for non-member stakeholders were considerably more limited see, for example, s.
The changes have therefore been the subject of some criticism. Most companies have weak mechanisms for bringing the voice of society into the board room.
They rely on personalities who weren't appointed for their understanding of societal issues. Often they give limited focus both through time and financial resource to issues of corporate responsibility and sustainability. A Social Board  has society designed into its structure. It elevates the voice of society through specialist appointments to the board and mechanisms that empower innovation from within the organisation.
Social Boards align themselves with themes that are important to society. These may include measuring worker pay ratios, linking personal social and environmental objectives to remuneration, integrated reporting, fair tax and B-Corp Certification. Social Boards recognise that they are part of society and that they require more than a licence to operate to succeed.
They balance short-term shareholder pressure against long-term value creation, managing the business for a plurality of stakeholders including employees, shareholders, supply chains and civil society. The Sarbanes—Oxley Act of has introduced new standards of accountability on boards of U. Under the Act, directors risk large fines and prison sentences in the case of accounting crimes. Internal control is now the direct responsibility of directors.
The vast majority of companies covered by the Act have hired internal auditors to ensure that the company adheres to required standards of internal control. The internal auditors are required by law to report directly to an audit board, consisting of directors more than half of whom are outside directors, one of whom is a "financial expert.