Career Assessment Test

Introduction:

In recent years, directors and officers liability insurance has become a core component of corporate insurance. As many as 95% of Fortune 500 companies maintain directors and officers (“D&O”) liability insurance today. Furthermore, it has become a commonplace of the financial world that disappointed investors will charge corporations and their officers and directors with securities fraud whenever a company’s stock drops significantly in price. Studies indicate that the average settlement of securities fraud litigation in 1999 was greater than $8 million, with average defense costs exceeding $1 million. In light of these numbers, it should not be surprising that such litigation has become almost routine, and D&O liability insurance plays a large role in handling it. At the same time, the D&O insurance industry has become highly specialized and new products are constantly emerging to meet the needs of specific markets. This article will discuss the historic and current trends in the industry. In addition, this article will address some of the primary legal and coverage concerns that must be considered by underwriters, claims handlers, corporations and their executives, and the attorneys who represent them.

History of D&O Insurance:

In the 1930s, in the wake of the depression, Lloyd’s of London introduced coverage for corporate directors and officers. At the time, corporations were not permitted to indemnify their directors and officers. Joseph P. Monteleone & Nicholas J. Conca, Directors and Officers Indemnification and Liability Insurance: An Overview of Legal and Practical Issues, 51 Bus. Law 573, 574 (1996). However, directors and officers did not perceive a great risk, and the insurance did not sell. Well into the 1960s, the market for D&O coverage was negligible. In the 1940s and 1950s, courts, corporations and directors and officers began to see benefits to corporate indemnification and prompted state legislatures to enact laws permitting it. Then, during the 1960s changes in the interpretation of the securities laws created the realistic possibility that directors and officers themselves, and not only corporations, could face significant liability. See Roberta Romano, What Went Wrong with Directors’ and Officers’ Liability Insurance, 14 Del. J. Corp. L. 1, 21 & nn. 74-77 (1989). Insurers responded to these changes by reviving specialty coverage for the “personal financial protection” of directors and officers.

The historic focus on “personal financial protection” distinguished D&O insurance from other kinds of commercial insurance that cover identified areas of corporate risk. Insurers had defined corporate risks they would insure. General liability insurance provided corporate insurance for bodily injury or property damage claims; fidelity bonds afforded specified first-party coverage for losses corporations incur due to certain acts of their officers, directors, or employees. D&O coverage, on the other hand, was not intended to be corporate insurance; much less an attempt at general corporate insurance for liability caused the corporation by virtue of the acts of its directors and officers. In recent years, however, D&O coverage has undergone a number of changes.

Current Importance of D&O Insurance:

The D&O industry matured and evolved during the 1970s through the 1990s, and continues to do so today. From its modest beginnings in the 1930s, D&O insurance has become a fixture in today’s corporate world. Starting with basic D&O coverage, the industry has spawned a large number of new and related products. The original focus on “personal financial protection” is no longer the single driving force behind the industry, and D&O insurance is often coupled with coverages designed to protect the corporation, in addition to its directors and officers, from various liabilities.

During the 1980s, the first litigated disputes between D&O insurers and federal regulators (or the former bank officials whom the regulators sued) brought D&O coverage into the forefront in many significant and often highly publicized matters. In recent years, corporations of all kinds and their directors and officers have seen an increasing number of claims and increasingly large settlements. Watson Wyatt Worldwide, D&O Liability Survey Report (1997). Thus, D&O insurance remains an important protection for directors and officers. In addition to the traditional protections, the industry has set a trend toward expanding D&O coverage – both in terms of who is protected and against what they are protected. Many underwriters now write coverages that offer protection to the company for its own liability and for specific corporate concerns.

Claims against Directors and Officers:

As noted above, claims against directors and officers generally have been increasing over time. As of the most recent Wyatt survey, 31% of all companies – an all time high – could expect to have at least one claim made against its directors or officers, and each company averaged 0.87 claims – also an all time high. Watson Wyatt Worldwide, D&O Liability Survey Report, at pp. 42-44 (1997) (the “1997 Wyatt Report”). The frequency of claims against directors and officers, and the susceptibility of officers and directors to claims corresponds to a number of factors, including the size of the company, the company’s type of business, whether the company is publicly or privately owned, and its number of shareholders. For example, companies with greater assets are more likely to have claims made against their directors and officers and on average experience more claims per company than smaller companies. Publicly held companies have two to three times as many claims made against their directors and officers than privately or closely held companies. However, companies with greater than 500 shareholders have a higher claim frequency than smaller companies, regardless of private or public status. Id.

Specifically, according to the 1997 Wyatt Report, companies with assets less than $100 million had a 12% susceptibility to claims, but companies with assets greater than $10 billion had a 63% chance of having a claim made against its directors or officers, and companies with assets greater than $1 billion averaged 1.64 claims per company in 1997. Large banking companies are the most likely type of business to have claims made against their directors and officers and average the most claims per company. Forty-two percent of large banks will have at least one claim made, while the large banking industry as a whole can expect an average of 6.69 claims per company. With the explosion of technology companies in the last ten years, and the corresponding fluctuations in their stock prices, claims against technology companies have also increased dramatically.

Basic Coverages:

At its most basic, D&O insurance protects directors and officers from liability arising from actions connected to their corporate positions. Due to general expansion in the industry, market pressures and the industry’s responses to the development of case law, D&O insurance has expanded beyond its original and basic coverage. Thus, a single policy now may provide multiple and varied options by standard form or endorsement. The individual coverages discussed below typically are subject to distinct terms, conditions and deductibles, and even may be subject to distinct policy limits or sublimits. However, some common threads run through each coverage offered in a D&O policy. For example, D&O insuring agreements generally specify that coverage is limited to claims first made during the policy period. In addition, the insurer typically does not have a duty to defend but is required to cover the costs of the insured’s defense.

Insuring Agreement [A] (D&O):

Although each policy will employ its own language, Insuring Agreement A, often referred to as “A-Side Coverage,” typically provides coverage directly to the directors and officers for loss – including defense costs – resulting from claims made against them for their wrongful acts. A-Side Coverage applies where the corporation does not indemnify its directors and officers. A corporation may not indemnify its directors or officers because it either (1) is prohibited by law from doing so, (2) is permitted to do so by law and the company’s bylaws but chooses not to do so, or (3) is financially incapable of doing so, due to bankruptcy, liquidation, or lack of funds. The laws regarding indemnification differ from jurisdiction to jurisdiction. Insuring Agreement A additionally may specify that coverage is limited to those claims connected to an insured’s capacity as an insured director or officer of the company. This issue of capacity recurs throughout D&O coverage analysis. The limiting language may appear in the insuring clause, in the definitions of “wrongful act” or “insured” found elsewhere in the policy, or in all three clauses. Although a claim sometimes implicates an insured in a single and clear capacity, a claim may well arise out of an individual’s multiple capacities. For example, an individual may be sued as a director and a shareholder of a company (perhaps as a purchaser or seller of company stock), or an officer of a homeowner’s association may also be a homeowner and it may not be clear whether his or her actions were taken as one or the other – or both. Similarly, a corporations’ lawyer may also sit on the board of directors.

Insuring Agreement [B] (Corporate Reimbursement):

A typical Insuring Agreement B, or “B-side coverage,” reimburses a corporation for its loss where the corporation indemnifies its directors and officers for claims against them. B-side coverage does not provide coverage for the corporation for its own liability. The language and conditions of Insuring Clause B typically mirror Insuring Clause A.

Entity Securities Coverage:

Many D&O policies offer an optional coverage to protect the corporation against securities claims. Such coverage provides protection for the corporation for its own liability. Many policies today provide such coverage to the corporation whether or not its directors and officers are also sued; other policies, however, provide such coverage only where the corporation is a co-defendant with its directors and officers. Entity coverage may be part of the policy form as “Insuring Agreement C” or may be added as an endorsement. The addition of entity coverage for securities claims is a relatively new development, and addresses concerns and confusion raised by court rulings regarding allocation. See e.g. Nordstrom, Inc. v. Chubb & Son, Inc., 54 F.3d 1425 (9th Cir. 1995).

EPL Coverage:

Employment Practices Liability (“EPL”) coverage also has become a common addition to corporate coverage – often by endorsement to the D&O policy or as a stand-alone policy issued to the company. This coverage typically protects directors, officers, employees and/or the company against employment-related claims brought by employees and, in certain circumstances, specified third-parties. For example, it provides coverage for wrongful dismissals or failures to promote, sexual harassment, and other violations of federal, state or local employment and discrimination laws brought by the company’s employees. EPL claims have also seen a dramatic increase in frequency and severity over the past decade.

Defence Issues:

Most D&O policies do not impose a duty to defend on the insurer. They do, however, provide coverage for defense costs and give the insurer the right to associate with the defense and approve defense strategies, expenditures, and settlements.

Right to Select Counsel:

(A) The D&O insurer cannot impose its choice of counsel on an insured – the insured generally has the right to select counsel, subject to the insurer’s consent. D&O policies typically provide that an insurer may not unreasonably withhold approval of an insured’s choice of counsel. This feature is important to the insured corporation, which typically has developed ongoing relations with corporate and litigation counsel that it would want to use in high-stakes litigation against the company.

(B) Reimbursement and Advancement of Defense Costs Although D&O insurers generally do not have a duty to defend, D&O policies do cover defense costs. The primary questions that arise in connection with the payment of defense costs regard (1) control over the costs incurred and (2) when the insurer must make defense payments. In connection with the first question, although insurers do not control an insured’s defense, under D&O policies they are required to reimburse only reasonable defense costs arising out of covered claims. Thus, an insured or his chosen counsel does not get a blank check.

Whether a D&O insurer must, or should, advance defense costs – that is, pay them as they are incurred – is a common question. Many of the issues affecting coverage cannot be resolved until the claim has been resolved. Specifically, certain exclusions only apply after a finding of fact has been made. For example, as discussed below, policies generally exclude coverage for losses arising out of fraud. The exclusion only applies, however, where there is a final judgment finding fraud. Thus, where fraud is alleged, coverage is uncertain until the completion of the claim. In such situations, insurers may have an interest in not advancing defense costs until coverage is certain. However, insurers have an interest in seeing their insured vigorously defend claims against them. A vigorous defense can be a costly endeavor that may be well beyond the means of an insured. Thus, many policies provide that insurers advance defense costs under the condition that, should the facts ultimately demonstrate a lack of coverage, the insured will reimburse the advanced monies.

Key Provisions and Exclusions:

Twenty years ago, underwriters offered D&O policies based on two basic forms, and courts had seen very few cases in which they were asked to interpret those policies. Today, the number of D&O policy forms and cases interpreting them has multiplied. Although there are trends and standards within the industry, the specific language found in these policies differs from insurer to insurer and from policy to policy. Any coverage analysis must take into account the specific language found in the policy at issue. As a general matter, clear policy language will govern the application of coverage to a particular claim.

Definition of Claim:

Common to all coverages in a D&O policy is that each insuring clause generally provides coverage on a “claims-made” basis. In other words, it provides the coverage described for claims made during the period for which the coverage is purchased. Additionally, the insured typically must report the claim to the insurer during the policy period or within a reasonable time.

D&O policies generally define claim as any (1) civil, criminal or administrative proceeding, or (2) written demand for damages against an insured. Who is included as an insured will depend on which coverages are implicated and how the term is defined in the policy. That is, if it is a securities claim, and the policy so provides, a claim may be made against the company or against a director or officer. If it is an employment claim, and the policy so provides, a claim may be made against the company, a director or officer, or an employee.

Some policies offer more detailed definitions of claim. For example, a policy may state that a civil proceeding includes arbitration, mediation or other alternative dispute resolution. A policy may also explain that an administrative proceeding includes a formal investigation.

Many policies also include limiting a claim to those proceedings or demands made against an insured in his or her capacity as an insured. The capacity issue may be stated directly in the definition of claim, or may be stated in the definitions of “insured” or “wrongful act,” either of which may be part of the definition of claim.

Definition of Loss:

Loss generally includes damages, judgments, awards, settlements and defense costs. Loss usually excludes fines or penalties, taxes, treble (or other multiplied) damages, and matters uninsurable under law. Where treble or multiplied damages are assessed, a D&O policy generally will cover the base amount, but not the multiplied portion of the loss. Some policies include punitive and exemplary damages in the definition of loss. Where included, coverage of punitive and exemplary damages explicitly is effective only where permitted by applicable law.

Punitive or exemplary damages:

Some states do not permit punitive or exemplary damages to be assessed at all. See e.g. Distinctive Printing and Packaging Co. v. Cox, 443 N.W.2d 566 (Neb. 1989). Those states that do permit punitive damages to be assessed may not permit insurance against them. See e.g. City Products Corp. v. Globe Indem. Co., 151 Cal. Rptr. 494 (Cal. Ct. App. 1979). Those states prohibiting coverage of punitive damages generally base the prohibition on public policy concerns. The longstanding reasoning is that the assessment of punitive damages is intended to set an example or punish the wrongdoer, and permitting insurance against such punishment would render such punishment ineffective. Id.

Matters uninsurable under applicable law:

Matters deemed uninsurable under law also may be the basis of explicit exclusions elsewhere in a policy. For example, coverage for liability for fraud may be barred by law, as well as by a dishonesty exclusion. As discussed above, coverage for punitive damages also may be barred by law.

Exclusions-

1.   Dishonesty Exclusion:

Dishonesty exclusions bar coverage for claims made in connection with an insured’s dishonesty, fraud, or willful violation of laws or statutes. The dishonesty exclusion also may be coupled with personal profit exclusion, barring coverage in connection with an insured’s illicit gain. These exclusions typically are followed by a severability clause – that is, a caveat providing that the acts or knowledge of one insured will not be imputed to any other insured for the purposes of applying the exclusion. In other words, the exclusion only bars coverage for the insured(s) whose acts or knowledge are the basis of the claim at issue.

In the securities context, the Private Securities Litigation Reform Act of 1995 permits a defendant to request a special verdict from the jury, identifying its judgment of each defendant’s state of mind. PSLRA, 15 U.S.C. 77z-1(d). Although a special verdict would assist in the proper application of the dishonesty exclusion, most securities lawsuits do not reach a verdict at all – they are either settled or decided on motions.

As mentioned above, many dishonesty exclusions include an adjudication clause, which provides that the exclusion only applies if the fraud or dishonesty is established by a judgment or other final adjudication. In connection with this clause, the question arises whether the judgment or other final adjudication must be in the underlying litigation. For the most part, the case law on this subject supports the position that most adjudication clauses, as they currently are written, require a final adjudication in the underlying litigation, rather than in a parallel coverage action or other lawsuit. Courts have held either that (1) the adjudication clause is ambiguous, so must be interpreted in favor of coverage, see e.g., Atlantic Permanent Fed. Sav. & Loan Ass’n v. American Cas. Co., 839 F.2d 212, 216-17 (4th Cir. 1988) (finding the phrase “a judgment or other final adjudication thereof” to be ambiguous, and therefore upholding the district court’s decision against the insurer that the provision requires a finding of deliberate dishonesty “in the underlying action itself, rather than a subsequent coverage suit”), or (2) the clause explicitly requires a finding of fraud or dishonesty in the underlying litigation. See National Union Fire Ins. Co. v. Continental Illinois Corp., 666 F. Supp. 1180, 1197 (N.D. Ill. 1987) (finding that where an adjudication clause requires “a judgment or other final adjudication thereof,” that “[t]he word ‘thereof’ refers to the suit against the directors and officers and unless there is a judgment adverse to them in the underlying suit, then the exclusion does not apply”). This issue has a significant impact on the effect of settlements. Essentially, if an underlying lawsuit is settled without a specific admission of liability, a dishonesty exclusion is unlikely to apply.

2.   Insured v. Insured Exclusion:

As the name implies, an insured versus insured (“IvI”) exclusion bars coverage for claims made by an insured (e.g., a director, officer or corporate insured) against another insured. In addition, the exclusion may bar coverage for claims brought (1) by anyone directly or indirectly affiliated with an insured, (2) by a shareholder unless the shareholder is acting independently and without input from any insured, or (3) at the behest of an insured. The exclusion essentially prevents a company from suing or orchestrating a suit against its directors and officers in order to collect insurance proceeds. Questions regarding the application of the exclusion arise in the context of derivative lawsuits, bankruptcies and receiverships.

Specifically, it is clear that where a lawsuit is brought with the “active assistance” of an insured, the exclusion bars coverage. See e.g. Voluntary Hospitals of America, Inc. v. National Union Fire Ins. Co., 859 F. Supp. 260 (N.D. Tex. 1993), aff’d 24 F.3d 239 (5th Cir. 1994). It is not always clear, however, when a lawsuit is brought with the indirect involvement of, or at the behest of the insured, and there is very little case law expounding on the issue.

Where the policy only provides coverage for insureds when acting in their capacities as insureds – such as through a restrictive insuring agreement or definition of insured – the IvI exclusion likewise may be interpreted so as to apply only where the insured is bringing suit in an insured capacity. See Howard Savings Bank v. Northland Ins. Co., 1997 U.S. Dist. LEXIS 11857 (N.D. Ill. 1997). Where coverage does not depend explicitly on whether an insured was acting in an insured capacity, however, the IvI exclusion does not turn on the capacity issue either. See Kiewit Diversified Group Inc. v. Federal Ins. Co., 999 F. Supp. 1169 (N.D. Ill 1998).

Courts have held that where suit is brought by the receiver of a failed bank, an IvI exclusion bars coverage. Mount Hawley Ins. Co. v. FSLIC, 695 F. Supp. 469 (C.D. Cal. 1987); but see FDIC v. American Casualty Co., 814 F. Supp. 1021 (D. Wyo. 1991). Depending on the particular wording of the exclusion, some courts have held that an IvI exclusion does not bar coverage for a suit brought by a bankruptcy trustee. In re Pintlar, 205 B.R. 945 (Bankr. D. Idaho 1997); but see Reliance Ins. Co. v. Weiss, 148 B.R. 575 (E.D. Mo. 1992).

3.   Professional Liability Exclusion:

As a general matter, D&O policies do not provide coverage for liability associated with the provision of professional services. Thus, where a bank officer is liable for acts as a banker rather than an officer of the bank, a D&O policy with a professional liability exclusion would not provide coverage. Similarly, where a doctor is the president of a professional corporation, the D&O policy would only protect him or her against liability from acts as president of the corporation, and would not provide coverage for professional malpractice claims. The line between professional services and acts outside the scope of this exclusion can be a fine one. Courts often draw a distinction between those acts that require special training or are at the heart of the profession and those acts that are administrative in nature. See e.g. Harad v. Aetna Cas. and Sur. Co., 839 F.2d 979 (3d Cir. 1988).

4.   Prior Acts Exclusion:

Prior acts exclusions bar coverage for claims arising out of an insured’s wrongful acts prior to a specified date. The date may coincide with the termination of coverage under a previous policy. The date may also coincide with a change in corporate status – such as a merger or acquisition. For example, where a subsidiary is acquired, the prior acts exclusion may exclude coverage for the subsidiary prior to the time it became a subsidiary. In such situations, the subsidiary may have run-off coverage from a previous policy to protect against liability arising from those excluded acts.

5.   Prior and Pending Litigation Exclusion:

Prior and pending litigation exclusions generally exclude coverage for (1) claims pending prior to the inception of the policy, or another agreed upon date, and (2) subsequent claims based on the same facts or circumstances. Conflicts primarily arise regarding the second component of this exclusion. Specifically, the question arises as to when a subsequent claim is based on sufficiently overlapping facts and circumstances to fall within the scope of the exclusion. Courts have held that the two claims need not be brought by the same plaintiffs to trigger the exclusion. See e.g., Unified School Dist. No. 501 v. Continental Cas. Co., 723 F. Supp. 564 (D. Kansas 1989) (finding exclusion applied where new plaintiffs brought new claims). Furthermore, the claims can allege different harms, and still be excluded from coverage by this provision. See, e.g., Ameriwood Indus. Int’l Corp. v. Am. Cas. Co. of Reading, Pennsylvania, 840 F. Supp. 1143 (W.D. Mich. 1993) (rejecting argument that allegation of different legal claims prevented operation of exclusion). The exclusion additionally may apply even if the two claims allege different legal violations, or are brought in different courts and pursuant to the authority of different jurisdictions. See, e.g., Bensalem Township v. Int’l Surplus Lines Ins. Co., 91-5315, 1992 U.S. Dist. LEXIS 8243 (E.D. Pa. June 15, 1992) (applying exclusion where prior claims sought relief for violations of Pennsylvania law and later claims sought relief for violations of federal law), rev’d on other grounds, 38 F.3d 1303 (3d Cir. 1994).

Meaning of Director as per the Companies Act, 1956:

A company is a legal entity and does not have any physical existence. It can act only through natural persons to run its affairs. The person, acting on its behalf, is called Director.

Section 2(13) of the Companies Act, 1956, defines a Director as any person, occupying the position of Director, by whatever name called. They are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company.

The definition of Director given in this clause is an inclusive definition. It includes any person who occupies the position of a director is known as Director whether or not designated as Director. It is not the name by which a person is called but the position he occupies and the functions and duties which he discharges that determine whether in fact he is a Director or not. The function is everything; name matters nothing. So long as a person is duly, appointed by the company to control the company”s business and, authorized by the Articles to contract in the company”s name and, on its behalf, he functions as a Director.

The Articles of a company may, therefore, designate its Directors as governors, members of the governing council or, the board of management, or give them any other title, but so far as the law is concerned, they are simple Directors.

Meaning of Liability:

The word liability has two general connotations. In business law, liability refers to the responsibility for a company’s debt or other obligations. Some forms of business organization, such as a sole proprietorship, have unlimited liability, meaning that the owner is personally responsible for the debts and obligations of the business, and lenders or courts may look to the owner’s personal assets for payment of these obligations. Limited liability organizations, such as corporations, allow lenders and courts to only seize the assets of the business rather than the assets of the owners.

 

However, liability is more frequently used in an accounting sense, where the word refers to a claim on a company’s assets. Technically, a liability is a required transfer of assets or services that must occur on or by a specified date as a result of some other event that has already occurred.

Why liability matters?

Information about a company’s liabilities is a key component of accurate financial reporting and a crucial part of thorough financial analysis. Although the Financial Accounting Standards Board, the Securities and Exchange Commission, and other regulatory bodies define how and when a company’s liabilities are reported, and although liabilities make up a significant portion of the balance sheet, not all liabilities are required to appear on the balance sheet. Therefore, analysts must also carefully study the notes to a company’s financial statements.

 

Excessive liabilities can ruin a company, but they are not always detrimental. Liabilities often represent the company’s ability to defer cash outlays, allowing it to use that cash for other, possibly more profitable purposes until the obligation is due. The use of debt financing can magnify profits that would have otherwise gone unrealized.

Liability of directors under the Companies Act, 1956

 Position of director:

The directors are the custodian of the interests of the shareholders. Their position is fiduciary vis-à-vis the Company. The directors must exercise their power for the benefit of the Company. There exists a relationship of a trustee and trust between the directors and the shareholders of the Company. The directors have been held trustees of the assets of the Company and in many cases the courts have directed them to reimburse the loss to the Company, where it was found that directors have applied the Company’s money in payment of an improper commission.  Each section also specifies the penalty to be paid in case of default, imprisonment or both.

The strictness with which the courts view the responsibility and the sacredness of the trust reposed in the directors had been  emphasized in many cases. Their position has further changed in the era of Corporate Governance to the extent that the directors have to protect the interests of not only the shareholders but also other stakeholders.

In this article an attempt is made to define the extent and scope of liabilities of Directors viz. Managing Director, Working Director and an ordinary Director under the Companies Act, 1956.

Liabilities of Directors:

The liabilities of the directors vary according to the status of the Company i.e. whether the Company is private or public. But in all cases in discharging the duties of his position, he must act honestly, carefully and without any negligence. The various liabilities of directors under the companies Act, 1956 may be summarized as under:

1. Filing of various documents with Registrar of Companies:

a) Annual Return within 60 days of the annual general meeting.

b) Balance Sheet within 30 days of laying the accounts at the annual general meeting.

c) Return of Allotment of Shares in Form No. 2 within 30 days of Allotment of shares.

d) Change in Directors / Secretary (Appointment / Re-appointment /Cessation/ Resignation etc.) in Form No. 32 within 30 days of such change.

e) Registration of certain resolutions and agreements u/s 192 in Form No. 23 within 30 days of passing of such resolutions etc.

f) Creation & modification of charges in Form No. 8 & 13 and Satisfaction of charges in Form No. 17 & 13, within 30 days of creation, modification and satisfaction respectively.

2. Holding of various Meetings under Companies Act, 1956:

a) Board Meeting:

b) Annual General Meeting

c) Extra-ordinary General Meeting

3. Maintenance of Statutory Books under Companies Act, 1956:

a) Minutes Book: for Board meeting and General meetings separately u/s 193.

b) Register of Members : showing name, address and occupation of each member, the  share held including the distinctive numbers, the amount paid on the shares etc.u/s 150/151

c) Register of interested Directors etc. : showing the required particulars u/s 301

d) Register of Directors, Managing Directors and Secretary : showing the required particulars about them etc. u/s 303

e) Register of Directors, Managing Directors and Secretary shareholding: showing the required details about shareholding etc. u/s 307.

f) Register of Charges: showing the particulars of charges on the assets of the company u/s 143.

g) Register of Investments showing particulars of investment u/s 49/ 372A.

h) Register of Transfer of Shares: along with details relating to the transferor and the transferee and the No. of shares transfer etc.

4. Liability for negligence

5. Standard and degree of care and skill

6. Special Statutory Protection against Liability [S.633]

7. Fiduciary Duties

1.Directors as Officers in Default:

a) . Acceptance of public deposit

Directors and Officers Liability Insurance

(often called D&O) is insurance payable to the directors and officers of a company, or to the corporation itself, to cover damages or defense costs in the event they are sued for wrongful acts while they were with that company.

Typical sources of claims include shareholders, shareholder-derivative actions, customers, regulators, and competitors (for anti-trust or unfair trade practice allegations).

Directors and Officers Liability insurance is commonly purchased with a companion product “Corporate Reimbursement Insurance” (or “Company Reimbursement Insurance”). When purchased together, a single insurance policy is normally issued which is entitled “Directors and Officers Liability and Company Reimbursement Insurance”. Modern Directors  & Officers policies now frequently include cover for the Company Entity itself as well as Employment Practice Liability.

D&O insurance is usually purchased by the company itself, even when it is for the sole benefit of directors and officers. Reasons for doing so are many, but commonly would assist a company in attracting and retaining directors. Where a country’s legislation prevents the company from purchasing the insurance, a premium split between the directors and the company is often done, so as to demonstrate that the directors have paid a portion of the premium.

A common misperception of D&O insurance is that it makes directors or officers able to engage in acts they know to be wrong; this is not the case. Intentional acts are not covered in D&O insurance. Only negligence by directors or officers would be covered.

In a recent spate of litigation, a number of adverse court verdicts regarding the liability of directors and officers of companies to a third party were passed where the directors and officers were held personally liable for payment of compensation to the third party. Ordinarily, the directors and officers are bound by duty towards the company itself, shareholders, employees, creditors, customers, competitors, members of the public, government and other regulatory bodies. Any breach or non-performance in the duties can result in claims against the companies and/or its directors of the company by reason of any wrongful act in their respective capacity. The Directors’ and Officers’ Liability Insurance policy has been designed specifically to meet any financial liabilities imposed upon them.

This policy is necessary for directors and officers of every company if they wish to avoid potential litigation owing to-

Failure of supervision.
Inaccuracy in statements of financial accounts.
Lack of judgement and good faith.
Mismanagement of funds.
Mis-statements in prospectuses.
Allotment of shares.
Unauthorised loans or investments.
Failure to obtain competitive bids.
Imprudent expansion resulting in a loss.
Using inside information.
Unwarranted dividend payment, salaries or compensation.
Misleading statements filed with the stock exchange.
Misrepresentation in acquisition agreement for the purchase of another company.
Wrongful dismissal of an employee.

Risks covered:

This policy covers all claims made in event of-

Mergers, takeovers and divestment.
Liquidation.
Changes in control of shareholding.
Share issues.
Shareholder claims.
Misdeeds of co-directors.
Trustee accountability and responsibility.
Customs and excise allegations.
Administrative liabilities.
Termination of employment.
Disposal of old firm/ entry of new owners.
Miscellaneous litigation.

Compensation Offered:

The extent of indemnity being severely restricted by the Companies’ Act will reimburse the extent of legal costs expended only if the Director/ Officer successfully defend the act taken against him.

Also, coverage is available on a ‘claims made’ basis and applies only to claims made against the Board of Directors during the policy period, irrespective of when the wrongful act occurred.

The cover applies to-

Liabilities arising from any claim made against Directors and/ or Officers of the company by reason of any wrongful act in their respective capacity.
Liabilities against the company where it is required to indemnify the Directors/ Officers pursuant to common or statutory law provisions or Memorandum and Articles of Association.
The company and its subsidiaries that are under the common control of the Directors/ Officers.

Exclusions:

The policy will not pay for the losses arising from any claim.
Prior and pending litigation and claims submitted under previous policies.
Bodily injury, sickness, disease, emotional distress, death, damage or destruction of tangible property including loss. 
Insured v/s Insured. viz. Directors suing each other.
Illegal personal profit and remuneration.
Deliberate, dishonest or fraudulent acts.
Pollution and/ or contamination.
Insider trading.
Outside directorship (can be covered with specific information).

This policy is offered by:

National Insurance Company Ltd. (NIC)
The Oriental Insurance Company Ltd. (OIC)
United India Insurance Company Ltd. (UIIC)
The New India Assurance Company Ltd. (NIAC)
Directors & Officers Liability is the liability (or exposure to litigation) of corporate board members and officers arising out of their actions pertaining to their management duties of the corporation. Directors & Officers Liability Insurance insures the personal assets of corporate board members and officers [as well as the company's corporate assets] from lawsuits arising out of their capacity as directors or officers of the cooperation.

What are the responsibilities of Corporate Boards?

Review & authorize major corporate actions.
Advice & counsel management on corporate decisions.
Review & oversee proper audit procedures.
Review the Cooperation’s investments.
Stay informed about the Corporation’s financial status and legal developments.

Assist management in decision-making
Verify the Corporation is in compliance with all applicable statutes, regulations & laws.
Monitor management’s performance.

Directors & Officers of corporations are responsible for the affairs of their companies. They must use good faith and prudent judgment in their service to the corporation. Directors & Officers have certain duties and responsibilities when acting in the service of the corporation. These duties are, as follows:

General Duties – Directors & Officers must act in good faith and prudent judgment in their service to the cooperation.

Common Law Duties – The following are the common law duties-

Duty of Loyalty – Directors  & Officers must avoid conflicts of interest, self-dealing, and misuse of corporate assets.

Duty of Obedience -Directors  & Officers must act within the boundaries established by statute, corporate charter or by-laws, and written policies and procedures.

Duty of Diligence and Care - Directors  & Officers must conduct themselves with the care that an ordinary person would exercise under similar circumstances and in similar capacities.

Statutory Duties - There are several laws and statutes that regulate the actions and decisions of Directors  & Officers.

Securities Laws
Anti-Trust Laws
Employment Laws
ERISA Violations
Racketeering Laws
Tax Laws
Environmental Laws
Intellectual Property & Patent Laws
State Corporation Laws

Business Judgment Rule – Directors & Officers have historically been protected from personal liability against them by a legal principal known as the Business Judgment Rule. This legal principal shields corporate directors & officers by applying the rule for mistakes in judgment (i.e. second-guessing). As long as the director or officers has acted according to the duties of loyalty, obedience and diligence, then the director or officer may be protected by the Business Judgment Rule.

Directors & Officers Liability Claims:

Directors & Officers of both Public and Private Companies face legal liabilities in their service to the corporation. The claims experience between the two varies. Public Companies experience more frequency and severity of claims related to shareholder issues, while both Public and Private Companies face similar experience for Employment Related Claims. Below is a partial list of typical claimants:

Shareholders
Employees
Creditors
Customers/Clients
Competitors
Government Regulatory Agencies

There are three categories of protection against personal liability of Directors & Officers of corporations:

Indemnification:

The corporation may indemnify their directors & officers for litigation. This is usually accomplished by incorporating an indemnification clause in the corporate by-laws or by a separate written indemnification agreement. Indemnification is also often available and governed through state law. Some conduct by the directors & officers is not indefinable, such as dishonest/illegal acts or intentional misconduct. Indemnification may not be available to directors & officers in cases of financial insolvency or bankruptcy.

Common Law and Statute:

Business Judgment Rule – Courts may apply the Business Judgment Rule to protect directors & officers from personal liability.

Liability-Limiting Statutes – some state and federal laws provide limitation of liability in certain cases.

Insurance Coverage:

Insurance provides protection for individual directors & officers when the corporation is not permitted to indemnify or financially unable to indemnify the directors & officers.

When the corporation does indemnify, D&O insurance will Pay On Behalf Of or indemnify the corporation for payments made to the directors & officers.

In some cases, coverage may be provided for the corporate entity, in cases where the corporation is being held liable. D&O insurance provides Balance Sheet Protection for the corporation. Insurance allows the corporation to transfer risk from its own balance sheet to that of the insurer.

D&O insurance helps the corporation attracts and retain quality board members.

Bhopal disaster Case, AIR 1990 SC 273:

The Bhopal disaster was an industrial disaster that occurred in the city of Bhopal, Madhya Pradesh, India, resulting in the immediate deaths of more than 3,000 people, according to the Indian Supreme Court. A more probable figure is that 8,000 died within two weeks, and it is estimated that an additional 8,000 have since died from gas related diseases.

The incident took place in the early hours of the morning of December 3, 1984, in the heart of the city of Bhopal in the Indian state of Madhya Pradesh. A Union Carbide subsidiary pesticide plant released 42 tones of methyl isocyanate (MIC) gas, exposing at least 520,000 people to toxic gases. The Bhopal disaster is frequently cited as the world’s worst industrial disaster The International Medical Commission on Bhopal was established in 1993 to respond to the disasters.

Background and causes:

The Union Carbide India, Limited (UCIL) plant was established in 1969 near Bhopal. 51% was owned by Union Carbide Corporation (UCC) and 49% by Indian authorities. It produced the pesticide carbary (trademark Sevin). Methyl isocyanate (MIC), an intermediate in carbary manufacture, was also used. In 1979 a plant for producing MIC was added to the site. MIC was used instead of less toxic (but more expensive) materials, and UCC was aware of the substance’s properties and how it had to be handled.

During the night of December 2-3, 1984, large amounts of water entered tank 610, containing 42 tones of methyl isocyanate. The resulting reaction generated a major increase in the temperature inside the tank to over 200°C (400°F), raising the pressure to a level the tank was not designed to withstand. This forced the emergency venting of pressure from the MIC holding tank, releasing a large volume of toxic gases. The reaction was sped up by the presence of iron from corroding non-stainless steel pipelines. A mixture of poisonous gases flooded the city of Bhopal. Massive panic resulted as people woke up in a cloud of gas that burned their lungs. Thousands died from the gases and many were trampled in the panic.

Theories for how the water entered the tank differ. At the time, workers were cleaning out pipes with water, and some claim that because of bad maintenance and leaking valves, it was possible for the water to leak into tank 610. UCC maintains that this was not possible, and that it was an act of sabotage by a “disgruntled worker” who introduced water directly into the tank However, the company’s investigation team found no evidence of the necessary connection.

The 1985 reports give a quite clear picture of what led to the disaster and how it developed, although they differ in details.

Factors leading to this huge gas leak include:

The use of hazardous chemicals (MIC) instead of less dangerous ones
Storing these chemicals in large tanks instead of several smaller ones
Possible corroding material in pipelines
Poor maintenance after the plant ceased production in the early 1980s
Failure of several safety systems (due to poor maintenance and regulations)

Plant design and economic pressures to reduce expenses contributed most to the actual leak. The problem was then made worse by the plant’s location near a densely populated area, non-existent catastrophe plans, shortcomings in health care and socio-economic rehabilitation, etc. Analysis shows that the parties responsible for the magnitude of the disaster are the two owners, Union Carbide Corporation and the Government of India, and to some extent, the Government of Madhya Pradesh.

Compensation from Union Carbide:

The Government of India passed the Bhopal Gas Leak Disaster Act that gave the government rights to represent all victims in or outside India.
UCC offered US$ 350 million, the insurance sum.
The Government of India claimed US$ 350 billion from UCC.
In 1989, a settlement was reached where UCC agreed to pay US$ 470 million (the insurance sum, plus interest) in a full and final settlement of its civil and criminal liability.
When UCC wanted to sell its shares in UCIL, it was directed by the Supreme Court to finance a 500-bed hospital for the medical care of the survivors. Bhopal Memorial Hospital and Research Centre (BMHRC) was inaugurated in 1998. It was obliged to give free care for survivors for eight years.

Legal proceedings leading to the settlement

On 14th December 1984, the Chairman and CEO of Union Carbide, Warren Anderson, addressed the US Congress, stressing the company’s “commitment to safety” and promising to ensure that a similar accident “cannot happen again”. However, the Indian Government passed the Bhopal Gas Leak Act in March 1985, allowing the Government of India to act as the legal representative for victims of the disaster, leading to the beginning of legal wrangling.

March 1986 saw Union Carbide propose a settlement figure, endorsed by plaintiffs’ US attorneys, of $350 million that would, according to the company, “generate a fund for Bhopal victims of between $500-600 million over 20 years”. In May, litigation was transferred from the US to Indian courts by US District Court Judge. Following an appeal of this decision, the US Court of Appeals affirmed the transfer, judging, in January 1987, that UCIL was a “separate entity, owned, managed and operated exclusively by Indian citizens in India”. The judge in the US granted Carbide’s forum request, thus moving the case to India. This meant that, under US federal law, the company had to submit to Indian jurisdiction.

Litigation continued in India during 1988. The Government of India claimed US$ 350 billion from UCC. The Indian Supreme Court told both sides to come to an agreement and “start with a clean slate” in November 1988.[Eventually, in an out-of-court settlement reached in 1989 , Union Carbide agreed to pay US$ 470 million for damages caused in the Bhopal disaster, 15% of the original $3 billion claimed in the lawsuit. By the end of October 2003, according to the Bhopal Gas Tragedy Relief and Rehabilitation Department, compensation had been awarded to 554,895 people for injuries received and 15,310 survivors of those killed. The average amount to families of the dead was $2,200.

Throughout 1990, the Indian Supreme Court heard appeals against the settlement from “activist petitions”. Nonetheless, in October 1991, the Supreme Court upheld the original $470 million, dismissing any other outstanding petitions that challenged the original decision. The decision set aside a “portion of settlement that quashed criminal prosecutions that were pending at the time of settlement”. The Court ordered the Indian government “to purchase, out of settlement fund, a group medical insurance policy to cover 100,000 persons who may later develop symptoms” and cover any shortfall in the settlement fund. It also “requests” that Carbide and its subsidiary “voluntarily” fund a hospital in Bhopal, at an estimated $17 million, to specifically treat victims of the Bhopal disaster. The company agreed to this. However, the International Campaign for Justice in Bhopal notes that the Court also reinstated criminal charges.

M.C. Mehta v. Union of India, AIR 1987 SC 965 (Oleum Gas Leak Case):

The case of M.C. Mehta v. Union of India originated in the aftermath of oleum gas leak from Shriram Food and Fertilizers Ltd. complex at Delhi. This gas leak occurred soon after the infamous Bhopal gas leak and created a lot of panic in Delhi. One person died in the incident and few were hospitalised. The case lays down the principle of absolute liability and the concept of deep pockets.

Directors Liability Insurance in Canada:

Directors & Officers liability Insurance is a claims made policy which covers the Directors, Officers, and Employees for their exposure as D’s & O’s for the manner in which they conduct the affairs of the Association. The policy covers defense costs, wrongful acts, and administrative errors and omissions.

Coverage’s:

Insured’s Liability Insurance- pay on behalf of the Insured all loss for which the insured is not indemnified by the Entity (even by reason of the Entities Insolvency) and for which the Insured shall become legally obligated to pay because of a wrongful act committed in the discharge of Administrative Duties.
Directors & Officers Indemnification Insurance – The Insurer agrees to pay on behalf of the Entity all loss for which the Entity shall be required by law, it’s articles of incorporation or its by-laws to indemnify the Directors & Officers.
Penal Defense Costs – will reimburse a D & O, if found innocent, of criminal charges which result from his/her administrative activities within the Entity.

Limits of Insurance:

Coverage A & B- $1,000,000 per loss $10,000,000 per year
The annual aggregate is split among 6 provinces

Conclusion:

In the contemporary liberalization global business environment, the role of the director and officer of a company is becoming more significant. The new dimension of the corporate governance is warrant more transparency in the corporate transaction. In the process, the director and officer of the board to shoulder specific duties and responsibilities. Any lopes in their performance may be fatal to the company and shareholder of the company. The company have to pay for it. The alternative available to companies to protect form such liability is insurance. The director and officer insurance provide protection to the company, the director and officer to come out of the tangle litigation . The director and officer are getting and more exposed to variety of legal liability in the increasingly litigious corporate world. Their duties and responsibilities have further multiplied due to specific requirement for good corporate governance. But there are lot of litigations and constraints on the part of the directors to be always vigilant so that they can always take right decision to ensure the best performance of the company. The major constraints come form macro factors like market risk, technology risk, political risk or financial risk where they do not have any control.

So they are porn to make mistakes and commit wrongful act in some case. For wrongful act they are liable to stakeholders under the best practice of the corporate governance. The director and officer liability insurance policy help the directors and the to company transfer such the risk and legal liability to professional fund mangers.

                          

Most of the companies not aware of the availabilities insurance protection against the risk of corporate liability. the promoter director and officers are not aware of the extent of the coverage available to them. The gaps in the awareness about the availability of legal protection are causing damages to the companies. With the lack of knowledge of indemnification and protection of the director and officer of the company, the Memorandum and Article are silent on the issue the protection of the directors and officer of and their indemnification. because of this, the director and officer face various litigation and fixed with the personal liabilities. As such its essential, which preparing the memorandum and article of Association, to incorporate the clause relating to protection of their director and officer form their liability.

The people governing the companies should also know the extent of the coverage available under the director and officer polices. They do not protect the liabilities arising out of fiduciary relationship and the personal liabilities. to protect the directors and officer form their personal liabilities. To protected directors and officer form their personal liabilities arising due to discharging of statutory duties of companies, the company should either incorporated the clause in the Memorandum and Article, or purchase separate polices to cover personal liabilities. The company should have awareness about their fact excluding and inclusion clause in the director and officer polices. The company should understand the required extent of legal protection to director and officer, and purchase the director and officer polices to that extent. If they fail in understanding the policy they purchase of fail the required policy, the protection may not be available to the companies for which they planned and the court may impose penalties or order payment of damages either by the companies or the director and officer of the companies, in the personal capacities, thus the understanding the director and officer policy and their coverage is an important element

In Indian aware relating director and officer insurance [polices are and their coverage is very low. The concept of the good governance and social responsibility of the companies are exposing the director and officer to various risk. The director and officer made accountable to the inrnal and external people and to society and government. in the complex business environment , the director and officer require protection at every phase. As such the company should come forward to help them out of the problem. If the no people will be afraid of taking the position of the director and officers. The investors, creditors, supplier who are dependent of the company also suffer losses.

In the present corporate environment the role of the director more crucial. If the independent director ask to compensate stake holder and companies for the failure of a business taken by the board of the director, no one come forward to involve in the management of the company . As the are not spared form the liabilities claim, the company have to forego the expertise of independent director, and they should exclude form the liability or should have strong protection form available liabilities.

The director and officer polices liabilities are more costly. There is different product designed by different insurance companies in India and abroad. The Indian multinational companies operating across the global have to inevitable purchase director and officer insurance and other professional indemnity polices to save the interest of the stakeholders. While purchasing the polices company should the right insurance polices to cover the required liabilities. While selecting the polices of every company and its directors should understand the nature of their business, excepted possible litigation and liabilities. Probable claimant extent of the cost and expenditure either to file or defend the suit , the applicable existing local and national law, the hierarchy of the court, the mood and attitude of the court to such issue, to possible fraud and moral hazard in the area. After  understanding the requirement   director and officer polices can be purchased to that affect. Once the police purchased the company and CEOs should read the policy cautiously and understand the term and condition of the policy.

Before you start making an effort to change your career, there are some important things that you should consider:

Have a Set Plan

The first thing you need to do is to have a clear plan. The transition that you are planning should be approached like a road trip where careful mapping, stocking of finances, training and education is essential to reach the destination. When you change your career, you should know what you will be doing after that and whether your decisions will be effective or not.

No Unnecessary Job-Hopping

You should avoid changing jobs whenever you feel like it – because changing your career is a big decision that can change everything. It should happen at the right time. In order to get a feel for the new field you are planning to pursue, you can continue your current job and volunteer part time in that particular field.

You can also take an internship or become a consultant to test the new career move that you are planning.

Do It for the Right Reasons

Make sure that when you change your career, you do it for the right reasons. Never do it just for fun or because of some minor problem with your boss or colleagues. If you are not satisfied with your current company, then it is may not be necessary to change the job. There are ways that management problems can be solved – and perhaps you can achieve more in your current company, along with a raise and promotion. Sometimes employees make mistakes and feel that management is responsible for it, so they opt to change jobs instead of looking at other alternatives.

A career change may seem to be easy, but one wrong step could ruin everything. Whether you make changes in you career, at home or in your personal life, you should always test the waters first. You should consider taking baby steps towards a change so that when you finally do it, you can enjoy it to the fullest.

You can get help with your career change through career counselors and coaches. They can help you take the right steps and make the right decisions to enhance your professional life. Besides this, you can also take career assessment tests and career evaluation tests to know what field of work would be good for you.

Self-assessment is essential and in order to do this, you should create a list of your dislikes, likes, interests and beliefs. You should also decide what salary would be sufficient for you live on, pay the bills and still be able to do other things.

Finally, make a move only when you are sure that the new job will complement your experience and qualifications. If you have spent years in a company, in a good position, then there is no point starting over in a company where your experience doesn’t matter.

Job interviews have never been easier, even if you have experienced getting the interviews for many times. For every interview, you will be meeting new people then you promote yourself along with your skills. You will let them know what your capabilities are, what you know and what the things that you do not know are.

Practice how you can answer and perfectly respond to the usual job interview queries and the corresponding answers that most of the employers may ask. Positively think of the concrete examples when you describe your abilities and skills. Presenting the proof of your accomplishment and achievements are the best way in promoting your application for the position.

Here are some interviews tip that can help you get ready with your job interview successfully:
* Prepare – you have to be prepared for your answers and be ready for any questions that they may possibly ask such as “What do you know about their company?” Know the name of your interviewer and use the name to address him/her during the interview. When you are not sure with the interviewer’s name, ask it before the interview.

* Get Ready – be sure that the interview attire that you wear is tidy, neat and suitable for the kind of company that you are applying with. Bring with you a fine folder with the copies of your credentials and resume, never fail to include the pen and papers for the note taking if needed.

* Be Prompt – be punctual for interview time, and it means 5-10 minutes early.

* Just Relax – stay calm while on interview and keep an eye contact to the interviewer. Listen and understand the complete question before answering and give attention, you’ll get humiliated if you will forget the said question.

* Show Them What You’ve Got – try to show them everything that you know about their company as answering the questions. Once you tackle your career accomplishments and match it to the company’s needs.

* Follow Up – if you are being interview by multiple persons, send each one of them a thank you note. Never fail to follow-up with thank you card to restate your interest to the position.

Introduction

British Sky Broadcasting Group Plc (BSKYB) was a company formed in the year 1990 after the merger between BSB (formed in 1986) and Sky (formed in 1989). The company operates in the lucrative yet sometimes controversial media industry. It is recognised as UK’s leader in the pay services sector. The company has over thirteen thousand employees under its wing. In the year 2007, the company generated approximately four point six billion pounds in revenue and had a net income of about four hundred and ninety nine million pounds. (British Sky Broadcasting Group plc, 2006) Its main areas of operation are the United Kingdom and Ireland. The company has established themselves as a reputable company since they have about eight million, two hundred subscribers in total. On top of this the company also has other indirect customers who access the company’s channels through other non conventional services such as IPTV and Tiscali services. The company’s CEO is Jeremy Darroch and its Chairman is James Murdoch. This company is listed as one of the top one hundred companies in the London Stock exchange and has had to employ key strategic elements in order to remain at that position. (BSkyB, 2007)

Task 1

Main elements that comprise the strategic magnet model and how they are interrelated

The strategic management model is a guide to the creation of a favourable environment that will facilitate prosperity within the organisation. It is an incorporation of all the key elements affecting the business and directing them towards achievement of the organisation’s vision. It should be noted that the strategic management model does not do away with other conventional management techniques like planning, reporting, controlling, budgeting and marketing. Most of the times, it looks at these elements through a larger perspective and finds way of relating them to external factors, organisational abilities and overall aims. (Brown & Weiner, 1985)

The strategic management model should not be something done in isolation, an effective model is one that takes account of the fact that some of the stakeholders in the specific organisation need to be incorporated into the process. There should be ample communication between these parties so that the organisation can ensure that they leave no stone unturned in the process.

Experts have shown that the strategic management model is not a static tool. It is indeed a continuous process because all the external features and organisational qualities considered change with time. Organisations need to keep changing their strategic management model to keep up with current trends. This will go a long way in ensuring that those specific companies stay competitive in this global economy. On top of this, the strategic management model is something that is unique to a specific organisation. This is because each organisation has its own management style, structure, environment, culture and resources. However, this does not eliminate the fact that there are certain similarities that exist between organisations. There are certain obstacles and key questions that have to be addressed in this process and they happen to be common to all organisations. (Brown et al, 1991)

The strategic management model does not deal with the present alone; it mainly dwells with the future. It forecasts certain influential forces in the future and uses those forecasts to act as a guideline for day to day operations. Managers should have the ability to influence members of their organisation to take up all the strategic vision of the organisation. These employees should also have the capacity to implement the recommendations made by their chief executive in their daily operations. The Chief executive should take account the fact that some of the structures and the methods of implementing strategy adopted presently will need to be changed as time progresses. The following are the key elements of the strategic management model

Source; Fahey, L. et al (1981): Environmental scanning and forecasting in strategic planning: The state of the art; Long Range Planning, 14 (2), 32-39.

External analysis

The strategic management model begins with an external analysis because this will act as foundation for changes that need to be made within the organisation. On top of this, an external analysis requires that all members of key functional areas be involved. This is because of they take part it will affect the level of cooperation necessary for implementing other components of the strategic management model. (Coates, 1985)

An external analysis will involve examination of all the issues that had occurred in the past, present and even the future. It implies a breakdown of all the political, social, economical, legal and environmental issues that affect the company. Management must then examine what the implications of those factors will be to the organisation. For example, the Marks and Spencer Company conducted an external analysis and realised that their consumers were becoming health conscious; this was the reason why it had to provide low-calorie alternatives for its health conscious consumers. (Mecca & Morrison, 1988)

Internal assessment

An internal assessment is necessary in the process of determining the features used by the organisation in the past to achieve success. This will also incorporate factors used by the organisation currently and in the future to stay ahead in the industry. First the organisation will need to look at its capacity; that is in terms of program operations and management. It will also need to analyse all available resources and this will include; information, technology, money and human resource available to the company. A review of needs within the organisation both in the present and future need to be conducted. Lastly, there should be identification of drawbacks and strengths that will facilitate utilisation of opportunities presented before the organisations (Marien, 1991)

Strategic direction

Strategic direction involves the creation of strategic vision. At this level, the company needs to examine what it wants to accomplish in the future. This must be done against the backdrop of the external analysis and internal assessments done previously. Organisations must be aware that not all the issues identified in the latter two sections can be completed all at once. There is a need to identify the most important ones. The basis for this identification is as follows;

1)      Effect the strategic issues will have on the organisation

2)      the chances of succeeding while implementing those strategic issues

3)      time required to implement those strategic issues (Aguilar, 1967)

Items that will take precedence are those ones that meet all the three qualities named above. An example in the real world was the Harley Davidson Company based in the United Sates. This company had been performing very poorly during the eighties and early nineties. But after conducting an internal assessment and external analysis, it realised there was a need to adjust its organisational structure, change its marketing strategy and innovate through technology. These were the key issues included in its ‘strategic direction identification’. It marketed itself as an American motorcycle manufacturer and consequently secured that market, it also added new product features to their conventional motorcycles and was able to make the tables turn. It is now one of the most recognised companies in the US as result of its strategic direction. (Aguilar, 1967)

Strategic Plans

The strategic plan is a documented step by step process that will allow the organisation to implement its strategic direction. A company that comes up with a strategic plan will need to do this over a period of fovea or four years. A successful strategic [plan is one that has the following aspects; It must be based on action and must also be flexible, it must be such that it facilitates the utilisation of the key organisational strengths and alleviates the use of weaknesses present. It must also new align to organisational visions and mission. Lastly, strategic plan must be creative considering all the parts involved in the external and internal analysis. This is because for the organisation to maintain their competitive advantage there is anteed to make sure that they have something exceptional to bring to the market. (Brown & Weiner, 1985)

Implementation

This is the most practical aspect of the strategic plan; it will involve integrating the strategic plan in the day to day activities carried out by the organisation under study. Consequently, there will be a need to ascertain that leaders constantly manage the implementation process. This will involve distribution of resources towards the achievement of the strategic management model. It will also involve organisational restructuring in order to integrate the strategic plan into it. Managers and leaders must make sure that the daily activities take into account the strategic plan. This means that leaders will be required to remind employees about what their efforts have done towards achievement of organisational goals. They need to be motivated to implement this strategic plan through rewards and other forms of recognition. The strategic plan needs to be a driving force for the given organisation. (Neufeld, 1985)

Performance evaluation

Performance evaluations are normally done in order top assess whether the strategic plan has generated the desired results. Companies need to create a system of monitoring performance. They will also need to communicate feedback to members of the team. Then a review can be done of the effectiveness of organisational strategy. This is where some adjustments can be made. Performance evaluations need to be done continuously, but there should be an annual evaluation too. (Fahey & Narayanan, 1986)

Task 2

Key drivers for change in the organisation within its current strategic environment and why the drivers are important

One of the major drivers for change in BSYB is Mark Booth. This is because the company had been going through a dry patch before his tenure. There was a need to inject something new in the company to facilitate an upturn of revenue and income generation. The person who spearheaded this change was Booth. He was instrumental to the company because he ensured that the company incorporated one of the most fundament external factors affecting the media industry at that time; that was incorporation of technology into service provision. There was a need for the company to ensure that it stayed on course – in terms of industrial trends. An external analysis indicated that technology was one of the most important factors that needed to be incorporated into their strategic direction. (Benfari, 1995)

Booth was one the pioneers of this strategic plan as he realised that Sky had to change from analogue to digital technology. This was not something that would be achieved overnight as it took the CEO the entire length of his tenure to implement and this was still taken up by his successor. Booth ensured that the company’s employees were always in tune with the technological aspect of their technological change. He was keen on the introduction of certain tools such as satellites for achievement of his vision. During his tenure, Booth pushed for the introduction of a new generation of satellites that would help in the transition to technological operations in the company. (Corson, 1990)

Another driver for change in the organisation was Tony Ball. He took over from Mark Booth in the year 1999. He shared the strategic focus that Ball had and went about achieving this through the emphasis of technology within the company’s operations. He was instrumental in ensuring that the transition to digital operation was completed successfully. He was also vital during the acquisition of Sky digital. Here is a short breakdown of how this company CEO was able to achieve this: The Company acquired a new make of the digital orbital called Astral 2 series. It had been placed at its own unique orbital. Afterwards, there was the addition of other satellites such as Euro bird. The latter satellites were helpful in the establishment of Sky digital. Sky digital had the capability of accommodating hundreds of channels both on radio and television. (BSkyB, 2007)

Tony Ball also assisted in the process of acquisitions and mergers. This was part of his strategy after the realisation that the media industry was highly competitive and there was a need to have rights over certain services in the media industry in order to out-compete other players. This was achieved through the acquisition of shareholding rights in Freeview. The company had purchased rights to air certain program through free view. Free view was part of ITV digital; a company that was doing relatively well at his time due to the technological era. On top of this, part of his strategy was to improve service provision through addition of some extra features to their product package. He was able to achieve this by launching the top box. This was a service that can be described as digital recording facility. It was in response to the need for consumers to use digital technologies in their video recording endeavours. Tony Ball was an aggressive member of the company because he kept reminding members of his organisation the importance of sticking to their visions. This aggressiveness paid off by changing the company’s profit trends. On top of that, there were increased levels of subscribers. This was because of the aggressive marketing campaigns that Ball spearheaded. The innovative product and service packages were also a great determinant of this profit shift. He also made sure that the company did not just rely on one component for their success. He incorporated all the missing elements into the business. (BSkyB, 2007)

James Murdoch was another important driver in Sky’s strategic plan and strategic implementation process. He did this through emphasising the need for quality. His efforts led to increased subscriber levels in that the company as they had over seven point five million during his tenure. He saw the need to continuously include product content in order to stay ahead of their competitors. This was seen in the acquisition of the dram series ‘24’. This was a program acquired from Fox and had been aired on one of their main competitor’s channels; BBC. With regard to the product improvement strategy, he introduced the program ‘Lost’, which was acquired from Buena Vista Company. This was a deal that had taken a lot of negotiation and required a considerable investment of the company’s financial resources. The product improvement strategy was to be achieved through digital inclusions. Murdoch pushed for the acquisition of Easy net. The company was expected to aid in Sky’s network services. Innovation was also seen when the company introduced certain broadband services that would allow consumers the ability to download movies and sporting programs on theirs personal computers. This CEO ensured that BSKYB had exclusive sporting rights and other channels through purchase of ITV stakes. It held seventeen percent of ITV during his tenure. He ensured that there would be greater free-to-air services provided by the company and this placed the company in a category that was way above the rest. (Shah, 2005)

Task 3

3 Key strategic decisions facing the company

In order to embrace the global economy, there is a need to consider the possibilities of becoming a global satellite company. The company is quite reputable in the United Kingdom; however with the expansion of the European Union, there are more countries that need to be included in the media industry. (Corson, 1990) Companies operating in this sector need to realise that there are certain factors that must not be ignored when dealing with information services. Besides that, there are also other global companies that are competing with the company. The company needs to embrace some of the benefits of globalisation by expanding its markets to other areas outside the UK and even outside Europe. Some suggestions by the media have been given about the possibilities of a merger between BSkyB and DirecTV. The latter company is a satellite Operations Company found in the United States. The media have also suggested that there may be inclusion of another company called Star TV. By doing this, BSkyB will become a global company through satellite televise. But these are simply suggestions. They have been considered by the company but may take time before implementation. The Company has shown their interests in the global market by bidding for NFL programming; something that is uniquely tailored for the US market. (BSkyB, 2006)

The second strategic problem affecting the company is the issue of merghing product launches with consumer demand. In the endeavour to continuously stay above the rest, the company has been introducing new product packages. One of this was its High Definition Television service. The company’s suppliers for this service were Thomson. They were responsible for delivering the Set Top Boxes necessary for the product launch. However of all the forty thousand subscribers who had requested for the product, about seventeen thousand of these subscribers were let own by the company. It was unable to meet their demand and disappointed them by its failure to install the package. This embarrassment tainted the company’s image of prompt delivery. Consumer demand for products should be anticipated and incorporated in service delivery. The company is also faced with the need to sieve out some of its product suppliers as some of them might disappoint them in the future. (Ofcom, 2008)

The other strategic aspect facing the company is dealing with its limitations adequately and still remaining ahead of all the others. One of these limitations is the issue of legal regulations. Because BSKYB operates in the United Kingdom, it needs to play by industry regulator Ofcom. Ofcom’s purpose is to ensure that there is airplay within the media industry. This challenge was seen in the acquisition of football rights and also in certain mergers the company has been undertaking. Football rights have been one of the major contributor’s to BSkyB’s success. The company has been broadcasting the British Premier league with much success. However, Ofcom questioned the validity of this monopoly. It claimed that this goes against the rules of competition and this could present future problems for the company if the exclusive football rights are taken away. In line with this, the company’s twenty percent ownership of ITV was also questioned by Ofcom and is still subject to scrutiny currently. The company needs to watch out for these legal requirements and plan ahead for them. (BSkyB, 2007)

Task 4

Strategic options for change, their benefits and concerns

Among the key decisions facing the company is the issue of going global in the future. (Boulding, 1989) There are three options that the company could take to deal with this issue.

The first option is that the company could adopt is entering the global economy through joint ventures. A joint venture is a type of market entry strategy that permits development and technology sharing. The main benefit of the latter technique is to get the right political associations that will facilitate favours to be achieved. It is usually appropriate when; resources, market power and size of the associate are small in comparison to the industry leaders. If BSKYB can merge or have a joint venture with any company which is still junior in the US and then enhances its market power, it can be able to meet the needs in that region. The main issues that will need to be sorted out during the discussions of joint venture are; agreement periods, ownership and control, pricing methods, local firm capabilities and technology transfer. (Aguilar, 1967)

The second avenue that BSkyB could choose is through Strategic Partnerships. The company could decide to partner with companies that offer complementary products. This could be done by identification of certain viable markets like the US and then identification of a company that provides services similar to that company’s but not exactly what the company provides. For example, the company could merge with advertising companies so that it could tap on advertising revenue in that location. (Benfari, 1995)

The other avenue available for the company is through foreign direct investment. The company could decide to take its services-as they are-directly to a foreign market without dealing with other local service providers in that country of destination

The best route for the company or the recommended method is through joint ventures. This is because when a company partners with another foreign company that has already been in operation in a foreign market, then they will acquire previous clients in that company. They will also have the knowledge and resources necessary to make it in that foreign market without putting in too much effort.

Conclusion

BSkyB is an ideal example of a company that has succeeded in its field of specialty through utilisation of the strategic management model. The company identified external constraints such as technological demand and a need for product innovation; it made this part of its strategic direction and implemented this plan. Consequently, the company increased its subscribers and increased revenue generation. (Aguilar, 1967)

Reference:

Aguilar, F. (1967): Scanning the business environment; New York: Macmillan.

Benfari, R.  (1995): Changing Your Management Style; New York: Lexington Books

Boulding, K. (1989): Nature of Power; Sage Publications Inc

Brown, A. & Weiner, E. (1985); Supermanaging: How to harness change for personal and organizational success; New York: Mentor

Brown, L. et al (1991): Saving the planet: How to shape an environmentally sustainable global economy; New York: W. W. Norton and Co.

British Sky Broadcasting Group plc (2006): Results for the twelve months ended 30 June, retrieved from http://library.corporate-ir.net/library/10/104/104016/items/166570/PR_280706.pd accessed on 19th April 2008

BSkyB (2007): Rupert Murdoch BSkyB Chairman To Step Down; retrieved from http://www.news.sky.com accessed on 19th April 2008

Coates, J. (1985): Issues identification and management: The state of the art of methods and techniques; a report done by Electric Power Research Group

Corson, W. (1990): Global ecology handbook; Boston: Beacon Press

Fahey, L. et al (1981): Environmental scanning and forecasting in strategic planning: The state of the art; Long Range Planning, 14 (2), 32-39.

Fahey, L. & Narayanan, V. (1986): Macro environmental analysis for strategic management; New York: West Publishing Company

Marien, M. (1991): Scanning: An imperfect activity in an era of fragmentation and uncertainty; Futures Research Quarterly, 7 (3), 82-90.

Mecca, T. & Morrison, J. (1988): Pathways to the Future: Linking environmental scanning to strategic management; Community College Review, 15, 4, 35-44

Neufeld, W. (1985): Environmental scanning: Its use in forecasting emerging trends and issues in organizations; Futures Research Quarterly, 1, 39-52

Ofcom (2008): Completed acquisition by British Sky Broadcasting Group PLC of a 17.9% shareholding in ITV PLC; retrieved from http://www.ofcom.org.uk accessed on 19th April 2008

Shah, S. (2005): Minister Takes on Murdoch over Sky stake in ITV; The Independent, 2007-02-27

With literally thousands of web hosting companies in the industry all vying for your business, carefully consider these key points to ensure you make the most well informed decision possible.

Server Disk Space

First, think about how much space your site will take up on a server. Unless you are planning on running a software repository or an image gallery, the files that make up your website will probably only use between 1 and 5 megabytes of disk space. Many companies will offer several hundred megabytes of disk space for a very affordable price in an attempt to out perform their competitors, but ask yourself “Do I really need that much space?” Though it’s true that you should allow your site “room to grow”, don’t opt for what seems like a great deal on a massively sized account if you’ll never use all of the space offered. Chances are you’ll find an even better deal on an amount of space more suitable for your site size. But make sure you think ahead. Will you be running a forum, an article repository or a multimedia marketing campaign? You have to at least think about these issues before abandoning that mega-deal.

Bandwidth Allowance

This assessment should be based on the same factors as above. Though you may be thinking that your business web site will be the next phenomenon in Internet marketing and garner millions of visitors a day, you really shouldn’t need an exceptionally high bandwidth allowance unless, as previously stated, you’re running a software or info product download site. Even extremely popular sites usually only use a few gigabytes per month in bandwidth. Don’t go hog wild just because it seems like an amazing deal. You may also want to be suspicious of companies that offer “unlimited” data transfer as there are usually some fine-print conditions that make this promise illegitimate. Be sure to read the legal terms and conditions very carefully before deciding on this type of host. A five or ten gigabyte bandwidth allowance is usually plenty enough for a small to medium sized business or personal site. But I must reiterate. If you are planning a business that sells software and e-books that are available for immediate download upon purchase, then you must take that into consideration.

Support

A critical issue to think about when choosing a web host is the types of technical support offered by the company and how easy they are to contact when you need them. Optimally, a company should offer 24×7 toll-free telephone support and email. I have seen companies that do not even offer a telephone number on their website. I was actually ripped off by one of these companies in my early days as an Internet marketer. You should look for a company that is extremely easy to contact and deal with in your time of need. Nothing is more exasperating than being in the middle of working on your site and needing an essential nugget of information to finish the job and not being able to get any support from your hosting company.

Script Access

No matter what type of site you are developing, chances are you will ultimately need to install some type of CGI script. Whether it be a mailing list management script, contact form processor, or maybe even a fancy credit card processing script or shopping cart, your hosting account will need to allow you to install and run them. This requires access to special CGI-bin folders on the server. Some hosting accounts will only allow you to use “pre-installed” scripts as a security measure. These are scripts that the hosting company have installed and configured so that they know that they will work properly and not adversely affect their server’s performance. That may be all you need, but if you have the knowledge, it’s great to have the capability to install your own scripts and configure them to suit your personal situation. You should also be sure that the account you choose supports the language in which your scripts are written, such as PHP, Perl, etc. Most good hosting companies that I have dealt with offer all the script support and languages you will need.

Service Level Agreement (SLA)

Another significant issue in assessing the value of a hosting company is how often and for how long their servers go down. No matter how good a deal you get on server space or bandwidth, or how wonderfully the company’s tech support takes care of you, your site can’t entertain visitors or generate revenue if the machine on which it is hosted is not up and running. Obviously you want a company that can guarantee the highest up-time percentage possible. Servers are taken down for a short time occasionally for maintenance or upgrading, so no company can guarantee 100% up-time, but you want your site to be hosted on reliable, well managed and maintained servers that are not continuously having problems which require them to be down for long stretches of time.

E-mail Accounts

Again, like bandwidth allowance and disk space, some companies will offer you loads more email accounts than you will ever use. Some offer hundreds or even unlimited email accounts as a selling point. This is an important factor if you are IBM and have tens of thousands of employees, each needing their own e-mail box. But it’s not a big deal if you’re just one person or a small company. You should be fine with 10 or 20.

Reputation

This is probably the most critical aspect to consider when choosing a web host. Do your homework. Pay attention to any negative feedback you may hear or read about a particular hosting company. There are several sites around the Internet that offer discussion forums that encourage people to chat about and evaluate different hosting companies. Ask precise questions about any company you might be considering. See if anyone else has had any bad experiences with them. Dig into the hosting company’s web site and read everything that they offer about themselves. Read their policies, terms and conditions. Check out their contact info. How responsive are they? Does the founder tell you anything about him or herself or are you left to deal with a nameless, faceless stranger? It sounds like a lot of work, but the alternative can be very expensive.

 

“PERFORMANCE APPRAISAL SYSTEM FOR SMALL BUSINESS 

 

 The term performance appraisal is helpful to consider the goals of an appraisal system. They are as follows:

To improve the company’s productivity
To make informed personnel decisions regarding promotion, job changes, and termination
To identify what is required to perform a job (goals and responsibilities of the job)
To assess an employee’s performance against these goals
To work to improve the employee’s performance by naming specific areas for improvement, developing a plan aimed at improving these areas, supporting the employee’s efforts at improvement via feedback and assistance, and ensuring the employee’s involvement and commitment to improving her performance.

 

All of these goals can be more easily realized. To create and maintain the framework, employers need to inform workers of their value, praise them for their accomplishments, establish a track record of fair and honest feedback, be consistent in their treatment of all employees, and canvas workers for their own insights into the company’s processes and operations.

 

A small business with few employees or one that is just starting to appraise its staff may choose to use a pre-packaged appraisal system, consisting of either printed forms or software. Software packages can be customized either by using a firm’s existing appraisal methods or by selecting elements from a list of attributes that describe successful employee’s work habits such as effective communication, timeliness, and ability to perform work requested. Eventually, however, many companies choose to develop their own appraisal form and system in order to accurately reflect an employee’s performance in light of the business’s own unique goals and culture.

In developing an appraisal system for a small business, an entrepreneur needs to consider the following:

Size of staff
Employees on an alternative work schedule
Goals of company and desired employee behaviors to help achieve goals
Measuring performance/work
Pay increases and promotions
Communication of appraisal system and individual performance
Performance planning

 

1. Size of Staff: A small business with few employees may choose to use an informal approach with employees. This entails meeting with each employee every six months or one year and discussing an individual’s work performance and progress since the last discussion. Feedback can be provided verbally, without developing or using a standard appraisal form, but in many cases, legal experts counsel employers to maintain written records in order to provide themselves with greater legal protections. As a company increases its staff, a more formal system using a written appraisal form developed internally or externally should always be used, with the results of the appraisal being tied to salary increases or bonuses. Whether the appraisal is provided verbally or in writing, a small business owner needs to provide consistent feedback on a regular basis so that employees can improve their work performance.

 

2. Alternative work schedules: Employees working alternative work schedules—working at home, working part-time, job-sharing, etc.—will most likely need to have their performance appraised differently than regular full-time staffs in order to be fairly evaluated. An alternative work schedule may require different duties to perform a job and these new responsibilities should be incorporated into the appraisal. A business owner should also be careful to ensure that these employees are treated fairly with regard to both the appraisal and resulting promotions.

 

3. Company goals and desired performance: The performance of employees is an essential factor in any company’s ability to meet its goals. In a one-person business, goal-setting and achieving is a matter of transforming words into action, but moving the business towards its goals in a larger firm means that the employer has to figure out each person’s role in that success, communicate that role to them, and reward or correct their performance. It also means that the appraisal should incorporate factors such as collaborative ability and sense of teamwork, not just individual performance.

 

4. Measuring/Assessing Performance: Once a list of tasks and attributes is developed, a business owner or manager needs to determine how to measure an employee’s performance on these tasks. Measurement provides another objective element to the appraisal. Ideally, measurement would be taken against previous performance, whether of the individual employee, the group, or the company at large. If a company is just developing its appraisal system or does not have a baseline performance to measure against, it should develop realistic goals based on business needs or on the similar performance of competitors.

 

5. Pay increases and promotions: When developing an appraisal system, a business owner needs to consider the connection between the appraisal and pay increases or promotions. While performance feedback for development/improvement purposes may be given verbally, a written summary of the individual’s work performance must accompany a pay increase or promotion (or demotion or termination). It is crucial, therefore, that a manager or business owner regularly documents an employee’s job performance.

 

The method of pay increases impacts the appraisal as well. If a small business uses merit-based increases, the appraisal form would include a rating of the employee on certain tasks. If skill-based pay is used, the appraisal would list skills acquired and level of competency. Appraisals and resulting salary increases that take into account group or company performance should include the individual’s contributions to those goals.

 

6. Communicating the system: A performance appraisal system is only effective if it is properly communicated and understood by employees. When devising an appraisal system for his or her company, an entrepreneur may want to consider involving staff in its development. Supporters contend that this promotes buy-in and understanding of the plan, as well as ensuring that the appraisal takes into account all tasks at the company.

 

7. Communicating performance and planning: Part of the appraisal system is the actual communication of the performance assessment. While this assessment may be written, it should always be provided verbally as well. This provides an opportunity to answer any questions the employee may have on the assessment, as well as to provide context or further detail for brief assessments. Finally, the employee and the entrepreneur or manager should make plans to meet again to develop a plan aimed at improving performance and reaching agreed-upon goals for the following review period. This planning session should relate company and/or group goals to the individual’s tasks and goals for the review period and provide a basis for the next scheduled review.

 

TYPES OF APPRAISALS AND ASSESSMENT TERMS

Traditional: In a traditional appraisal, a manager sits down with an employee and discusses performance for the previous performance period, usually one year. The discussion is based on the manager’s observations of the employee’s abilities and performance of tasks as noted in a job description. The performance is rated, with the ratings tied to salary percentage increases.

 

However, as David Antonioni notes in Compensation & Benefits, “The traditional merit raise process grants even poor performers an automatic cost of living increase, thereby creating perceived inequity…. In addition, most traditional performance appraisal forms use too many rating categories and distribute ratings using a forced-distribution format.” Antonioni suggests the appraisal form use just three rating categories—outstanding, fully competent, and unsatisfactory—as most managers can assess her best and worst employees, with the rest falling in between.

 

2. Self-appraisal: Somewhat self-explanatory, the self-appraisal is used in the performance appraisal process to encourage staff members to take responsibility for their own performance by assessing their own achievements or failures and promoting self-management of development goals. It also prepares employees to discuss these points with their manager. It may be used in conjunction with or as a part of other appraisal processes, but does not substitute for an assessment of the employee’s performance by a manager.

 

3. Employee-initiated reviews: In an employee-initiated review system, employees are informed that they can ask for a review from their manager.

However, cautions Ellyn E. Spragins in Inc., “The on-demand appraisal isn’t meant to replace a conventional semiannual review, but it promotes an attitude of self-management among workers and often makes critiques more honest.” Adherents to this type of review process contend that it promotes regular communication between staff and managers. Detractors, though, note that it is dependent on the employees’ initiative, making it a less than ideal alternative for some workers with quiet, retiring personalities or confidence issues.

 

4. 360 Degree feedback: 360 degree feedback in the performance appraisal process refers to feedback on an employee’s performance being provided by the manager, different people or departments an employee interacts with (peer evaluation), external customers, and the employee herself. This type of feedback includes employee-generated feedback on management performance (also known as upward appraisals). As a company grows in size, a business owner should consider using 360 degree feedback to appraise employees. Communication in a business of ten people varies wildly from that of a company of 100 persons and 360 degree feedback ensures that an employee’s performance is observed by those who work most closely with him. Business owners or managers can either include the feedback in the performance review or choose to provide it informally for development purposes.

 

 

LEGAL ISSUES

Given that the results of a performance appraisal are often used to support a promotion, termination, salary increase, or job change, they are looked at very closely in employee discrimination suits. Besides providing a written summary of the appraisal to the employee, a business owner would be well-advised to ensure the following with regards to the system at large:

ü  Job expectations as well as appraisal system and its impact on employee’s work status are adequately communicated to all employees

ü  Performance measures are related to the job being performed

ü  Managers or co-workers providing input into the appraisal must be sufficiently trained as to be able to provide objective input

ü  Employees are given timely feedback on performance and reasonable amount of time and support in improving their performance

Assistance in developing a system is available through a variety of sources including consultants, periodicals and books, and software. In addition, given the legal implications of appraisals, small business owners should have their company’s performance assessment process, including training of managers and employees, reviewed by a qualified attorney.

 

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