BECG MAKE-UP ASSIGNMENT

Submitted by
M.P.K SRIHARI
M20202709
 ROLE OF BOARD OF DIRECTORS IN CORPORATE
GOVERNENCE

What is board of directors?

A board of directors is essentially a panel of people who are elected to represent shareholders.
Every public company is legally required to install a board of directors; nonprofit organizations
and many private companies – while not required to – also name a board of directors.
The board is responsible for protecting shareholders’ interests, establishing policies for
management, oversight of the corporation or organization, and making decisions about important
issues a company or organization faces.
The functioning of the corporate governance is concerned mainly with the Board of Directors.
The shareholders, who sets the overall policy for the company, appoint directors and they
appoint some persons to be the managing director/ executive director/ whole time director by the
prior approval of shareholders.

What does board of directors do?

For the most part, the board is a trusted advisor (fiduciary) on behalf of shareholders.
The hiring and firing of senior executives, dividend policies, options policies, and executive
compensation are the main issues under a board’s remit.
The board of directors also ensures the company has sufficient, well-managed resources at its
disposal while also helping it set broad goals and supporting the executive team’s
responsibilities.

About board of directors

 At least 2 and max of 15.
 Removal is done by shareholders.
 Meeting regulations
 Attendance of Board of directors.

Functions of board of directors

● Creating dividend policies
● Creating options policies
 ● Hiring and firing of senior executives (especially the CEO)
● Establishing compensation for executives
● Supporting executives and their teams
● Maintaining company resources
● Setting general company goals
● Making sure that the company is equipped with the tools it needs to be managed well

Roles of board of directors

 The role of the board is to plan and strategize goals and objectives for the short- and
long-term good of the company
 Put mechanisms in place to monitor progress against the objectives.
 Review, understand and discuss the company's goals
 To hire the CEO or general manager of the business and assess the overall direction and
strategy of the business.
 The CEO or general manager is responsible for hiring all of the other employees and
overseeing the day-to-day operation of the business.

RESPONSIBILITIES

Recruit, supervise, retain, evaluate and compensate the manager.

Recruiting, supervising, retaining, evaluating and compensating the CEO or general manager are
probably the most important functions of the board of directors.

Provide direction for the organization.

The board has a strategic function in providing the vision, mission and goals of the organization.

Establish a policy based governance systems

The board develops policies to guide its own actions and the actions of the manager.

Govern the organization and the relationship with the CEO.

Another responsibility of the board is to develop a governance system. The governance system
involves how the board interacts with the general manager or CEO. Periodically the board
interacts with the CEO during meetings of the board of directors. Typically that is done with a
monthly board meeting, although some boards have switched to meetings three to four times a
year, or maybe eight times a year

Fiduciary duty to protect the organization’s assets and member’s investment.

The board has a fiduciary responsibility to represent and protect the member’s/investor’s interest
in the company. So the board has to make sure the assets of the company are kept in good order.
This includes the company’s plant, equipment and facilities, including the human capital (people
who work for the company.

Monitor and control function.

The board of directors has a monitoring and control function. The board is in charge of the
auditing process and hires the auditor. It is in charge of making sure the audit is done in a timely
manner each year..

The Board of Directors focuses on four key areas:

i. by establishing vision, mission and values;

ii. by setting strategy and structure;
iii. by delegating authority and responsibility to management; and,
iv. by exercising accountability to shareholders and be responsible to relevant stakeholders.

Disqualification of board of directors

 Involvement in fraud or misconduct
 Utilized corporate assets or funds for personal gains
 Failure to maintain fair corporate accounts or inability to submit accounting records with
the corporate house
 Continued trading even when the company became bankrupt or insolvent
 Executed trading in circumstances when the company was incapable of meeting debts
 Failure to pay the taxes owed by the company
ANGLO AMERICAN MODEL AND GERMAN MODEL
OF CORPORATE GOVERNENCE
ANGLO AMERICAN MODEL

 It is also known as anglo- saxon model

 Basis of governance like US, CANADA, AUSTRALIA etc
 Board of directors appointed by shareholders
 Boards, supervisors appoint officers to manage the company
 Regulatory bodies regulate and monitor compliances
 Board of directors consists of executive and independent directors
 Fiduciary relationship exist between shareholders and directors
 Insiders are managers and executives
 Outsiders refers to the people who don’t have direct relationship with the company
 Ownership and control are separated
GERMAN MODEL

 Also known as two tier board model

 Shareholders majority are banks and financial institutions
 They can only appoint 50 percent of supervisory board
 Remaining by labor union employees
 Management board consists of insiders
 Supervisory board consists of union and shareholders representatives
 No member can simultaneously serve the board
 German banks play key role in the model because there can be lenders, voting agents,
shareholders etc
 ROLE OF SEBI IN CORPORATE GOVERNANCE

Since its setup in 1992, the SEBI has taken a number of measures, created numerous committees,
and amended the Clause 35B and Clause 49 of the listing agreement to improve corporate
governance.
For effective Corporate Governance, SEBI requirements and guidelines under Clause 35B and
49 of the listing agreement are as follows:

CLAUSE 35B
Under the revised clause 35B, the issuer has agreed to provide e-voting facility in respect of all
shareholders' resolutions, to be passed at General Meetings or postal ballot facilities to share
holders. The company has to send notices of meeting to all members, auditors of the company
and directors by POST or Registered e-mail or Courier and the same be placed on the official
website of the company. The notice of meeting should also mention that the company is
providing facility for voting by electronic means and postal ballot facilities to members. Through
this provision large number of shareholders can participate in the selection of board members.

CLAUSE 49 AND ITS SUB CLAUSES

• This clause also entails the details about the compliance of these norms by all listed
companies.

• The amended clause 49 has 11 sub clauses containing the provisions of compliances
under Corporate Governance Norms.

• The requirements under Clause 49 of listing agreement state the role of SEBI in
maintaining the standards of corporate governance are:

Corporate governance principles [clause 49 (i)] & Board of Directors [clause 49 (ii)]
Clause 49 (i) : SEBI specifies and explains the rights of shareholders and other stakeholders, the
corporate's duty to protect stakeholders' interests, and the board's duties and responsibilities in
this part. This states that disclosures about correct compliance with prescribed accounting
standards, financial and non-financial disclosure, and transparency must be made.
Clause 49 (ii): This sub-clause outlines the board's membership, independent director limits,
independent director tenure, corporate code of conduct, and whistle-blowing policy.
Audit committee [clause 49 (iii)]
As per this, amended, clause the audit committee should have at least 3 members and out of
which 2/3rd members be independent directors.
All the members must be financially literate and one member must be an expert in accounting or
related financial management.
This committee has to sit at least 4 times in a year with a gap of not more than four months in
between two meetings.

Nomination and Remuneration committee [clause 49 (iv)]

The nomination and remuneration committee shall have a minimum of three members, all of
whom should be nonexecutive directors and half of whom should be independent directors.

Requirements W.R.T. subsidiary companies [Clause 49 (v)]

The responsibilities of listed and unlisted subsidiaries of listed holding corporations are defined
in this subclause.
Provisions for unlisted subsidiary companies include: (a) at least one independent director of the
holding company should serve on the board of directors of the materially unlisted Indian
subsidiary company; and (b) the audit committee of the listed holding company must review the
financial statements of the materially unlisted Indian subsidiary company.

Risk management [Clause 49 (vi)]

Under this provision, SEBI requires the boards of directors of the top 100 businesses by market
capitalization to form a risk management committee, define its role and tasks, and distribute
authorities as it sees fit.
This committee shall be made up of Board members, according to SEBI standards.

Members of the Committee may be senior executives, but the Chairman of the Committee must
be a member of the Board of Directors.

Related party transactions [Clause 49 (vii)] & Disclosure Norms [Clause 49 (viii)]
Clause 49 (vii)
This requires corporations to present all information on related party transactions in the ordinary
course of business to the audit committee on a regular basis, in summary form.
Clause 49 (viii)
According to the revised clause, the company must publish a quarterly report on its website that
includes details on all material facts linked to party transactions, as well as a compliance report
on Corporate Governance, as well as a web link in its annual reports.

Certification from Chief Executive Officer (CEO) and Chief Finance Officer (CFO)
[Clause 49 (ix)]
The Board of Directors, the Chief Executive Officer, and the Chief Financial Officer are all
rendered more accountable and responsible under this subclause.
They must attest that, to the best of their knowledge, they have studied the financial statements
and cash flow statements.
Then, to the best of their knowledge, they must affirm that the Company has not engaged in any
transaction that is a breach of the Company's Code of Conduct, illegal, or fraudulent.
It will be their responsibility to report any substantial changes in internal control over financial
reporting, changes in accounting policies, or occurrences of significant fraud to the Auditors and
Audit Committee.

Compliance Certificate on Corporate Governance [clause 49 (x) and (xi)]

The new clause 49 of the listing agreement mandates that the company receive a Compliance
Certificate on Corporate Governance from the Company's Auditor or a Practicing Company
Secretary.
This certificate will be included as a separate section of the Annual Report. Along with the
Annual Report, the certificate must be filed to the Stock Exchange.