(copywrite ASRC tm 2002)
EDITORIAL NOTE: From June through December 2002, Arctic Slope Regional Corp. ran a series of five articles in its shareholder newsletter regarding the corporate governance of the corporation. With permission from ASRC, the series is being reprinted in the CIRI Shareholder Update to share with CIRI shareholders how these same laws affect our corporation, shareholders, directors, and management. Each article will appear in its entirety over the next few months.

This article is the second in a series responding to ASRC shareholders’ requests for more information on how the law requires the corporation to be run. As the first article explained, many laws apply to ASRC and its operations. Known as “corporate governance laws,” these laws tell ASRC who can make decisions about its business operations.

Corporate governance laws outline different decision-making roles for a corporation’s shareholders, board of directors and management. When each of these groups functions properly, the law will recognize ASRC as a legal “person” separate from its shareholders.

When each group plays its proper legal role, ASRC’s shareholders cannot be made to pay the debts of ASRC or any of ASRC’s subsidiary companies. This protection - called “the corporate veil” - is very important and must be preserved for the benefit of all ASRC shareholders. In this article, the legally required role of the board of directors will be explored.

The corporation’s shareholders elect the board of directors. By law, the board’s first duty of loyalty is to the corporation, to generate wealth for the benefit of all of the shareholders. The law gives the board the task of general oversight over the business affairs of the corporation which the board does by adopting corporate policies, business plans and goals that are then carried out by management. The board has the legal duty to see that the corporation runs its business ethically, lawfully, and in a responsible manner. If the board does not carry out its legal duty the board members can be fined, or even go to jail.

The board hires the chief executive officer and gives the CEO the authority to hire a management team to run the corporation. At ASRC, the CEO’s team includes a chief operations officer, a chief financial officer, general counsel (the corporation’s in-house attorney), various vice presidents, a corporate secretary and a corporate treasurer. The CEO and his staff (management) make all the decisions necessary to operate the corporation from day to day. They regularly report to the board for oversight and carry out the policies set by the board.

When making oversight decisions, the law allows board members to rely on the advice, reports and opinions of management, outside attorneys, accountants and other experts. But the board must make sure that each of these experts has experience in his or her field. Even then, ASRC board members still have to read lots of information and reports in order to be prepared for each monthly board meeting. Board members have to ask questions–and get answers–about how management and advisors reach their decisions or recommendations. A good board is not afraid to hold management accountable for the information and recommendations made to the board. But the board has to be careful not to get involved in the decision-making required to run the day-to-day operations of the corporation, because actually running the corporation is not part of the board’s proper legal role.

Some of the ways the board carries out its role to oversee the business of the corporation include: (a) understanding and monitoring the corporation’s strategic plans to see that they are being properly carried out by management to maximize business opportunities; (b) advising management on significant issues and approving significant corporate actions, including declaring shareholder dividends when the business operations of the corporation have been profitable; (c) understanding and reviewing annual budgets to make sure the corporation’s resources are being used in the best way possible to generate wealth; (d) focusing on the accuracy of the corporation’s financial reports, which is primarily done by the audit committee of the board. The audit committee employs inside and outside auditors who look at how the corporation handles money to find any weaknesses, fix them and prevent loss; (e) planning for management succession so there is always a pool of good leadership talent who can take over as senior management retires or leaves the corporation.

Some ASRC shareholders ask board members questions about what goes on at board meetings and may feel frustrated when board members won’t answer them. However, by law, the directors’ duty of loyalty to the corporation requires board members to keep all of the information discussed in board meetings absolutely confidential. This information cannot be distributed to all the shareholders or discussed with individual shareholders. Board members can direct a shareholder to the appropriate member of management who may be able to answer questions on specific concerns.

Clearly, the role played by the board of a corporation is very different than the roles played by elected government officials such as North Slope Borough Assembly members, state legislators or federal congressmen and senators. The public has a right to know just about everything its elected representatives are doing. Not so with the actions of the board of a corporation. Restricted access to corporate information is necessary for ASRC to meet its mission of generating wealth for all of its shareholders. If confidential corporate information becomes known to the public, it can seriously hurt ASRC’s ability to compete in its business markets. Board members have a legal duty to protect ASRC’s confidential business information.

The law requires the board and management to report to the shareholders once each year. Management prepares the corporation’s annual report, which is reviewed and approved by the board and sent to every shareholder. The annual report tells the shareholders how well the corporation is generating wealth for their benefit. A future article will discuss shareholders’ legal right to access corporate information in more detail.

General oversight of the corporation’s business is the number one duty of the board. The law holds each board member to the highest standard of conduct when making decisions for ASRC. Each board member must put ASRC’s needs first. This means that board members must avoid “conflicts of interest.” A conflict of interest happens when a board member (or the family of a board member) is in a position to make money at the expense of the corporation. Board members have to be able to act only in the best interest of ASRC for the benefit of all the ASRC shareholders.

Serving on the ASRC board is hard work. Over the years, shareholders have been fortunate to have had so many loyal directors who have served the corporation well.