Board of Directors Composition
The size of the Board of Directors (BoD) should allow for its work to be organized as effectively as possible, including the creation of specialized committees. At the same time, the composition of the Board of Directors should ensure that significant minority shareholders have the opportunity to elect candidates to the Board who enjoy their support.
Proportion and Number of Independent Directors on the Board of Directors
Requirements for the number of independent directors are established by the following documents:
Corporate Governance Code (CGC) — at least one-third of the Board of Directors;
Level 1 Listing Rules — at least one-fifth of the Board of Directors, but no less than three independent directors;
Level 2 Listing Rules — at least two independent directors.
Concept of an Independent Director
Independent directors are individuals who have sufficient autonomy to formulate their own position and are capable of making objective, bona fide decisions, uninfluenced by the company’s executive bodies, individual shareholder groups, or other stakeholders. Such individuals must also possess the necessary professional knowledge and management experience.
Independence Criteria
It is recommended that a director be considered independent if they:
have no business or other ties to the company, including through consulting services;
are not affiliated with significant shareholders of the company;
have no relationships with key counterparties or competitors of the company;
are not affiliated with state or municipal authorities.
However, significant direct or indirect shareholding by non-executive independent directors may call into question their objectivity and independence in decision-making.
The Role of Independent Directors
Independent directors typically play a key role in:
executing the functions of the chairman of the board of directors, as well as leading committees and forming their majority;
evaluating decisions that could potentially lead to corporate conflicts;
reviewing and analyzing significant corporate actions;
reviewing related-party transactions;
evaluating the company’s performance in terms of ensuring that the interests of all shareholders are met;
analyzing the performance of the chairman of the board of directors (if not independent);
Consideration of candidates for the management company controlled by the majority shareholder.
Board of Directors Composition: Balance of Competencies
The composition of the Board of Directors should be balanced and ensure an optimal combination of professional qualifications, practical experience, industry knowledge, and business acumen among its members.
Time Resources of Board of Directors Members
Effective and conscientious performance of duties by a Board member requires that they have sufficient time to participate in the work of the Board and its committees. Therefore, it is recommended to establish a maximum number of committees in which a Board member may participate simultaneously.
Key Functions of the Board of Directors
The key powers of the Board of Directors include:
Determining the company’s development strategy, approving business plans, budgets, and key performance indicators;
Appointing and forming the executive management;
Assessing the performance of the executive bodies;
Establishing a remuneration system for top management;
Oversight of risk management, internal control, and internal audit;
Developing an information policy and monitoring information disclosure;
Approving material transactions;
resolution of corporate conflicts and conflicts of interest.