Role of Board

8/3/2019 Role of Board

1/25

Board of Directors


2/25

Role of Board of Directors

Supreme decision making body

Take decisions on strategies, policies,

investments , staffing , internal controlsetc. for implementation by management

Control management of affairs of company

Directors are powerful instrument of CG


3/25

How Directors elected

Directors are elected by shareholders at

AGM ( names proposed by Directors)

No educational requirement No upper age limit

Board has also power to appoint some

Directors Rotation of 2/3rd Directors after three years

Min no. 3 , Max no as per AOA


4/25

Directors

Disqualifications - minor , unsound mind ,

convicted for moral turpitude ,no default in

debentures , loans

Max directorship- 15 public companies


5/25

Types of Directors

Executive Directors full time executives

of company

Also members of Board Non Executive Directors part time

Directors

H

ave no employment relationship with cocompany

Only attend Board and Committee Mtgs.


6/25

Directors

Independent Directors

- NEDs who have no business or

pecuniary relationship with company orpromoters which could materially interfere

with their independent judgment


7/25

No of Independent Directors

50 % Ind Dirs if Chairman is ExecutiveDirector,

1/3rd if Chairman is a Non ExecutiveDirector

UK Combined Code- 1/3 rd of Board to be

NEDs and independent


8/25

Why Independent Directors

They can bring objectivity andindependent judgment in decision making

They can take lead when conflict ofinterest arises with Executive Directors

They can play role in ensuring CG


9/25

Nominee Directors

Nominated by lenders (Banks, FIs) in

terms of provisions of Loan Agreements

Nominated by Govt., BIFR Not required to hold qualification shares

Not subject to rotation


10/25

Chairman of Board

Directors elect one of Directors as

Chairman

He presides over meetings of Board and isresponsible for running the Board

Chairman evaluates performance of CEO

Chairman should be independent personto counterbalance power of CEO


11/25

Chief Executive Officer- CEO

Board also appoints a CEO who leads

senior management team

Chief Executive Officer (CEO)- is ED who

manages day to day operations


12/25

Chairman v/s CEO


13/25

Separation of role of

CEO and Chairman Combining two roles leads to conflict of

interest in decision making

Also too much concentration of power inone person

Combining will remove any check on CEO

Combining will make it difficult for both todeliver (in large corporations)


14/25

Role of Board in CG

Board to ensure that management works in best

interests of company and shareholders

The quality of Board, their competence,

commitment ,composition and willingness tocompany and shareholders only drives values of

the Board

Board is critical success factor for CG in

company


15/25

Board functions for better CG

Show total commitment to company

Steer discussion properly

Make clear stand on issues

Appoint efficient and effective CEO

Decisions on acquisitions at right stage

Anticipate business events

Long tem interests and shareholders value

Promote overall interests of co and stakeholders


16/25

Board Committees

Board can not devote full time to all

matters

Committees of Directors are constitutedfor detailed examination of various aspects

Committees enhance effectiveness of

Board

Members of all Committees are to be

disclosed in annual report

Committees report to Board


17/25

Board Committees

Audit Committee

Remuneration Committee

Nomination Committee Share Transfer Committee

Investor Grievances Committee


18/25

Audit Committee

Consists of majority of independent NEDs

Ensures protection of interests ofshareholders

Appointment of auditors, fees

Review scope of audit, outcome

Internal control systems

General independence of audit

Risk management systems


19/25

Nomination Committee

Ensures formal , transparent process for

appointment of Directors

Consists of majority of independent NEDs Evaluates composition of existing Board

Wide net to search suitable candidates

Also involved in succession planning


20/25


Remuneration Committee of Directors to

decide on all remuneration issues- policy,

package ,incentives, pensions, severance

R.C. considers all relevant factors-size ,

nature of business, complexities, location,

pay in similar companies


21/25


Makes recommendations to Board on

executive compensation and its cost

Decides compensation packages for EDs Remuneration of NEDs decided by Ch./

Board


22/25

Remuneration of Directors-

issues Remuneration should be sufficient toattract, retain and motivate professionals

There should be balance between fixedand variable pay, fair and appropriate pay

Pay package should not obstruct

independent judgment

Transparency in pay package required

disclosure to shareholders


23/25

Disclosure of remuneration

Details of remuneration and Performancetargets should be disclosed in RC Report

Chairman to answer questions onremuneration at AGM

Remuneration Committee may be allowedto consult outside consultants


24/25

Evaluation of Directors

There should be formal procedure ,

performance criteria for evaluation

Combined Code suggested formalevaluation of Board and its members and

Committees

Such system will ensure proper

performance related pay


25/25

Post reforms Boards- changing

profile Proactive and Professionalised Boards

Chairman and CEO different

Independent Directors have their say

Board committees with expert members Family owned companies going for professional

directors

Transparency of financial statements

Adequate compensation for members Boards imbibing CSR, CG values, stakeholdersinterests

Role of Board

Documents

Transcript of Role of Board