The Directors

.
 Directors

The directors of an
organization are the
persons who are
members of its board.
The quality of decision
taken by the board
depend on abilities of
individual directors.
 Importance of Individual Directors

• Nominating Directors, Shareholders should consider the followings:

• Suitability
– Prime consideration
– Knowledge of relevant area
– Character of the person
• Must not place personal interest above that of the company
• Should have sound ethical values
– Personal traits, views, attitude
• Should be good and balanced team member
• Sufficient strength of character to oppose inappropriate proposals
 Importance of Individual Directors

• Willingness and able to give time

– Should be willing and able to give enough time to the
company
– No point to electing a big name to the board when cant
attend meetings
– Sound judgment
• Should be able to understand the issues being discussed at the board
• Able to pass a meaningful judgment
• Their vote should lead to a correct decision for the company
 Skill & Care Duty
• Do not agree to be a director if you are not fit to be a director
• Must have necessary knowledge, skill and experience that is expected
from a director
• Should exercise the degree of care, caution and skill that is expected
from them
• Discuss proposals in detail and seek additional information from the
management if needed
• Should offer views fairly and openly
• Ineffective director may vote with chairman without bothering to read
information
 Directors’ Responsibilities

• Responsible only to shareholders

• Only if they are proved to be negligent, or a willful
party to fraud.
• If not negligent or willful party to a fraud, directors
are generally covered by the company.
• Companies may obtain insurance:
– For liability of directors
– For losses arising from directors
 Types of Directors

• Executive Directors are also the employee of the company and hold a full time office
• They draw formal salary but presence in the board is dependent on the elections by
shareholder
• Non-Executive Directors are not full time employee
• No active role in management and attend only board meetings
• Expected to provide guidance and supervision on executive directors
• Representative Directors represent a particular stakeholder, to protect their interest
• In developing countries, most directors used to be representative and to protect the shareholders
rights
• Independent Directors are rare breed and expected to look after the interest of all stakeholders
• Key to good governance lies in the hand of independent directors
 Types of Directors

• Independent Non-Executive Directors are non executive as well as independent

• They are not the part of company management and do not represent any particular
stakeholders
• De-facto directors is a person who is not formally elected as a director of the
company
• However, attend the meeting of its board as an observer or facilitator
• A senior employee of the company and is knowledgeable about the affairs of the
company
• Attend board meetings to provide information that board may need
• Don’t have voting right
• Don’t enjoy the power or influence
 Types of Directors

• Shadow directors is not a formally elected director of the company and not attend the
meeting
• Has great influence on the conduct of the meetings
• Other directors take instruction from him and take decisions according to his advice
• Common in holding companies structure, For instance, ABC recently acquired XYZ
• Alternate directors is nominated by duly elected director to attend the board meeting
• Because nominated director cant attend the meeting himself
• Nomination of alternate directors has to be approved by the board
• Alternate Directors enjoy the same right and privileges including the right of vote
Dealing with
Directors
.
 Directors’ Induction
• Proper Orientation of newly elected directors with company and their role
• Visits to key locations to understand company’s operations
• Presentation by different departmental heads about the functions / Product/
Services
• Informal meetings with:
– Top managers.
– Major shareholders, institutional investors to understand expectations
– Important consultants and professional associates (Tax advisor, external
advisors )
• Formal training in CG, legal and tax matters
 Register of Directors’ Interests
• Upon assuming the office of a director, a formal declaration of interests
• Details of shares held by him or his immediate family.
• Details of other Directorships held by him.
• Interest in other related companies dealings with the company
• His past and present relationship if any with the company or with any officials
• Any other relevant information
• Regular updating of this register related to their interest, available for inspection to
stakeholder
 Directors’ dealings with the company

• Directors especially INEDs should have no dealing with the company

• Should be fair, transparent, at arm’s length manner.
• No loans to directors on any terms.
• Disclosure of conflict of interest in each deal, no participation in voting, if needed
• Collective responsibility, No misuse of information by the board members
• All significant deals with directors should be put to shareholders.
• All such transactions should also be disclosed in annual statements.
 Directors’ dealing in company’s
shares
• Not forbidden by law, some suggest directors to own some shares
• However, it is the legal and moral responsibility not to use any privileged info
• Insider Trading- Knowledge of un disclosed price sensitive information
– On dividend announcement, price goes up
– Buying shares by himself or through family members
– This dishonest use of insider price sensitive information is a criminal offence
• Market Abuse- Deliberate release of misleading and incorrect info in market
– To move the share price in the desired direction of market abuser

– These are practices around the world

 Re-election issues of directors

• Fixed Tenure but eligible for reelection

• No restriction on the no of tenures
• Seldom company get new directors
• Degree of familiarity compromise the directors’ independence
• Prevent the company from benefiting from new talents
• Reasonable limit should be imposed
• For reelection of a director, nomination committee should evaluate the previous
performance
• The chairman of nomination committee must explain that why proposing for reelection
 Other Issues

• Succession planning in case of any restriction on tenure of the directors

• Important function of nominations committee

According to company act of

• Removal or disqualification

articles of association
– Convicted of crime
– Bankruptcy, insanity
– Could not attend pre set no of board meetings
– Removed by BoD through passing a resolution
– Court order, or regulators’ order.
 Dominant Personality
Aspect
• Principal cause of CG issues and failure of the companies
• Dominant personalities occupy the top positions
– Charismatic
– Powerful
– Intolerant
– Often seemingly sincere
– Does not nurture subordinates
How dominant personalities hurt the company

• No one can have all the talents, so may make wrong

decisions
• People working around dominant personalities lose interest
in decision-making, order obeying
• Tendency to micro-manage affairs.
• Do not groom a successor, don’t consider anyone else
competent enough to take their place.
• Intolerance leads to departure of good managers.
 .

Thank you