Introduction 

Every company, whether a private company or a public company, whether a listed company or an unlisted company needs a board of directors. A company is a legal entity, meaning it is an artificial person separate from its members. Some of the relevant features of a company are that i) a company has an independent corporate existence, ii) it has a common seal, iii) it enjoys a perpetual succession, iv) it is capable of owning properties in its own name, v) has the capacity to sue and be sued. Since it is not a natural person, a company, therefore, acts through an agency of human beings. A board of directors serves the purpose of this “agency” for the company, its objectives, management, mission and vision, operations, and so on and so forth. The board of directors acts as agents of the company. 

Types of directors

Basis the powers and authority conferred upon them; the directors are classified into the following types:

1. Managing directors;
2. Executive directors;
3. Technical directors;
4. Whole-time directors;
5. Independent directors;
6. Small shareholders’ directors;

Together, these appointed directors form the board of directors, or a corporate board (“Board”).

Roles and responsibility of the board

It is a well settled law that the Board has fiduciary obligations towards the company’s stakeholders as well as it has a duty to act responsibly in the best interest of the company and its vision and goals. The duties apply to each director of the Board individually and more importantly, towards the company, whereas the powers conferred upon them are enjoyed jointly. 

Responsibilities of the board

• Fiduciary responsibility

The Board has a fiduciary responsibility to care for the financial and legal requirements of the company. The Board jointly, and its directors severally, must act in good faith and with a reasonable degree of care, and must not have any conflict of interest; that is, the interests of the company take precedence over their personal interests.

• Mission and vision

The Board is responsible for setting and designing a vision and mission for the company and assuring that all actions are in furtherance and pursuance of that mission. 

• Trusteeship

As seen above, the Board is a trustee of the company, its properties and welfare of the company. The Board acts as a trustee with reference to their power of applying funds of the company. Any misuse of such power could hold the Directors jointly and severally liable. Upon the death of such directors, and since the company enjoys a perpetual succession, the cause of action survives against such deceased directors’ legal representatives.

This trusteeship is also extended to trade secrets and other intellectual property of the company. 

• Designing organizational structure

The Board designs and sets up the structure of the company, its policies, objectives, expectation of employees, degree of competition, environmental-financial-technical-legal factors, etc. Based thereon, the Board exercises an oversight function, reviewing the actions of managers and other employees. 

• Financial sanctions/ policies

All important financial decisions of the company are taken by the Board, keeping the company’s best interests in mind. Financial decisions like sanctioning of finances to different projects and teams, distribution of profits to shareholders (dividend policies), repayment of loans, reserves, etc. are all taken by the Board. 

• Link between the company and external factors

The Board acts as a vital and perpetual/ continuous link between external factors and environment like government, shareholders, other companies, vendors, social and financial institutions, and the company.

• Management roles

The board also has certain managerial duties/ responsibilities, which are set out briefly hereunder:

1. Appointment, role, remuneration of top executives (key management personnel);
2. Election, evaluation, role of the chief executive officer (CEO);
3. Monitor, review, and appraise management such as outside legal counsel, succession of CEO, limitations and duties of the CEO;
4. Selection and compensation of all officers;
5. Advisory to the managing director;
6. Monitor, review, and approve employee relations;
7. Monitor company’s performance;

The Board is also responsible for ensuring that the company and its operations are compliant with all applicable laws, regulations, orders, notifications, in the appropriate jurisdiction, that affect the business of the company. In an organization, the concept of compliance manifests in many ways and forms. These include the organization’s internal rules and standards such as its vision and values, internal rules of conduct, ethics policy, quality checks and balances, and external rules and regulations, such as legal obligations, corporate reporting, data protection, taxation, audit, HR policies, as well as international business standards which the organization may have gotten certified in.

Having a clear, effective compliance program makes it clear to the stakeholders that compliance is the top priority of the organization. It speaks of the ethos of the organization and that the organization intends to hold itself to highest transparent standards, ethical or operational. 

At the outset, the following areas have been identified, that are prima facie influenced by compliance. Each area within an organization, stated below, functions on the credo of compliance and regulation:

The above sectors of an organization have been ascertained in the order of the level of direct influence good directorship has thereon. A director or a board of directors’ primary duty is towards its stakeholders. Such stakeholders include promoters, other directors, employees, investors, shareholders, customers, etc. A director is bound to act in the best interest of such beneficiaries. Many case studies suggest directors should take the “stakeholder-oriented” approach to corporate governance. Thereafter comes the duty towards business strategies of the organization, subsequently over finances and so on and so forth. One must be clear that the duties of a Board towards each sector are not mutually exclusive of each other but rather convoluted and labyrinthine. 

Conclusion

These are just some of the responsibilities of the Board towards the company and its stakeholders. The end and intent of a Board’s role is to act in pursuance of the company’s mission and objectives, keeping the company’s best interest in mind. A good board of directors is one that brings in expertise from strategy, finance, legal, operations, marketing, and specialised industry related skills.

Having a good board of directors underpins a good and efficient corporate governance structure of a company. A strong and effective Board of Directors is an invaluable asset, one that is a key to success in achieving its goals, by the company.

Aishwarya Says:

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