Module 2

Corporate Management and Functions of Board Committees

• Management vs. Governance

• Internal constituents of the corporate governance
• key managerial personnel (KMP)
• chairman - qualities of a chairman – powers - responsibilities and
duties of a chairman –
• chief executive officer (CEO) - role and responsibilities of the
CEO – separation of roles of chairman and CEO - CFO –
manager - company secretary – auditor
• Statutory committees of board- audit committee, remuneration
committee - nomination committee - compliance committee -
shareholders grievance committee -investor’s relation committee -
investment committee - risk management committee - other
committees.
• Key Managerial Personnel
Key Managerial Personnel refers to a group of
people who are in charge of maintaining the
operations of the company. Accounting Standard
18(AS-18) states that Key Managerial Personnel
(KMP) are people who have authority and
responsibility for planning, directing and
controlling the activities of the reporting
enterprise. Chief Executive Office, Cheif Financial
Officer, Company Secretary, Whole Time Director
are the Key Managerial Personnel.
Key Managerial Personnel
• The term ‘personnel’ refers to a group of people
working together, instead of one person. The Key
Managerial Personnel are the decision makers. They
are accountable for the smooth functioning of
company operations.
• The members of the Board of Directors do not
necessarily get involved in the day to day operations
of the company. Their job is to supervise the
company as a whole, not micromanage. The Board of
Directors sets goals and objectives for the company.
The key managerial personnel is the one who
actually works on these goals and objectives to be
achieved.
 (source –
taxguru)
Appointment of Key Managerial Personnel
• Section 203 of the Companies Act 2013 has the
provisions for the appointment of key managerial
personnel. The Board appoints them. Also, the
Board of Directors is responsible to fill any
vacancies in the KMP within a period of six
months.
• It is mandatory for any listed company and any
company with a paid up capital of more than or
equal to 10 lakhs to appoint a whole time KMP.
Further, a company with at least 5 lakhs paid-up
capital is required to employ a full-time company
secretary(who is also a KMP).
• Roles and Responsibilities of Key Management Personnel
• The KMPs are basically are basically responsible for taking the
most important decisions and managing all the employees. They
are also liable if they do not follow compliances laid down by the
Companies Act 2013.
• The growth and development of the company depend on the
effectiveness of the KMPs at their jobs. The main responsibilities
and functions of the KMP are:
• As per Section 170 of the Companies Act, the details about the
securities held by the KMPs in the company or its holdings and
subsidiaries must be disclosed and thus recorded in the
Registrar.
• KMPs have a right to voice their opinion especially in meetings
of the Audit Committee. However, they don’t have a voting right.
• According to Section 189, Companies Act, KMPs should disclose
their interests in other companies and associations, at least
within 30 days of the start of the employment period.
• Applicability:
• Every listed company and
• Every other public company:
• having a paid-up share capital of Rs. 10 Crores
or more shall have whole-time key managerial
personnel
• KMP includes:
• M.D or CEO or Manager And in their absence a
whole time director.
• Company Secretary and
• Chief Financial Officer
• Appointment: By a Board Resolution containing terms
and conditions of appointment including remuneration.
• Restrictions on appointment:
• Not more than one company except the subsidiary of
same company.
• KMP can act as director in other company only with the
permission of board.
• Board can appoint a person as M. D, if he is already M.D
or manager in other company, by a board resolution with
consent of all directors present at the meeting.
• Specific notice is compulsorily to be given to all directors
for such appointment.
• Appointment in case of Vacancy: Board should fill the
vacancy within a period of 6 months from the date of
such vacancy.
Other points related to KMP
• An explanatory statement annexed u/s 102 to notice, should
specify:-
• The nature of concern or interest, financial or otherwise of:- -
every director and the manager, if any, and their relatives. - every
other key managerial personnel and their relatives.
• Where any item of special business to be transacted at a meeting,
relates/affects any other company, the extent of shareholding
interest in that other company of every promoter, director,
manager, and of every other KMP is more than 2% of paid up
share capital of company, shall also be set out in statement.
• Related party includes a key managerial personnel and his relative.
• Every director or KMP shall, within a period of 30days of his
appointment/ relinquishment of his office, shall disclose his
Interest in other associations.
Definition of Chairman:
A Chairman or Chairperson is a person who is elected to act as the
Presiding Officer to conduct the proceedings of a meeting. The
Chairman is the chief authority to conduct and control the meeting.
He is the umpire of debate and the upholder of or­der and decorum.
Appointment of Chairman:
• A Chairman may be either appointed before­hand or elected on
the spot in accordance with the rules and customs of the
organization.
• In many cases, the bylaws provide a stipulation that certain
official would preside over the meeting.
• President of a club or association or Chairman of a Municipality
generally acts as Chairman of the meeting.
• If the rules or bylaws do not designate a Chairman, the meeting
will elect a Chairman on the spot from amongst the members
present at the meeting.
• Sometimes, in absence of a designated Chairman, a member is
elected as Chairman pro tern (for the time being) to preside over
the meeting.
• If the regular Chairman arrives later on, he will vacate the chair
unless requested by the former.
Qualifications of Chairman:
No specific qualifications are necessary for a Chairman. But, in
order to conduct the meeting smoothly, the Chairman is
required to have some qualifications and qualities. The success
or failure of a meeting depends, to a large extent, on the
personality and efficiency of the Chairman and on the way he
conducts the meeting.
In order to be a suc­cessful Chairman, a person should have the
follow­ing qualifications:
1. He should have sufficient educational qualifications.
2. He should know the general procedures, principles and rules of
meeting and also the limitations of the powers of the Chairman.
3. He must be impartial and possess a sense of judgment.
4. He must be patient, cool and not be provoked easily.
5. He must be firm in enforcing the rules and his rulings.
Qualities of chairperson
•  CHARISMA The role of the chairman has become much higher in
profile and the expectations on the chairman have also increased.
Stakeholders now expect a charismatic, engaged and involved
chairman who does simply more than oversee or manage the
corporate governance process
• GOOD COMMUNICATOR The success of a chairmanship
undoubtedly hinges first and foremost on the relationship the
chairman has with the Chief Executive and the senior management
team. This relationship should be centered on honesty, trust and
transparency. The success of this relationship is based on mutual
understanding by both parties.
• CLEAR SENSE OF DIRECTION Through this strong relationship,
an effective chairman should also have a tacit understanding of the
business, its aims and goals and ensure a clear sense of direction
throughout.
• STRATEGIC VIEW Following on from this, a chairman should never
lose sight of the overall strategy for the business. A chairman has done
the job when the ‘Vision for the Business’ as set out and presented in
the strategic plan by them and their Board, to the shareholders and
stakeholders, has been achieved.
• ALLOW CEO'S TO DO THEIR JOB One of the main faults of
chairmen deemed to be ineffective is their failure to comprehend that
they are not there to run the business, and that their role is instead to
support and guide. In simple terms to be a good chairman is to ensure
that the business is well run and not to run the business.
• GOOD GOVERNANCE A chairman needs to set the tone at the top
of the organization, focusing on what the organization wants to be.
Crucial to this is the deployment of good governance and best practice
to ensure a positive corporate reputation in the marketplace.
• BROAD EXPERIENCE As well as having an excellent understanding
of the business, effective chairmen must use their broad professional
background and business acumen gained in other companies to help
guide, challenge and advise.
• ENGAGE, ENGAGE, ENGAGE There is however a fine line to
walk between being too involved and being too remote. This
means chairmen should devote the appropriate level of time to
their roles, which means visiting operations, talking with staff and
customers, as well as investors. The best chairmen are able to
develop an empathy with the business and engage with its people
and issues.
• GETS TO THE KEY ISSUES QUICKLY The appointment of a
chairman is an effective way of gaining a fresh perspective on
your business, identifying any challenges and resolving issues
quickly so the company can focus on progress and growth.
• CAN GAIN STAKEHOLDER CONFIDENCE Whether it's
shareholders or stakeholders, the ability to inspire confidence and
support from the leadership team and is one of the most important
qualities a chairman can possess. Original article by Frank Lewis
Powers of Chairman:
The Chairman is the chief authority of the meeting and can be called “the umpire of
debate, the judge of admissibility and the upholder of or­der and decorum.” He
derives his authority and power from the meeting itself.
The powers of the Chairman are:
1. He conducts the proceedings of the meet­ing according to rules and regulations.
2. He can suspend or adjourn a meeting in or­der to maintain order and decorum even
if some participants protest.
3. He can give a ruling to settle any point of order. His ruling will always be binding
on all the members present at the meeting.
4. He has the authority to decide the order of priority of speakers.
5. He has full authority to restrain irrelevant or unparliamentarily language used by
the members. He can stop prolonged discussion on a matter.
6. He has the power to adjourn the meeting in accordance with the rules.
7. He has the power to expel an unruly member and get him ejected.
8. He has the power to appoint two scrutinizers to scrutinize the votes given on the
poll and to declare the result of poll.
9. He can give a casting vote if the Articles of Association so provides.
Duties of Chairman:
The duties of the Chairman are:
1. He should see that the meeting is duly con­vened and properly constituted.
2. He should check that his own appointment is in orders.
3. He should see that the proceedings of the meeting are conducted in accordance
with the rules and in the order set down in the agenda.
4. He should ensure that the business conducted is within the scope of the meeting.
5. Unless there is a specific motion before the meeting he should not allow any
discussion. Irrelevant discussions must always be stopped by him. He must see that
proper order is maintained in the meeting. He must ensure a fair hearing from the
minorities. Equal opportunities should be given to all the speakers but he may fix a
time limit for each of them.
6. He should see that the motions and amend­ments are within the scope of the
notice.
7. He must see that the order is maintained during the meeting.
8. He must exercise his casting vote in the interest of the company.
9. In case of a General Meeting, the Chairman should deliver a speech.
10. He must see that the proper Minutes are recorded and he should sign the Minutes
after checking.
Chief Executive Officer/Managing Director
/Manager
• The managing director or chief executive officer
is responsible for running the whole company.
Also, the managing director has authority over
all operations and has the most power in a
managerial hierarchy. He is also responsible for
innovating and growing the company to a larger
scale. In many countries, a managing director is
also called a Chief Executive Officer (CEO).
Whole Time Director
• A Whole Time Director is simply a director who
devotes the whole of his working hours to the
company. He is different from independent directors
in the sense that he has a significant stake in the
company and is part of the daily operation. A
managing director may also be a whole time director.
Chief Financial Officer
• Chief Financial Officer (CFO) is a senior level
executive responsible for handling the financial status
of the company. The CFO keeps tabs on cash flow
operations, does financial planning, and creates
contingency plans for possible financial crises.
• Appointment / Reappointment related to MD, W.T.D/ Manager:
Company shall not appoint M.D/ Manager at the same time.
• Time period: Managing Director, Whole time Director or manager
can be appointed/reappointed only for a period of 5 years at a time
and reappointment is to be made in 5th year.
• Eligibility Criteria:
• Age should be 21 or more and not more than 70.
• A Special resolution is compulsory if age is more than 70.
• At any time suspended payment to his creditors.
• Convicted by a court of an offence and sentenced for a period of
more than 6 months.
• Approval:
• Every M.D/ W.T.D/ Manager appointment shall be shall be approved
by Board of Directors along with the terms & Conditions and
remuneration payable to them.
• Appointment made by the Board shall be subject to approval by
members and by central government if appointment is at variance.
Company Secretary
• A company secretary is a senior level employee
in a company who is responsible for the looking
after the efficient administration of the
company. The company secretary takes care of
all the compliances with statutory and
regulatory requirements.
• He also ensures that the targets and instructions
of the board are successfully implemented.
However, in some countries, a company
secretary is also called a corporate secretary.
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Share holders Grievances committee
Nomination committee