ROLE OF BOARD OF DIRECTORS IN

CORPORATE GOVERNANCE

A Seminar Paper

Presented to

School of Business

The Faculty of Management Studies

Pokhara University

In Partial Fulfillment

of the Requirements for the Degree

Masters of Business Administration

By

Bijay Karmacharya

Exam Roll No. 11220183

Pokhara

June, 2013

ACKNOWLEDGEMENT

It is a matter of great pleasure for me to acknowledge all the people who helped me for the

successful completion of this Seminar Paper Report on the topic “Role of Board of Directors

in Corporate Governance” as per the requirement of the 6th

trimester of the syllabus

provided by Master of Business Administration, Pokhara University.

First of all, I would like to express my heartfelt gratitude and thanks to Mr. Surya Bahadur

G.C. and Umesh Singh Yadav for encouraging me for the involvement in such a creative

work that helped a lot to enhance our knowledge as a business student and helped me to be a

competent student. Also, I would like to thank all the faculty members of Pokhara University

for providing necessary documents and resources needed during the report.

Thanks are due to authors of books, journals and articles that were consulted in course of the

study. I would also like to thanks all my friends, who helped me through out the report, and

seniors for their valuable help and suggestions during this seminar report writing.

I am solely responsible for the errors in this report and any constructive criticism is warmly

welcomed for the betterment.

Bijay Karmacharya

6th

Trimester

MBA

ABSTRACT

The purpose of this seminar paper is to indicate the role of board of directors in corporate

governance. This paper basically focuses on how the role and responsibilities of board of

directors can become critical to a company which is facing various problems due to failure to

implement sound corporate governance within the company. As a consequence of

various scandals and ongoing concerns about corporate governance, boards

have been at the center of the policy debate concerning governance reform

and the focus of considerable academic research.

Thus, this paper investigates the roles of BODs on good corporate governance practices.

Good corporate governance depends on board leadership structure, board composition, board

size, director ownership and board roles and responsibilities. The board of directors is the

highest governing authority within the management structure at any publicly traded company.

It is the board's job to select, evaluate, and approve appropriate compensation for the

company's chief executive officer (CEO), evaluate the attractiveness of and pay dividends,

approve the company's financial statements etc. Thus BODs should be totally committed to

the best practices in the area of corporate governance. The board should regularly review and

update corporate governance practices to accommodate developments within the marketplace

in general and the business in particular, and to comply with internationally recognized

governance standards.

LIST OF ABBREVIATIONS

BODs Board of Directors

CEO chief executive officer

CG Corporate Governance

FI Financial Institution

GCG Good Corporate Governance

NRB Nepal Rastra Bank

OECD Organization for Economic Co-operation and Development

WOCCU World Council of credit Unions

TABLE OF CONTENTS

Acknowledgement

Abstract

List of Abbreviations

Table of Contents

CHAPTER I: INTRODUCTION

1.1 Background .............................................................................................................. 1

1.2 Statement of the Problem ......................................................................................... 6

1.3 Significance of the topic of seminar ........................................................................ 6

1.4 Limitations ............................................................................................................... 7

CHAPTER II: ROLE OF BODs IN CORPORATE GOVERNANCE

2.1 Corporate Governance & Role of BODs ................................................................. 8

2.2 Review of literature ............................................................................................... 11

2.3 Analysis of Literature ............................................................................................ 13

2.4 Corporate Governance in Nepalese Context .......................................................... 14

CHAPTER III:SUMMARY, CONCLUSION & RECOMMENDATIONS

3.1 Summary ................................................................................................................ 16

3.2 Conclusions ............................................................................................................ 16

3.3 Recommendations .................................................................................................. 17

References

1

CHAPTER I

INTRODUCTION

1.1 Background

People often question whether corporate boards matter because their day-

to-day impact is difficult to observe. But when things go wrong, they

can become the center of attention. Certainly this was true of the Enron,

Worldcom, and Parmalat scandals. The directors of Enron and WorldCom,

in particular, were held liable for the fraud that occurred: Enron directors

had to pay $168 million to investor plaintiffs, of which $13 million

was out of pocket (not covered by insurance); and Worldcom directors

had to pay $36 million, of which $18 million was out of pocket. As

a consequence of these scandals and ongoing concerns about corporate

governance, boards have been at the center of the policy debate

concerning governance reform and the focus of considerable academic

research. Because of this renewed interest in boards, a review of what we

have and have not learned from research on corporate boards is timely.

Thus, it is the responsibility of the entire board of directors to ensure that good corporate

governance is in place in the company and that it is continually improved upon by

bringing the best global practices.

Corporate governance (CG) is defined as the set of relationship between company’s

management, board of directors, shareholders and other stakeholder. It provides the

structure through which the objectives of the company are set and the means of attaining

those objectives and monitoring performance is determined. Corporate governance is a

process, not a state. CG can be defined in two basic ways:

First, it is a set of behavioral patterns that is the actual behavior of corporations,

in terms of such measures as performance, efficiency, growth, financial

structure, and treatment of shareholders and other stakeholders

The second set concerns itself with the normative framework: that is, the rules

under which firms are operating

2

Corporate governance is a combination of corporate policies and best practices adopted by

the corporate bodies to achieve its objectives in relation to their stakeholders. The

fundamental objective of corporate governance reforms is to enhance transparency and

transparency enhances accountability. It is widely recognized that transparency enhances

trust among the major players within the governance framework. Various definitions and

principles have been introduced to stabilize the corporate governance among corporate

entities. The definition presented by some institution is presented below.

Corporate governance is the system by which companies are directed and

controlled (Cadbury Report-1992)

Set of relationships between a company’s management, its boards, its shareholders

and other stake holders (OECD Principles)

With globalization, vastly increasing the scale of trade and the size and complexity of

corporations and the bureaucracies constructed to attempt to control it, the importance of

corporate governance and internal regulation has been amplified as it becomes

increasingly difficult to regulate externally. Similarly, the role of boards of directors has

been the topic of much attention lately. The role of board of directors is becoming more

involved in assessing and shaping the company policies and practices on wide range of

corporate world. They recognize the importance of good corporate governance as a means

of addressing the interests of Company's shareholders, employees, customers and

community. The Board also ensures that the company maintains good corporate

governance practices. Accordingly, the following guidelines are subject to periodic review

and change by the Board. The corporate governance framework should ensure the strategic

guidance of the company, the effective monitoring of management by the board, and the

board’s accountability to the company and the shareholders.

1.1.1 Objectives of Corporate Governance

The major objectives of corporate governance are as follows:

To maximize the contribution of firms to the overall economy

To improve the relationship between shareholders, creditors, and corporations;

between financial markets, institutions, and corporations; and between employees

and corporations

3

To encompass the issue of corporate social responsibility, including such aspects

as the dealings of the firm with respect to culture and the environment.

The above objective of CG clearly shows that the subject corporate governance was

incorporated for the welfare of the society or country by binding all the concerned areas

with legal rules and regulations ensuring fairness, transparency, accountability, and

responsibility. The final point it defines is for the improvement and development of the

country. The key concern is the degree of influence which standards of corporate

governance have in promoting the efficient use of scarce resources to the benefit of society

as a whole.

1.1.2 Principles of Corporate Governance

The principles of corporate governance according to OECD (2004) are as follows:

Ensuring the Basis for an Effective Corporate Governance Framework

The corporate governance framework should promote transparent and efficient

markets, be consistent with the rule of law and clearly articulate the division of

responsibilities among different supervisory, regulatory and enforcement

authorities.

The Rights of Shareholders and Key Ownership Functions

The corporate governance framework should protect and facilitate the exercise of

shareholders’ rights. Basic shareholder rights should include the right to: 1) secure

methods of ownership registration; 2) convey or transfer shares; 3) obtain relevant

and material information on the corporation on a timely and regular basis; 4)

participate and vote in general shareholder meetings; 5) elect and remove members

of the board; and 6) share in the profits of the corporation.

The Equitable Treatment of Shareholders

The corporate governance framework should ensure the equitable treatment of all

shareholders, including minority and foreign shareholders. All shareholders should

have the opportunity to obtain effective redress for violation of their rights.

4

The Role of Stakeholders in Corporate Governance

The corporate governance framework should recognize the rights of stakeholders

established by law or through mutual agreements and encourage active co-

operation between corporations and stakeholders in creating wealth, jobs, and the

sustainability of financially sound enterprises.

Disclosure and Transparency

The corporate governance framework should ensure that timely and accurate

disclosure is made on all material matters regarding the corporation, including the

financial situation, performance, ownership, and governance of the company.

The Responsibilities of the Board

The corporate governance framework should ensure the strategic guidance of the

company, the effective monitoring of management by the board, and the board’s

accountability to the company and the shareholders.

1.1.3 Good corporate governance and its Characteristics

Good corporate governance (GCG) in a corporate set up leads to maximize the value of

the shareholders legally, ethically and on a sustainable basis, while ensuring equity and

transparency to every stakeholder – the company’s customers, employees, investors,

vendor-partners, the government of the land and the community (Murthy, 2006). GCG is a

must for ensuring the required values to different stakeholder groups. It enhances the

performance of corporations, by creating an environment that motivates managers to

maximize returns on investment, enhance operational efficiency and ensure long–term

productivity growth. Consequently, such corporations attract the best talent on a global

basis. It also ensures the conformance of corporations with the interests of investors and

society, by creating fairness, transparency and accountability in business activities among

employees, management and the board (Oman, 2001).

Good corporate governance can be pointed as:

Board members act in the best interest of shareholders.

The company acts in a lawful and ethical manner in all their dealings.

5

All shareholders have the same right to participate in company governance and are

treated fairly by the Board and management.

The board and committees act independently of management.

All relevant company information is provided in a timely manner

Good corporate governance has the following characteristics:

Accountability

Not only governmental institutions but also the private sector and civil society

organizations must be accountable to the public and to their institutional

stakeholders. In general an organization is accountable to those who will be

affected by its decisions or actions. Accountability cannot be enforced without

transparency and the rule of law.

Interests of other stakeholders

Organizations should recognize that they have legal and other obligations to all

legitimate stakeholders.

Role and responsibilities of the board

The board needs a range of skills and understanding to be able to deal with various

business issues and have the ability to review and challenge management

performance. It needs to be of sufficient size and have an appropriate level of

commitment to fulfill its responsibilities and duties. The key roles of chairperson

and CEO should not be held by the same person.

Integrity and ethical behavior

Organizations should develop a code of conduct for their directors and executives

that promotes ethical and responsible decision making. It is important to

understand, though, that systemic reliance on integrity and ethics is bound to

eventual failure. Because of this, many organizations establish compliance and

ethics programs to minimize the risk that the firm steps outside of ethical and legal

boundaries.

6

Disclosure and transparency

Organizations should clarify and make publicly known the roles and

responsibilities of board and management to provide shareholders with a level of

accountability. They should also implement procedures to independently verify and

safeguard the integrity of the company’s financial reporting. Disclosure of material

matters concerning the organization should be timely and balanced to ensure that

all investors have access to clear, factual information.

Responsiveness

Good governance requires that institutions and processes try to serve all take

holders within a reasonable timeframe.

Consensus oriented

There are several actors and as many view points in a given society. Good

governance requires mediation of the different interests in society to reach a broad

consensus in society on what is in the best interest of the whole community and

how this can be achieved. It also requires a broad and long-term perspective on

what is needed for sustainable human development and how to achieve the goals of

such development.

1.2 Statement of the Problem

It is the responsibility of the board of directors to ensure that good corporate governance is

in practice in the company. This seminar paper states the roles of BODs and their

relevance in the corporate governance and discusses the present situations of corporate

governance practices in Nepal.

1.3 Significance of the topic of seminar

The seminar paper mainly focuses on how the role and responsibilities of board of

directors can become critical to a company which is facing various problems due to failure

to implement sound corporate governance within the company. The relevancy of this

paper lies to all the researcher, academician, students etc. who wants to know about the

role of board of directors in implementing the corporate governance. The following are

significances of the study:

7

It will create knowledge on the role and responsibilities of BODs in corporate

governance

The organizations may use the findings to improve their efficiency and

effectiveness.

1.4 Limitations

The seminar paper considers only one internal mechanisms of corporate governance i.e.

the board of directors. Other internal and external mechanisms of governance have not

been analyzed. This paper mainly focuses on the roles and responsibilities of BODs;

procedures and operation of the BODs or general practices of corporate governance are

not studied. Lastly, this paper is based upon only secondary sources rather than primary

sources.

8

CHAPTER II

ROLE OF BODs IN CORPORATE GOVERNANCE

2.1 Corporate Governance & Role of BODs

A board of directors is a body of elected or appointed members who jointly oversee the

activities of a company. The Board of directors is the formal link between the shareholders

of an organization and the managers entrusted with day today functioning of the

organization (Monks et al, 1995).A board's activities are determined by the powers, duties,

and responsibilities delegated to it or conferred on it by an authority outside itself. These

matters are typically detailed in the organization's bylaws. Boards of Directors consist of

two types of directors - executive and non-executive. The responsibilities of the executive

directors include, setting the company’s strategic objectives, providing the leadership to

put them into effect, supervising the management of the business and reporting to

shareholders on their stewardships. Non-executives are appointed on a part-time basis and

perform various duties including (in some cases) acting as the company’s chairperson and

sitting on various key committees: The Nominations Committee, the Remuneration

Committee, the Audit Committee.

The bylaws commonly also specify the number of members of the board, how they are to

be chosen, and when they are to meet. The law places directors in fiduciary relationship

with shareholders. The fundamental responsibility of the individual corporate director is to

represent the interests of the shareholders as a group. This responsibility obligates

directors to act with care in fulfilling their responsibilities, to be loyal to the corporation,

and not to allow personal interests to function to the detriment of the shareholders they

represent. If shareholders ever doubt that a director has properly performed his duties, they

may file a lawsuit.

The board's 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. By law, the board of directors has a duty and responsibility for governing the

corporation. The Board owes its loyalty to the corporation itself whose best interests must

be guide for all its decisions. The board has the responsibility of enhancing the economic

9

efficiency and competitiveness of the corporation as well as orienting its operations

towards growth and survival. The Board must therefore direct the business of the

organization with fairness and due regard to shareholders’ value and stake in the

enterprise. It is incumbent upon the board to ensure that timely, accurate and complete

reports on all relevant aspects of the organization are issued to all stakeholders. In this

regard the Board must put in place the system of reporting with standards of disclosure

that are fully consistent with international accounting practices. In order to be fair to its

stakeholders, the corporation must live to its duty of transparency and open full disclosure.

2.1.1 Key Roles of BODs

The role of the Board in creating an environment where a corporation can succeed is the

key to future success of the business. The board should work to ensure that it builds a

united, cohesive and coordinated team working towards the main goal of attaining desired

corporate performance. Directors have a duty to look after the company and its business in

a proper manner. There is need for greater control over corporate entities due to the

increasing concern about corporate failures and the need for better monitoring. The key

roles of BODs in corporate governance are as follows:

a) 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

b) 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.

10

Ensure that the company's organizational structure and capability are

appropriate for implementing the chosen strategies.

c) 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.

d) 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.

e) Other roles

Selecting, compensating, monitoring and, when necessary, replacing key

executives and overseeing succession planning.

Aligning key executive and board remuneration with the longer term

interests of the company and its shareholders.

Ensuring a formal and transparent board nomination and election process.

Monitoring and managing potential conflicts of interest of management,

board Members and shareholders, including misuse of corporate assets and

abuse in related party transactions.

Overseeing the process of disclosure and communications.

Monitoring the effectiveness of the company’s governance practices and

making changes as needed.

11

2.1.2 Key Responsibilities of BODs

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. The key responsibilities

of BODs are as follows:

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 favor the company.

Directors must act with due skill and care.

Directors must consider the interests of employees of the company.

2.2 Review of literature

The need for good corporate governance has been acknowledged since corporations were

first created and awareness of this need has grown rapidly around the world in recent

years. Initiatives for improvement started to accelerate in the in the early 1990s. Poor

corporate governance is widely regarded as one of the main factors that has brought crisis

in collapsed companies and then contributed to its severity and length. It has undermined

investor confidence not just in affected companies but in the entire national economies.

(Economist Newspaper, "The World in 1999", 1999).

Fama and Jensen (1983) point to the fact that absence of governance controls

would allow managers to pursue interests that are likely to deviate from that of the

corporate owners. According to the WOCCU report (2005) internal governance

defines the responsibilities and accountability of the general assembly, the board of

directors, management and the staff. These responsibilities include achieving an

12

appropriate governing structure of the credit union, preserving the continuity of future

credit union operations, creating balance within the organization and remaining

accountable for their actions.

Boards of Directors are widely recognized as an important mechanism for monitoring the

performance of managers and protecting shareholders’ interests and hence an important

component of internal governance (Fama and Jensen, 1983). Baker (1998) opposed to the

system of electing directors because in their view, the democratic election of the Board

of Directors creates problems in credit unions due to inaccurate representation of owners

and unqualified personnel in decision control. Since directors are elected from the general

membership on a one-person, one vote basis, this rule of governance creates

problems when the individuals elected do not have the expertise to make sound

judgments. The ability of directors to fulfill their role as a monitor or control depends

upon their business acumen or management skills.

According to Rock, Otero & Saltzman (1998) Board Directors are democratically elected

by membership however; they may remain beholden to individual members who

mobilized votes on their behalf. Branch (2005) agrees with Rock et al (1998) on the

election process of board members adding that these members most often act as

Volunteers. Small, young SACCOs are also staffed entirely by volunteers. As they grow,

more sophisticated and risky operations require professional managers and problems

occur when volunteer board members continue to make operational decisions, after

Professional managers have been recruited, instead of focusing on monitoring operations.

According Branch and Baker (1998) it is important that Board members be qualified as

unqualified board members may be unable to make proper decisions.

13

Conceptual Framework

Figure: Conceptual framework on BODs and Business performance

Description of the Model:

This model explains that the board members should be accountable, fair and transparent in

every thing they do in the corporation. This results in strong cohesiveness and ultimately

results in good business performance. Corporate Governance affects survival and

business performance among various selected organizations and ultimately share

holders value.

2.3 Analysis of Literature

After reviewing various literatures, we find that the board of directors has significant roles

and responsibilities in conducting sound corporate governance practices. How ever, the

board members should be accountable, fair and transparent in every thing they do in the

corporation. Absence of proper governance controls would allow managers to pursue

interests that are likely to deviate from that of the corporate owners. We also find that

most of the literatures have defined what BODs should do for better corporate governance

but none of has care about their needs and requirements. The board members should be

qualified as unqualified board members may be unable to make proper decisions. There is

huge difference in theory and reality. The board makes the broad decisions and designates

the officers to execute the decisions. In practice, in the case of large public corporations,

the idea that the board of directors actually manages the company is gradually being

Board

Members

Accountability

Fairness of

Decisions

Transparency

Cohesiveness Business

Performance

14

replaced with the notion that the board’s primary function is to monitor management and

oversee the operation of the corporation.

2.4 Corporate Governance in Nepalese Context

In Nepalese society, the general attitude towards profit, risk taking and entrepreneurship is

not very positive. Moreover, the history of modern corporations is very short in our

country. Most of the families, who are in business in Nepal, started as traders, merchants;

and only in the last few decades went into modern company style organizations governed

by company act. The majority of the business is family business, most are small or

medium sized. Banking sector is the most visible publicly traded sector which has

emerged as a new and different breed from the real sector. The few multinational

companies or subsidiaries are closely held companies.

For the last few years, the corporate governance has been a matter of growing academic

interest in the policy studies. Given the infant stage of securities market development and

gradual transformation of the external sources of corporate finance from bank to market,

Nepal is passing through a transitional phase of institutional and governance reform. The

high concentration of corporate ownership structure and dominance of family business

groups in corporate affairs have become major constraints in exercising good corporate

governance. Nevertheless, a number of governance reforms are underway and some

positive symptoms have been observed in the banks and financial institutions. To ensure a

good corporate governance in Nepal requires a joint effort of the investors (promoters)

who need to be more transparent, responsible and socially accountable; the shareholders

who must actively participate in their corporate affairs to help prevent any fraudulent and

insider practices and; the regulatory authority that should effectively enforce rules and

regulations in order to protect the rights of all stakeholders and create favorable

environment to enhance good corporate governance culture.

The major issues and problems regarding corporate governance practices in Nepal are as

follows:

Poor qualification of BODs

Lack of responsibility and accountability in functioning of BODs

15

Lukewarm implementation of accounting and auditing standards for financial

disclosure

Poor system of control

Poor transparency and disclosure

Most of the organization follows family structure management.

Corruption, lack of accountability of BODs towards shareholders and Lack of

accountability of management to BODs is common in the case of Nepal.

Poor compliance with national legislation

Lack of succession planning in the organization

The roles of board of directors in corporate governance in Nepal are as follows :( Directive

6 issued by NRB)

Directors should not interfere in day-to-day operation of the financial institution.

If there is a conflict, director needs to inform the board before assuming office.

Directors should not involve in any activity which is against the interest of the

company (conflict of interest)

Chief executive should work fulltime.

Directors of one deposit taking institution cannot act as director of other FI.

Director cannot act as custodian or trustee of any of the customer

Director shall not misuse its position and should deal fairly.

Director should keep up to date and accurate record of accounts and reports

Director should not use or misuse information received from clients for person

benefit

Outlines the duties and responsibilities of the directors

Provides additional disqualification for the appointment of chief executive

directors

Provides for code of conduct to be followed by the chief executive and other

employees.

16

CHAPTER III

SUMMARY, CONCLUSION & RECOMMENDATIONS

3.1 Summary

The board of directors is the highest governing authority within the management structure

at any publicly traded company. It is the board's job to select, evaluate, and approve

appropriate compensation for the company's chief executive officer (CEO), evaluate the

attractiveness of and pay dividends, recommend stock splits, oversee share repurchase

programs, approve the company's financial statements, and recommend or strongly

discourage acquisitions and mergers. BODs should work to ensure the integrity and

sustainability of its business operations. Thus BODs should be totally committed to the

best practices in the area of corporate governance. Knowing the importance of complying

with corporate governance standards, the board should regularly review and update

corporate governance practices to accommodate developments within the marketplace in

general and the business in particular, and to comply with internationally recognized

governance standards.

The Board of Directors is responsible to shareholders for the overall strategy of the

company, its governance and performance. The board guides the Company's business and

affairs. The Chairman and the Managing Director should provide the rest of the Board

members and committees with the company's information in due course. All Board

members should maintain the confidentiality of the company's data, information and

documents. All Board members have the right to obtain any documents or company-

specific information to support them in performing their duties, provided that these

documents should be sent through the Board's Secretary. The Board has the right to seek

external advisers and experts to support and provide the needed consultations, provided

that the approval on requesting those external experts is through the Board itself.

3.2 Conclusions

Corporate governance is the means by which companies are directed, administered and

controlled. It influences how the objectives of the company are set and achieved, how risk

is monitored and assessed, and how performance is optimized. Good corporate governance

enables companies to create value (through entrepreneurialism, innovation, development

17

and exploration) and provides accountability and control systems commensurate with the

risks involved. The role of the Board in creating an environment where a corporation can

succeed is the key to future success of the business. It is incumbent upon the board to

ensure that timely, accurate and complete reports on all relevant aspects of the

organization are issued to all stakeholders. In this regard the Board must put in place the

system of reporting with standards of disclosure that are fully consistent with international

accounting practices. The powers of the corporation are vested in its board of directors

who are answerable to the owners of the company, the shareholders. Company’s board of

directors provides the company with direction and advice. It is the responsibility of the

board of directors to ensure that the company fulfills its mission statement.

The board should maintain, and periodically update, organizational rules, by-laws, or other

similar documents setting out its organization, rights, responsibilities and key activities.

To support board performance, it is a good practice for the board to carry out regular

assessments of both the board as a whole and of individual board members. Assistance

from external facilitators in carrying out board assessments can contribute to the

objectivity of the process. As discussed in this document, the primary responsibility for

good corporate governance rests with boards (supported by the control functions) and with

senior management. A good corporate governance practice should provide proper

incentives for the board and management to pursue objectives in the interest of the

company and shareholders and should facilitate effective monitoring.

3.3 Recommendations

Though there are many provisions and act regarding the corporate governance, the NRB

and government have failed to track down bad governance practices on time. Government

is not only the one to be blamed; the institutions and organizations also should be

responsible to maintain good corporate governance. The regulations may not prove to be

successful every time. The business houses and institution must maintain self- discipline,

conduct good corporate governance practices.

For the practice of sound corporate governance the following recommendations are

suggested:

18

BODs must be more responsible for ensuring the institution has effective code of

conduct for good corporate governance in their system and also must ensure that

each member and staffs follow those codes of conduct.

Competitive and qualified persons should be encouraged while electing board of

directors.

BODs should identify its actual role & responsibilities towards maintaining sound

corporate governance practices.

The shareholders must actively participate in the organizational issues to maintain

the good corporate governance practices in the institution.

There is no match between the roles and responsibilities fulfilled by the BODs and

the remuneration paid to them. In order to encourage and motivate them for their

job they should provided handsome salary, bonus and other facilities.

REFERENCES

Fischmann, A. (2010). The Roles of Board of Directors in Listed Companies in Brazil.

The OECD Principles of Corporate Governance, 2004

Corporate governance and the role of non executive directors in large UK companies: An

Empirical study, 2002

The Role of Boards of Directors in Corporate Governance: A Conceptual

framework and Survey

www.icgn.org

www.cgforumnepal.org

www.corpgov.net