becg.l 9.board.directors1

8/13/2019 BECG.L 9.Board.directors1

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Corporate & Board

Management(Lesson-9: BECG)

Prof. C. Anand

Faculty IBS, Hyderabad


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Contents

This deals with:-

1. Structure and Composition of the Board

2. Styles of Directors

3. Roles, Functions, Duties, Responsibilities andLiabilities of Directors

4. Executive Management Process

5. Functional Committees of Board

6. Investor Services and Investor ProtectionMeasures


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1. Structure and Composition of the

Board

The composition (types) and the size of the Board plays a crucial rolein the effective functioning of the Board. The composition of the

Board can be changed to improve the functioning of the Board.

(a) Types of Board:

Executive Directors (Hold positions of both Director andExecutive of an organization)

Non-Executive Directors (They dont hold executivepositions & are outside directors without promoters link)

Nominee Directors (of Banks, FIs, major shareholders)

Representative Directors (Similar to Nominees butrepresent stakeholder groups like employees, customers)

Alternate Directors (Substitutes to Original Directors)

Shadow Directors (They influence Board without being

formally present on the Board)


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(b) Types of Board Structures: All-Executive Board (It will have all Executive Directors

only and no outside directors E.g. Family-ownedbusinesses and subsidiaries)

Majority Executive Board ( Executive Directors will have a

majority and Outside Directors represent interests ofstakeholder groups like major shareholders, employees,customers, Banks, FIs etc.)

Majority Outside Board (This will have a majority ofoutside, Non-Executive Directors)

Two-Tier Supervisory Board (It addresses the concerns forseparating Executive Management from Non-ExecutiveDirectors. It has two separate Boards: The Non-ExecutiveSupervisory Board and the Executive Management Board.The former monitors the plans/performance of the latter).


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2. Styles of Board

C. Styles of the Board (Grid):Depending on the way the Boards function, theircommitment to effective decision making and concernfor interpersonal relations, the Boards may becategorized as:

Rubber Stamp Boards Gives little importance to goodinterpersonal relations or decision making. Boardratifies whatever decisions CEO takes. Ex. SubsidiaryCos.) Representative Boards They accord high priority toeffective decision making and less or no priority to

good interpersonal relations among board members) County Club Boards Maintain cordial interpersonalrelations but concern for decision making is least) Professional Boards Give high importance to bothinterpersonaal relations and effective decision making)


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3. Roles, Functions, Duties, Responsibilities and

Liabilities of Directors

(a) Roles of Directors:

1. Performance Role (In this, director performs various

activities aimed at improving the overall performance of

the corporation like: A source of know-how, expertise

and external information; and caters to needs of the

corporation for networking, representing and adding

status. Outside directors act as specialists in different

functions like finance including banking and

investment, marketing, law, engineering, HR,environment and general management. Some time they

act with the media on behalf of the corporation).


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2. Conformance Role : (In this, the director is

concerned with ensuring that the company follows

the policies and procedures laid down by the

board. This is done thru executive management

and involves monitoring and evaluating their own

performance. The independent evaluation of top

managementsperformance overcomes the danger

of adoption of a narrow vision of the executiveboard.


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Liabilities of Directors (contd.)

3. Strategic Role of Directors (Board):

1. To supervise the quality of strategic thinking of the top

management/executive committee and take corrective measures to

guide them to develop strategies to achieve corporate goals.

2. To develop strategy in the following three levels:-

Systematic Level Strategy (Boards shall develop knowledge based on

national/global environment to guide the company)

Structural and Portfolio Strategy (Taking decisions regarding

structure of the co. and the business it should enter into)

Implementation Strategy (To decide whether the strategies arefeasible and to implement such policies and strategies properly)

2. To make policies which cover all functional areas lik marketing,

finance, operations, customer relations and R&D.

3. Monitoring and Supervisory Role to ensure right strategic direction.


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(b) Functions of Directors:

To take responsibility for the performance of Co.

To promote interests of shareholders

To oversee performance of Co., CEO, top managers. To see accurate reports on financial performance are

provided to stakeholders

To provide adequate strategic guidance to the co.

To maintain good relations with the stakeholders To enact various performance and conformance roles.


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Duties of Directors:

Exercise care in the discharge of functions as directors

Attend board meetings & pay attention to co.saffairs

Not to be negligent and not commit legal wrongs

Act in the best interests of Co. & stockholders/customers

Not to misuse power

Protect interests of creditors

Maintain confidentiality

Not to make secret profits and make good loss, if accrued due tobreach of duty, of negligence.

Not to exercise powers for a collateral purpose.

Not to waste company assets.


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(d) Responsibilities of Directors:

Responsibilities to shareholders (Through policies

and proceedings and monitoring top

managementsperformance)

Obligation to maintain honesty and integrity.

To give the shareholders regular reports and

accounts, besides being honest with theshareholders in their dealings and decisions that

will benefit the organization.


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(e) Liabilities of Directors:1. Misrepresentations in offer documentations and

annual accounts

2. Failure to refund subscription monies to

investors

3. Contravention of Law


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4. Executive Management Process

The Executive Management of a company is generallycomprised of the Chief Executive, Executive Directors, andthe Key-Managers involved in day-to-day management ofthe company. They are professionals with substantial

experience in the concerned professional areas in relatedindustries, both within India and across the world ( in caseof MNCs).

The executive management team is guided in the executionof the Company's strategy by the Board of Directorscomprising individuals who have distinguished themselvesin the private and public sectors.

It directly reports to the Board and administers the day-to-day affairs of the company as per the powers delegated to

it by the Board.


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5. Functional Committees of the Board

The board relies on independent outside directors to

monitor management performance. Such committees are:

(a) Audit Committee:

It consists of independent directors who report to the

board. These committees act as a link between the boardand external auditors. Its functions are:

To sort out audit problems

To review interim & final accounts

To inform board about effectiveness of internal controls,quality of financial reporting, audit fees, selection and

replacement of auditors.


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5. Functional Committees of the Board (contd.)

(b) Remuneration Committee:Board sets up this committee to objectively reviewthe remuneration packages of the EDs and othertop managers. The committee, made up of

independent directors, chalks out a reasonableand transparent remuneration policy and checksunreasonable increase of executive remuneration

(c) Nomination Committee:

It is set up to select the new non-executivedirectors and is headed by the Chairman andshortlists and interviews the final candidates.


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Executive Committee of the Board

The Executive Committee is responsible for

exercising all of the powers and authority of

the Board of Directors during intervals

between Board meetings, except for thosepowers delegated to the other committees of

the Board.

6 Investor Services and Investor


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6. Investor Services and Investor

Protection Measures

A. Investor Services:

Investor Services include share registration andother related services. Generally, the InvestorService Centers (ISCs), operated by a dedicated andtrained team of professionals backed by state-of-the-art infrastructure, are registered with SEBI as ShareTransfer Agents.

ISCs shall have a very high degree of control inrespect of compliance with statutory and regulatoryrequirements and a very effective and efficientComplaint Redressal Mechanism.

ISCs deal with the share related matters, includingDematerialization, Rematerialization, Transfer,Transmission of Shares, Sub-division orConsolidation of Shares, Issue of Duplicate ShareCertificates, Dividend etc, or for redressal of anygrievance in this regard.


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B. Investor Protection Measures

SEBI has issued investor protection guidelinesknown as SEBI (Disclosure & Investor Protection)Guidelines, 2000. It deals with the following:-

Eligibility norms for cos. issuing securities

Pricing by cos. issuing securities

Promoters contribution and lock-in requirements

Pre-issue obligations

Contents of offer documents Post issue obligations

Compliance by Lead Merchant Banker(Contd)


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B. Investor Protection Measures (cond.)

Guidelines on advertisement

Guidelines for Issue of Debt Instruments

Guidelines for Book-Building

Guidelines for Issue of IPOs by designated DFIs.

Guidelines for Preferential Issues

Guidelines for OTCEI issues

Guidelines for Bonus Issues

Operational Guidelines

Miscellaneous


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Some Important Schedules to SEBI (Disclosure

& Investor Protection) Guidelines

MOU between Lead MB and Issuer Co.

Inter Se Allocation of Responsibilities

Due Diligence Certificate to be given by Lead

Merchant Banker

Promoters Contribution & Lock-in Period

Formats of Due Diligence Certificates

Financial Statements (P&L, B/S, Tax ShelterStatement, Capitalization Statement)

Formats of Auditors Statement for Profit Forecast


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Some Important Schedules to SEBI (Disclosure

& Investor Protection) Guidelines (contd.)

Basis for Issue Price

Post Issue Monitoring Reports

Underwriting Devolvement Statement

Basis for Allotment Procedure

Format to Reporting Agency

Book Building Model

Draft and Final Offer Documents Format Formats of Hly. Reports to be submitted by MBs

(The End)