ROLE OF BOARD OF DIRECTORS

Strategising Corporate Social Responsibility

Submitted to: Prof. Bindi Mehta

Submitted By: Group 6 (Sec.B) Harshil Chapani: 114219 Ketan Goti: 114219 Nakul Kathrotia: 114231 Piyush Kumar: 114239

THE BOARD OF DIRECTORS

Introduction The board of directors is appointed to act on behalf of the shareholders to run the day to day affairs of the business. The board is directly accountable to the shareholders and each year the company will hold an annual general meeting (AGM) at which the directors must provide a report to shareholders on the performance of the company, what its future plans and strategies are and also submit themselves for re-election to the board. The objects of the company are defined in the Memorandum of Association and regulations are laid out in the Articles of Association. The board of directors' key purpose is to ensure the company's prosperity by collectively directing the company's affairs, whilst meeting the appropriate interests of its shareholders and stakeholders. In addition to business and financial issues, boards of directors must deal with challenges and issues relating to corporate governance, corporate social responsibility and corporate ethics. It is important that board meetings are held periodically so that directors can discharge their responsibility to control the company's overall situation, strategy and policy, and to monitor the exercise of any delegated authority, and so that individual directors can report on their particular areas of responsibility. Every meeting must have a chair, whose duties are to ensure that the meeting is conducted in such a way that the business for which it was convened is properly attended to, and that all those entitled to may express their views and that the decisions taken by the meeting adequately reflect the views of the meeting as a whole. The chair will also very often decide upon the agenda and might sign off the minutes on his/her own authority. Individual directors have only those powers which have been given to them by the board. Such authority need not be specific or in writing and may be inferred from past practice. However, the board as a whole remains responsible for actions carried out by its authority and it should

therefore ensure that executive authority is only granted to appropriate persons and that adequate reporting systems enable it to maintain overall control. The chairman of the board is often seen as the spokesperson for the board and the company. Structure and Makeup of the Board of Directors The board is made up of individual men and women (the "directors") who are elected by the shareholders for multiple-year terms. Many companies operate on a rotating system so that only a fraction of the directors are up for election each year; this makes it much more difficult for a complete board change to take place due to a hostile takeover. In most cases, directors either: 1) Have a vested interest in the company 2) Work in the upper management of the company or 3) Are independent from the company but are known for their business abilities. The number of directors can vary substantially between companies. Walt Disney, for example, has sixteen directors, each of whom is elected at the same time for one year terms. Tiffany & Company, on the other hand, has only eight directors on its board. In the United States, at least fifty percent of the directors must meet the requirements of "independence", meaning they are not associated with or employed by the company. In theory, independent directors will not be subject to pressure, and therefore are more likely to act in the shareholders' interests when those interests run counter to those of entrenched management.

Appointment of directors The ultimate control as to the composition of the board of directors rests with the shareholders, who can always appoint, and more importantly, sometimes dismiss a director. The shareholders can also fix the minimum and maximum number of directors. However, the board can usually appoint (but not dismiss) a director to his office as well. A director may be dismissed from office by a majority vote of the shareholders, provided that a special procedure is followed. The procedure is complex, and legal advice will always be required.

Role of the board of directors Boards can be helped greatly by focusing on four key areas:

Establish vision, mission and values Determine the company's vision and mission to guide and set the pace for its current operations and future development. Determine the values to be promoted throughout the company. Determine and review company goals. Determine company policies

Set strategy and structure Review and evaluate present and future opportunities, threats and risks in the external environment and current and future strengths, weaknesses and risks relating to the company. Determine strategic options, select those to be pursued, and decide the means to implement and support them. Determine the business strategies and plans that underpin the corporate strategy. Ensure that the company's organisational structure and capability are appropriate for implementing the chosen strategies.

Delegate to management Delegate authority to management, and monitor and evaluate the implementation of policies, strategies and business plans. Determine monitoring criteria to be used by the board. Ensure that internal controls are effective. Communicate with senior management.

Exercise accountability to shareholders and be responsible to relevant Stakeholders Ensure that communications both to and from shareholders and relevant stakeholders are effective. Understand and take into account the interests of shareholders and relevant stakeholders.

 Monitor relations with shareholders and relevant stakeholders by gathering and evaluation of appropriate information. Promote the goodwill and support of shareholders and relevant stakeholders.

Responsibilities of directors Directors look after the affairs of the company, and are in a position of trust. They might abuse their position in order to profit at the expense of their company, and, therefore, at the expense of the shareholders of the company. Consequently, the law imposes a number of duties, burdens and responsibilities upon directors, to prevent abuse. Much of company law can be seen as a balance between allowing directors to manage the company's business so as to make a profit, and preventing them from abusing this freedom. Directors are responsible for ensuring that proper books of account are kept. In some circumstances, a director can be required to help pay the debts of his company, even though it is a separate legal person. For example, directors of a Company who try to 'trade out of difficulty' and fail may be found guilty of 'wrongful trading' and can be made personally liable. Directors are particularly vulnerable if they have acted in a way which benefits them. The directors must always exercise their powers for a 'proper purpose' that is, in furtherance of the reason for which they were given those powers by the shareholders. Directors must act in good faith in what they honestly believe to be the best interests of the company, and not for any collateral purpose. This means that, particularly in the event of a conflict of interest between the company's interests and their own, the directors must always favour the company. Directors must act with due skill and care. Directors must consider the interests of employees of the company.

Calling a directors' meeting A director, or the secretary at the request of a director, may call a directors' meeting. A secretary may not call a meeting unless requested to do so by a director or the directors. Each director must be given reasonable notice of the meeting, stating its date, time and place. Commonly, seven days is given but what is 'reasonable' depends in the last resort on the circumstances

Non-executive directors Legally speaking, there is no distinction between an executive and non-executive director. Yet there is inescapably a sense that the non-executive's role can be seen as balancing that of the executive director, so as to ensure the board as a whole functions effectively. Where the executive director has an intimate knowledge of the company, the non-executive director may be expected to have a wider perspective of the world at large.

The chairman of the board The articles usually provide for the election of a chairman of the board. They empower the directors to appoint one of their own number as chairman and to determine the period for which he is to hold office. If no chairman is elected, or the elected chairman is not present within five minutes of the time fixed for the meeting or is unwilling to preside, those directors in attendance may usually elect one of their number as chairman of the meeting. The chairman will usually have a second of casting vote in the case of equality of votes. Unless the articles confer such a vote upon him, however, a chairman has no casting vote merely by virtue of his office. Since the chairman's position is of great importance, it is vital that his election is clearly in accordance with any special procedure laid down by the articles and that it is unambiguously minuted; this is especially important to avoid disputes as to his period in office. Usually there is no special procedure for resignation. As for removal, articles usually empower the board to remove the chairman from office at any time. Proper and clear minutes are important in order to avoid disputes.

Role of the chairman The chairman's role includes managing the board's business and acting as its facilitator and guide. This can include: Determining board composition and organisation; Clarifying board and management responsibilities; Planning and managing board and board committee meetings; Developing the effectiveness of the board.

Shadow directors In many circumstances, the law applies not only to a director, but to a 'shadow director'. A shadow director is a person in accordance with whose directions or instructions the directors of a company are accustomed to act. Under this definition, it is possible that a director, or the whole board, of a holding company, and the holding company itself, could be treated as a shadow director of a subsidiary. Professional advisers giving advice in their professional capacity are specifically excluded from the definition of a shadow director in the companies legislation.

Current Trends in Risk management:

The role of the board of directors in enterprise-wide risk oversight has become increasingly challenging as expectations for board engagement are at all-time highs. Risk is a pervasive part of everyday business and organizational strategy. But, the complexity of business transactions, technology advances, globalization, speed of product cycles, and the overall pace of change have increased the volume and complexities of risks facing organizations over the last decade. With the benefit of hindsight, the global financial crisis and swooning economy of 2008 and the aftermath thereof have shown us that boards have a difficult task in overseeing the management of increasingly complex and interconnected risks that have the potential to devastate organizations overnight. At the same time, boards and other market participants are receiving increased scrutiny regarding their role in the crisis. Boards are being asked and many are asking themselves could they have done a better job in overseeing the management of their organizations risk exposures, and could improve board oversight have prevented or minimized the impact of the financial crisis on their organization? The challenge facing Boards is how to effectively oversee the organizations enterprise-wide risk management in a way that balances managing risks while adding value to the organization. Although some organizations have employed sophisticated risk management processes, others have managed risks informally or on an ad hoc basis. In the aftermath of the financial crisis, executives and their boards realize that ad hoc risk management is no longer tolerable and that current processes may be inadequate in todays rapidly evolving business world. Boards, along with other parties, are under increased focus due to the widely-held

perception that organizations encountered risks during the crisis for which they were not adequately prepared. Increasingly, boards and management teams are embracing the concept of enterprise risk management (ERM) to better connect their risk oversight with the creation and protection of stakeholder value. ERM is a process that provides a robust and holistic top-down view of key risks facing an organization. To help boards and management understands the critical elements of an enterprise-wide approach to risk management. An entitys board of directors plays a critical role in overseeing an enterprise-wide approach to risk management: Because management is accountable to the board of directors, the boards focus on effective risk oversight is critical to setting the tone and culture towards effective risk management through strategy setting, formulating high level objectives, and approving broad-based resource allocations. Understand the entitys risk philosophy and concur with the entitys risk appetite. Risk appetite is the amount of risk, on a broad level, an organization is willing to accept in pursuit of stakeholder value. Because boards represent the views and desires of the organizations key stakeholders, management should have an active discussion with the board to establish a mutual understanding of the organizations overall appetite for risks.

Know the extent to which management has established effective enterprise risk management of the organization. Boards should inquire of management about existing risk management processes and challenge management to demonstrate the effectiveness of those processes in identifying, assessing, and managing the organizations most significant enterprise-wide risk exposures.

Review the entitys portfolio of risk and consider it against the entitys risk appetite. Effective board oversight of risks is contingent on the ability of the board to understand and assess an organizations strategies with risk exposures. Board agenda time and

information packets that integrate strategy and operational initiatives with enterprisewide risk exposures strengthen the ability of boards to ensure risk exposures are consistent with overall appetite for risk.

Be apprised of the most significant risks and whether management is responding appropriately. Risks are constantly evolving and the need for robust information is of high demand. Regular updating by management to boards of key risk indicators is critical to effective board oversight of key risk exposures for preservation and enhancement of stakeholder value.

Boards of directors often use board committees in carrying out certain of their risk oversight duties. The use and focus of committees vary from one entity to another, although common committees are the audit committee, nominating/governance committees, compensation committees, with each focusing attention on elements of enterprise risk management. While risk oversight, like strategy, is a full board responsibility, some companies may choose to start the process by asking the relevant committees to address risk oversight in their areas while focusing on strategic risk issues in the full board discussion.

Reference Standards for the Board, Institute of Directors The Independent Director, IoD/Ernst & Young Running a limited company, David Impney & Nicholas Montague, Jordans BREFI Group improving board performance U.S. Securities and Exchange Commission, Speech by SEC Chairman: Address to the Council of Institutional Investors, 2009 Committee of Sponsoring Organizations of the Treadway Commission (COSO), Enterprise Risk Management Integrated Framework, September 2004, www.coso.org, New York, NY.