After the collapse of Enron and similar corporations; many companies started having oversight boards to oversee the affairs of companies. This is done by establishing the internal audit department which in turn is supervised by the audit committee of the board of directors. For instance, in Nigeria, the board of directors of public companies have audit committee and they supervise the affairs of the internal audit of such public corporations.

Hi Talles 

As you know, in the literature, there are three main distinct corporate governance (CG) systems. German CG might be of interest to you. 

The supervisory board (Aufsichtsrat) in German companies have quite similar functions to the Oversight Board you have mentioned with some peculiarities such as participation of employees in DM processes. Here is a short excerpt from my contribution to an upcoming book by Emerald entitled "Modern Organizational Governance".

"One of the most distinct features of German model of corporate governance is its two-tier board of directors. German corporations are run under the two-tier system which calls for a clear separation between the management board and the supervisory board."  Netherlands and France has also two-tier systems (France has both).

Hope it helps

Although such a Board has become famous after the issuance of the US Sarbanes-Oxley Act of 2002, it is worth mentioning that similar boards have been in existence before that all over the world. However, now such boards are more prevalent and enjoy more powers.

The Anglo-Commonwealth model of corporate governance is to make the Board of Directors the key accountability body. Directors have full responsibility for what happens in their companies. At the same time, the corporate governance frameworks in these countries is principles based rather than rules based, and relies on directors creating a CG model that meets the spirit of the principles, but reflects the needs of that particular company. Listed companies must also comply with any listing rules - interestingly in New Zealand the NZ Stock Exchange is currently consulting on whether to incorporate the Financial Markets Authority's (the financial markets regulator) CG framework in place of its own, must more restricted, CG Code. This proposal is being received favourably because it will not impose further obligations on directors than already exist in the FMA framework.

Ok.. But what about Oversight Board? Here in Brazil we have Boar of Directors, Audit Committee and Oversight Board operating in a joint way

In the Anglo-Commonwealth model there are only boards of directors. Small and medium sized companies may have advisory boards, but these boards have no legal status, and if a member of an advisory board steps into any of the roles and responsibilities required of directors they run the risk of being deemed to be a director and therefore becoming liable for failing any director obligations as with appointed directors. Your system in Brazil sounds much more complicated on the face of it, but I am sure there are parameters and boundaries for each person or entity.

In Malta we have the financial services authority (MFSA) which as part of its functions oversees the corporate governance of listed companies. 

In Italy, most companies have two boards appointed by the shareholders: the board of directors and the supervisory board.

The supervisory board has partially different composition and responsibilities in listed and unlisted companies.

All members of the supervisory board are independent. Moreover, the law requires that in listed companies the chairman of the supervisory board is chosen among the members appointed by minority shareholders through a slate voting mechanism. Other members can be selected by the list proposed by minority shareholders.

In all companies (both listed and unlisted) the supervisory board is responsible for monitoring and reviewing the adequacy and well-functioning of the organisational structure, information system and internal control and risk management system. Furthermore, the supervisory board monitors and reviews the financial statements in unlisted companies, while this a duty of external auditors in listed companies.

It may interest you to consider the function of the Sharia' board in Islamic banks and companies, where it operates on a parallel platform as the board of directors ('BOD'). Though the BOD remains the highest decision-making authority, even in these Islamic institutions, the roles of the Sharia' board have indeed improved to include more than merely supervising and verifying the compliance of these institutions' products and business operations with the Islamic law. In countries such as Malaysia, the decisions of the Sharia board do not only bind the Islamic banks, but also the civil court by virtue of the Central Bank of Malaysia Act 2009. It is even arguable that at times, it appears the Sharia board possesses powers beyond those of the BOD, especially when it comes to Sharia compliance. Since the BOD normally comprises directors, who do not possess qualifications, experience, and skills in the Islamic law and its divergent legal methods, it is both reasonable and beneficial to grant the Sharia board such limited powers. You may of course, compare this with the corporate governance approach in Germany, which adopts a similar two-tier board model. Fascinatingly, the Islamic banks in Pakistan adopt a three-tier board model - comprising the BOD, Sharia board, and a Sharia compliance inspection unit. 

Todo depende de la legislación de un determinado país, en la República del Ecuador existes diferentes cuerpos legales para diferentes tipos de organizaciones, entre ellas tenemos la Ley de Compañías y Seguros que regula las actividades de las empresas no financieras, en su cuerpo legal determina la Junta General como máximo organismo de gestión de las empresas, y determina las funciones de este cuerpo colegiado.

En otro nivel están  los administradores, el comisario y los auditores, cada uno con sus funciones especificas.

To summarize all the above discussions we can see that in some countries (Germany, France and others) the two tier boards including the supervisory board play an important role in achieving the monitoring mechanism required in corporate governance structure. In other countries the audit committees play such a role with of course the board of directors where they oversee the controls and functions of the companies given their responsibility for the appointment of the external auditors as well as overseeing the financial reporting mechanism. However, the point of weakness for audit committee in some countries that its members are selected from the members of the board of directors even if they are non-executives they still play the two roles at the same time. Countries where members of the audit committees are elected directly from the shareholders in annual general meetings are more independent and can achieve effectiveness in their monitoring mechanism. Turning to government there are similar oversight boards such as PCAOB where such boards oversee the structure of the corporate governance mechanism with all its elements.

Excellent comment, Mr. Hegazy. I agree with all of it. Thank you.

Dear Thalles,

Indeed, in Germany there is board duality with an oversight board. Its members can differ depending on the industry and the size of the company, but in general terms and in case of public companies and limited corporations half of the board consists out of shareholders and the other half out of employee representatives, including up to 3 union members. However, the scope of the German board is not limited to the oversight of financial statements. It has also to monitor the executive board and can even veto some decisions of the executives. Finally, the executives are elected by the oversight board.

Paul

Hi Talles,

Each entity has its own way of defining its board(s) and setting boards' authorities and responsibilities. However, all entities agree to have boards that do the controlling, monitoring, and overseeing jobs properly.  

I think the question should be answered is the oversight boards are achieving their objectives of monitoring and supervising the work of the various business enterprises and at what cost. Are the requirements of the laws and decrees issued by these government bodies or those at the companies affecting the operations of the businesses in a positive way or are these bodies making life more difficult to management, auditors and sometimes shareholders. Finally, are they actually protecting shareholders funds or not.

Although I agree with your concerns, maybe you have understood my question in a wrong way, Mr. Hegazy. I mean oversight board as an additional CG mechanism, with differing goals in comparison with BoDs or audit committee, at least here in Brazil. An oversight board here must be composed only by outsiders and independent members and they have lots of attributions required on laws that BoDs do not have, and they are not legally required for any firm, unlike BoDs.

The question here: Is this oversight board a governmental recommendation or a governmental requirement? It appears that it is different from other boards or committees, especially since you mentioned that all members should be outsiders. 

Yes. It is different from other boards or committees arround the world and It is a governmental recommendation, not a requirement. You´re right, Mrs Baidhani. I call this committee "Oversight Board", but there is no translation for this from brazilian portuguese to english, because I couldn't find no similar structure in others countries. This is the reason for the question.

The question I raised can be applied for both by the way Government oversight Boards and what you have in Brazil. In my country I see audit committees playing such a role with some law requirements which are mandatory as well as others like in Brazil it is not necessary to comply with them but in the real life I see some committees (which are assuming the role of both audit committee responsibility in addition to oversight board) given they are also composed of independent members restricting the discussions and issues stated in the minutes so that weakness would not be seen by the governments oversight board. Not only that in some situations they try not to present their minutes to both the external auditors as well as the government bodies (SEC model) with the same objectives. Moreover, the qualifications and skills of the members who are independent may be in question??? I believe more research studies should be undertaken not only to assess the function of these oversight board and how theoretically speaking they are enhancing corporate governance but also how this is achieved in practice and real life governance.

HI,

This paper could be of interest fir you:

M Ferreira and P Laux, "Corporate boards and SEOs: The effect of certification and monitoring", Journal of Financial and Quantitative Analysis, June 2016, Vol 51, p 899 -927.

Best regatrds.

Browse the thematical collections of free papers on corporate governance at our web-site https://www.virtusinterpress.org/A-set-of-updated-thematic-paper-collections-from-Virtus-Interpress.html to find the papers matching your request.

Thanks