The Role of the Board of Directors in Corporategovernanc

BOD takes some combination of people, rules, processes and procedures to manage the business of a
company. This is how we define corporate governance. Corporate governance forms the basis for
corporations to make decisions that consider many environments, including economic, social,
regulatory and the market environment. Corporate governance gets its roots in ethical behavior and
business principles, with the goal of creating long-term value and sustainability for all stakeholders.

Corporate board directors face the continual challenge of aligning the interests of the board,
management, investors, shareholders and stakeholders. They respond to their duties and
responsibilities with full regard to transparency and accountability.

It's often said that corporate boards are responsible for providing oversight, insight and foresight.
That's a tall order in today's marketplace, which is complex and volatile. Good governance principles
are fundamental to the work that board directors do.

The Role of the Board of Directors in Corporate Governance

Corporate boards have many duties and responsibilities. In every decision the board makes, they must
consider how it will affect their employees, customers, suppliers, communities and shareholders.

Good corporate governance relies on distinct differences in the roles between board directors and
managers. It was never intended for board directors to be directly involved in the daily operations of a
corporation, and they certainly shouldn't engage in micromanaging the management. The main role of
board directors is oversight and planning. Despite the differences, board directors may delegate
certain powers to the CEO or CFO under certain circumstances.

Boards also regularly delegate some of their duties to board committees. Corporate board committees
act as a subset of the full board. Committees devote the necessary time and resources to issues for
which the full board doesn't have time. Committees delve deep into issues, often calling in experts to
assist them. Committees provide regular reports to the board on the matters they're charged with
handling.

The Corporate Board's Role

In essence, board directors act as stewards of the company that govern for the present times and
provide guidance and direction for the future. In their role as overseers, boards must continually
assess a variety of risks in the following categories:

• Financial reporting
• Reputation
 • Litigation
• Ethics
• Technology
• Health
• Safety
• Environment
Effective corporate governance entails that boards must develop written, clear descriptions of the
roles for the board directors, the board chair, the CEO and the primary board committees. Boards
should also develop and write policies for codes of business conduct, codes of ethics, environmental,
social and governance (ESG), conflicts of interest and whistleblowing.
Good corporate governance promotes equity and deters fraud and other deceptive practices.

The functioning of the corporate governance is concerned mainly with the Board of Directors.
Directors are appointed by the shareholders, who sets the overall policy for the company and they
appoint some persons to be the managing director/ executive director/ whole time director by the
prior approval of shareholders.

The Board of Director- Roles and Responsibilities

The Board of Directors key function is to ensure the company's prosperity whilst meeting the
appropriate interests of the shareholders. However, the authority of the board is subject to the
limitations imposed by the Memorandum of Association, Articles of Association of the company and
the relevant provisions of the Companies Act, 2013.[vi] When it comes to public listed companies,
securities are traded publically and various other provisions like SEBI regulations and guidelines in
the listing agreement deserve consideration.

While private limited companies are closely held and run by the directors. Annual general meetings
in such companies are actually conducted as there are certain directions which can only be given by a
discussion in AGM. Rest day to day affairs of the company are taken care of by the directors
according to the provision of Companies Act, 2013 as it is not possible for AGM to direct company in
every matter.

Let us examine the role and responsibilities of Board of Directors in terms of Companies Act, 2013
and other legal provisions. Company is a legal personality and BOD's are its body and mind.

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. [vii]
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Role of Directors in Corporate Governance

The new Companies Act, 2013 makes a laudable contribution towards stipulation and elucidation of
the duties and responsibilities of the directors of a company, more so of public limited companies.[i]
It removed the deficiencies of the old Companies Act, 1956 and improves the growth and prosperity
of the corporate world in India. It increased the ambit of director's duties and responsibilities and
explicitly clarifies (for providing a greater certainty to the directors with regards to their
responsibilities and conduct) them and thus, ensures a better corporate governance and management.

The functioning of the corporate governance is concerned mainly with the Board of Directors.
Directors are appointed by the shareholders, who sets the overall policy for the company and they
appoint some persons to be the managing director/ executive director/ whole time director by the
prior approval of shareholders.

In Indian States Bank Ltd. v Sardar Singh[ii], it was held that the management of the companies
should be in proper hands and hence, the appointment of directors is strictly regulated by the said Act.
The success of the company depends upon the competence of its directors.

The board's chief function is to monitor management on behalf of the shareholders. Thus, directors
and shareholders are influenced by each other and for quality governance, there must be an interface
between them. The directors have to maintain a balance between the conflicting interests of
shareholders, promoters, customers and directors. Therefore, they are the heart and soul of a
company.

Section 2(34) of Indian Companies Act, 2013 defines director as �a person appointed to the board
of a company�.[iii] This definition not only included de jure directors but also de facto and shadow
directors. A director is defined by the role he performs and his duties, rather than by title. Thus, a
director (in the eyes of law) could also be a person who controls the management, direction, conduct
or affairs of the company.

As per the Companies Act, 2013, Section 2(10) �Board of Directors� or �Board�, in relation to a
company, means the collective body of the directors of the company.[iv] A director can be a full time
working director i.e. managing or whole time director. These directors look after the day to day
affairs of the company and are collectively known as �management' directors.

A company also have non-executive directors who attend the board meetings and have no link with
company's daily activities. As per Clause 49 of the listing agreement, there are independent directors
also who are non-executive and they don't have a material relationship with the company other than
sitting in the board. There is another category of directors known as shadow directors who are not
officially appointed as directors but in accordance with whose directions, the directors of a company
are accustomed to act.[v] Thus, directors are the key managerial persons of the company and plays a
crucial role in corporate governance.

The Board of Director- Roles and Responsibilities

The Board of Directors key function is to ensure the company's prosperity whilst meeting the
appropriate interests of the shareholders. However, the authority of the board is subject to the
limitations imposed by the Memorandum of Association, Articles of Association of the company and
the relevant provisions of the Companies Act, 2013.[vi] When it comes to public listed companies,
securities are traded publically and various other provisions like SEBI regulations and guidelines in
the listing agreement deserve consideration.

While private limited companies are closely held and run by the directors. Annual general meetings
in such companies are actually conducted as there are certain directions which can only be given by a
discussion in AGM. Rest day to day affairs of the company are taken care of by the directors
according to the provision of Companies Act, 2013 as it is not possible for AGM to direct company in
every matter.

Let us examine the role and responsibilities of Board of Directors in terms of Companies Act, 2013
and other legal provisions. Company is a legal personality and BOD's are its body and mind.

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. [vii]

As per Section 166 of the Companies Act, 2013 the duties of the director are:

i. They should act in accordance with the Articles of a company.

ii. A director of the company shall act in good faith in order to promote the objects of the
company for the benefits of its members as a whole. It was also held in Bank of Poona Ltd. v
Narayandas that the good faith would require that all the endeavours of the directors must be
directed to the benefit of the company. [viii]

iii. A due and reasonable care, skill and diligence shall be exercised which performing duties of a
director. The Supreme Court in the case of Official Liquidator v. P.A. Tendolkar, held that
 a director could be held liable for dereliction of duties if his negligence is of such character as
to enable frauds to be committed and losses thereby incurred by the company.[ix]

iv. A director should never involve into a situation which directly or indirectly collides with the
interests of the company. In Walchandnagar Industries v Ratan chand, it was held that the
director's other duties would include duty to disclose interest to the company and to ensure
that his personal interest as an agent of the company do not conflict with company's principal
interest. [x]

v. A director shall not attempt to achieve an undue gain for himself or his relatives and if he is
found guilty of making such undue advantage then he has to pay a sum equal to that gain to
the company. It was held in the case of Guinness plc v. Saunders that director in question is
bound to hand over the benefits , if any, that he might have secured under the transaction and
he cannot ask for set off for any claim that he may have against the company. [xi]

vi. A director shall not assign his office and any assignment so made is void.[xii]

For better governance, the board should function as follows- the directors must be totally committed
to the company, should meet regularly and steer discussions properly. They should set up their
priorities and then acted upon them. They must have the courage to look to any deteriorating situation
related to stock market, finance and especially moral issues. They should not exercise the powers for
their own or in a fiduciary capacity but for a proper purpose, for which they are given to them by the
shareholders.

The Supreme Court in Eclairs Group Ltd and Glengary Overseas Ltd v JKX specified that �the
proper purpose rule is not concerned with excess of power by doing an act which is beyond the scope
of the instrument creating it as a matter of construction or implication. It is concerned with abuse of
power, by doing acts which are within its scope but done for an improper purpose�.[xiii]

The directors must always look for the best interests of the company and should work honestly and in
good faith and if there is a conflict between their own interests and company's then they must go in
favour of the company's interest. The Board has a great responsibility of recruiting the CEO of the
company based on the market reports. They have to ensure that processes are in place in order to
maintain the integrity of the company and should also look upon the company's compliance with all
legal requirements.

Role of Independent Directors

The revised clause 49 of the listing agreement states that if a company has executive chairman then
the Board requires to have at least 50 percent of independent directors and if a company has non-
executive chairman then the independent directors required are one-third of the board.

An independent director is a non-executive director who maintains integrity, sense of accountability,

tracks various activities of the company from failures to achievements, plans strategically, degree of
commitment and possess sense of devotion. Neither they possess any financial relationship with the
company (except the sitting charges) nor can own shares in the company.

Some of the most significant duties and functions of independent directors as per Schedule IV
of the Companies Act, 2013 are:

i. Help in bringing an independent and equitable judgement to the board;

ii. Safeguard the interests of all stakeholders, particularly the minority shareholder;
iii. balance the conflicting interest of the stakeholders;
iv. Strive to attend all the meetings of the Board;
v. Report concerns about unethical behaviour, actual or suspected fraud or violation of the
company�s code of conduct or ethics policy.[xiv]

Independent directors plays a major role in improving the corporate credibility of the company and in
risk management. They also play a great role in various committees set up by the company to ensure
good governance. They should makeup at least two-thirds of the directors in the audit committees of
listed companies to oversee the financial reporting process and disclosure of the company's financial
information, ensure compliance with listing and other legal requirements, disclosure of related party
transactions and qualification in the draft audit report, among other things. [xv]

Independent directors are responsible for formulating business strategies on behalf of the
shareholders and have to make sure that all business activities are compatible with all legal
provisions. These directors have power to challenge the decision of management directors and this
protects the interests of shareholders and other stakeholders also.