roles & responsibilities of bod

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Roles & Responsibilities of BOD A Paper Presented To Amritsar Branch of NIRC of ICAI By Deepak Acharya Bikaner [email protected]

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Page 1: Roles & responsibilities of bod

Roles &

Responsibilities of

BOD

A Paper

Presented To

Amritsar Branch of NIRC of ICAI By

Deepak Acharya

Bikaner

[email protected]

Page 2: Roles & responsibilities of bod

Roles & Responsibilities of BOD

Board of Directors:

“Board of Directors” or “Board”, in relation to a company, means the

collective body of elected or appointed members (Directors) who jointly

oversee the activities of a company or organization.

According to section 149(1) of the Companies Act, 2013, every company shall

have a Board of Directors consisting of individuals as directors and shall have-

(a) A minimum number of directors

(A) in the case of Public company- three directors,

(B) in the case of Private Company- two directors, and

(C) in case of One person company- one director (b) A maximum of fifteen directors.

If the company wants to appoint more than fifteen directors, it can do so

after passing a special resolution.

So, the board of directors leads and controls a company and an

effective board is fundamental to the success of the company.

The process for running a board, sometimes called the board process, includes

the selection of board members, the setting of clear board objectives, the

creation and follow-up of assigned action items. If the minimum no. of directors

are not satisfied then there are no board in the company. The board are directly

accountable to the shareholders and each year the company will hold an annual

general meeting (AGM) at which the directors must provide a report to

shareholders on the performance of the company, what its future plans and

strategies are and also submit themselves for re-election to the board.

It is important that board meetings are held periodically so that directors can

discharge their responsibility to control the company's overall situation, strategy

and policy, and to monitor the exercise of any delegated authority, and so that

individual directors can report on their particular areas of responsibility.

Page 3: Roles & responsibilities of bod

Roles & Responsibilities of BOD

Roles: Jobs or positions that have a specific set of expectations attached to

them. The role of the Board is to oversee the management of the Corporation

and to represent the interests of all the Corporation’s stockholders. The Board

meets in regular session at least six times per year and as otherwise required.

Directors are expected to attend all Board meetings and meetings of committees

on which they serve, and they are frequently called upon for advice and counsel

between formal meetings. Directors review advance meeting materials that are

provided to each director in advance of each meeting. Each director is

encouraged and expected to ask questions of and raise issues with management

to ensure the conduct of careful and cautious oversight.

Responsibilities : A duty or obligation to satisfactorily perform or complete

a task (assigned by someone, or created by one's own promise or circumstances)

that one must fulfill, and which has a consequent penalty for failure.

So we can say that roles & responsibilities of BOD as well as Director

(Individual) are different. The responsibilities of the board are separate and

distinct from those of management. The board does not manage the company.

Page 4: Roles & responsibilities of bod

Roles & Responsibilities of BOD

Roles of the board of directors:

Boards have primary roles: to establish policies, to make significant and

strategic decisions, and to oversee the organization's activity. The roles of the

board of directors include:-

1) Establish vision, mission and values

2) Policy making

3) Set strategy and structure

4) Decision making

5) Delegate to management

1) Establish vision, mission and values:

o Determine the company's vision and mission to guide and set the pace for

its current operations and future development.

o Determine the values to be promoted throughout the company.

o Determine and review company goals.

o Determine company policies

2) Policy making:

o Effective execution of policy is necessary to fulfill the other roles.

o Policies define focus and differentiate responsibilities among the board,

the management, and the staff.

o Well-written policies lead to more efficient board functioning.

o Instead of having the same matter or very similar matters on the agenda

repeatedly, the board can develop a policy that covers the issue and leave

implementation of the policy to management.

o Boards have approximately 24 hours together each year, spread over

regular meetings.

o It is essential to use that time wisely.

3) Set strategy and structure:

o 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.

o Determine strategic options, select those to be pursued, and decide the

means to implement and support them.

Page 5: Roles & responsibilities of bod

Roles & Responsibilities of BOD

o Determine the business strategies and plans that underpin the corporate

strategy.

o Ensure that the company's organisational structure and capability are

appropriate for implementing the chosen strategies.

4) Decision making:

o Decision making involves making choices about the organization's vision,

mission, and strategies.

o Boards make decisions about issues that are strategic and significant,

such as whether to enter an affiliation agreement with another

organization.

o As decision makers, boards can also delegate nongovernance types of

decisions to others—and would be wise to do so.

5) Delegate to management:

o Delegate authority to management, and monitor and evaluate the

implementation of policies, strategies and business plans.

o Determine monitoring criteria to be used by the board.

o Ensure that internal controls are effective.

o Communicate with senior management.

Board committees play an important role in the governance process. It is useful

to periodically review the structure and functions of the committees and to

ensure that everyone knows what to expect from them.

The roles of the board of directors include:-

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.

Page 6: Roles & responsibilities of bod

Roles & Responsibilities of BOD

RESPONSIBILITIES OF BOARDS:

Boards have numerous responsibilities: they oversee management, finances, and

quality; set strategic direction; build community relationships; establish ethical

standards, values, and compliance; and select a CEO and monitor his or her

progress. I believe that the 2 most important tasks are selecting the CEO and

establishing the direction of an organization. Although the management team

develops the strategic plan, it is the board's responsibility to accept or modify

the strategic plan and to set the direction. The board considers elements in the

environment—such as growing competition and changing patterns of care—and

develops a vision, a mission, strategic thrusts, goals, and tactics that respond to

the environment, all the while showing the organization's values.

Financial oversight is a familiar job that boards usually do well. Boards ensure

the use of financial controls; ensure that funds are prudently invested,

considering cash management, banking, and contracting parameters; and

establish policies related to budgets. Their goal is to protect the community's

assets. Oversight of the quality area often involves utilization and risk

management in addition to continuous quality improvement.

Attention to community relationships is a responsibility unique to not-for-profit

institutions. Inasmuch as board members have contact with the community, they

can be sensitive to the expectations and needs of its citizens and bring that

knowledge to the board room. The focus is on all those the organization serves:

consumers, businesses, elected representatives, payers, and collaborators.

Boards are paying more attention to the quality of life in their communities.

The ethical standards of the organization are determined by the behavior of the

board. Through its ongoing actions, the board decides what behavior will and

will not be tolerated. These actions supersede ethical statements—however

important such statements are-in showing an organization's true values. In

recent years, compliance issues have risen to board-level responsibility as well,

particularly as the media have reported people being sent to jail and

organizations and individuals being fined millions of dollars for breaches in

government regulations. Compliance is probably the only new issue that has

been added to board responsibilities over the past 10 years.

Page 7: Roles & responsibilities of bod

Roles & Responsibilities of BOD

When reviewing these responsibilities, it is important to note that the board as a

whole, and not any individual member, has the authority. Further, the board

exists only when it is in session. The committee is an appendage of the board,

and the board can delegate certain tasks to a committee or an individual, but

otherwise an individual board member has no prerogative. Thus, it would be

inappropriate for a board member to walk in to a manager's office and ask to

review the books or demand certain changes. Such actions, in fact, can cause

much disruption. The CEO is the full-time agent of the board and is the only

person directly accountable to the board.

The responsibilities of the board are separate and distinct from those of

management. The board does not manage the company.

The following are responsibilities of BOD:

Approve the corporate strategy

Test business model and identify key performance measures

Identify risk areas and oversee risk management

Plan for and select new executives

Design executive compensation packages

Ensure the integrity of published financial statements

Approve major asset purchases

Protect company assets and reputation

Represent the interest of shareholders

Ensure the company complies with laws and codes

Free from conflicts that compromise judgment.

Able to take positions in opposition to management.

Represent companies view and account to the public

Leading the company properly

Establish appropriate internal control

Decide formal schedule of matters of the meeting

Determine the company`s mission and purpose

Select and appoint CEO, Chairman and other board of director etc.

The points below outline the major responsibilities of the board of directors.

1) Recruit, supervise, retain, evaluate and compensate the manager. Recruiting,

supervising, retaining, evaluating and compensating the CEO or general

Page 8: Roles & responsibilities of bod

Roles & Responsibilities of BOD

manager are probably the most important functions of the board of directors.

Value-added business boards need to aggressively search for the best possible

candidate for this position. Actively searching within your industry can lead to

the identification of very capable people. Don’t fall into the trap of hiring

someone to manage the business because he/she is out of work and needs a job.

Another major error of value-added businesses is under-compensating the

manager. Managerial compensation can provide a good financial payoff in

terms of attracting top candidates who will bring financial success to the value-

added business.

2) Provide direction for the organization. The board has a strategic function in

providing the vision, mission and goals of the organization. These are often

determined in combination with the CEO or general manager of the business.

3) Establish a policy based governance system. The board has the responsibility

of developing a governance system for the business. The articles of governance

provide a framework but the board develops a series of policies. This refers to

the board as a group and focuses on defining the rules of the group and how it

will function. In a sense, it’s no different than a club. The rules that the board

establishes for the company should be policy based. In other words, the board

develops policies to guide it own actions and the actions of the manager. The

policies should be broad and not rigidly defined as to allow the board and

manager leeway in achieving the goals of the business.

4) Govern the organization and the relationship with the CEO. Another

responsibility of the board is to develop a governance system. The governance

system involves how the board interacts with the general manager or CEO.

Periodically the board interacts with the CEO during meetings of the board of

directors. Typically that is done with a monthly board meeting, although some

boards have switched to meetings three to four times a year, or maybe eight

times a year. In the interim between these meetings, the board is kept informed

through phone conferences or postal mail.

5) Fiduciary duty to protect the organization’s assets and member’s investment.

The board has a fiduciary responsibility to represent and protect the

member’s/investor’s interest in the company. So the board has to make sure the

assets of the company are kept in good order. This includes the company’s

plant, equipment and facilities, including the human capital (people who work

for the company.)

Page 9: Roles & responsibilities of bod

Roles & Responsibilities of BOD

6) Monitor and control function. The board of directors has a monitoring and

control function. The board is in charge of the auditing process and hires the

auditor. It is in charge of making sure the audit is done in a timely manner each

year.

The board of directors must decide which model is best for them.

1) Manager Focus – With this model, the manager dominates the board. We

can all think of situations where we have had one dominant individual in a

group. In this case the board functions are an advisory board and reacts to the

views of the manager. It is essentially a “rubber stamp” for the CEO. This

model often emerges when you have a charismatic CEO who is very dominant

and proactive in running the organization. In most cases this is not a good

model for a value-added business.

2) Proactive Board – This model is of a proactive board that speaks as one

voice. It speaks as one voice for the board and often has a proactive manager

that also speaks with one combined voice for the organization. This is a good

model because the manager and the board are on the same page and speak with

a single voice. This model is proactive in taking advantage of emerging

opportunities and is especially valuable for entrepreneurial businesses.

3) Geographic Representation – This model focuses on the members/investors

whom the board member represents. With this model, the board member feels

that he/she has been elected to the board to represent individuals in a geographic

location or special interest group. To better understand this model, think of an

individual running for a political office and then representing the interests of the

individuals located in that geography. This is often found in large boards,

typically of 24 to 50 individuals. With a large group like this there is a

temptation for the directors to represent the interests of the members/investors

in their geographic area or special interest group rather than the best interests of

the company. This is not a model that works well for most value-added

businesses.

4) Community Representation – In this situation the board member is

representing the community rather than the organization. An example of this is

a school board where an individual is elected to represent certain interests

within the community.

Page 10: Roles & responsibilities of bod

Roles & Responsibilities of BOD

These four models are ways in which the board and its organization function.

Often you have directors who have previously been on boards where they have

been chosen to represent a certain group or have been a rubber stamp for the

manager. So it is natural for a director to think that this is how all boards

function. But it is a good practice for boards to actively investigate and discuss

the models presented above and choose the right one for their situation. This is

usually a model where the directors are all active and present a single voice of

what is best for the organization. What is best for the organization will usually

also be good for the various members/investors and the stakeholders in the

community.

CONCLUSION

Unless the business is in a financial crisis, the BOD should spend no more than

20% of a BOD meeting on reviewing and approving the financials. An

important role of the BOD is the informal advising and coaching of the CEO

between BOD meetings. The most important thing the CEO needs from the

BOD is honesty and candor. The role of the Board in creating an environment

where a corporation can succeed is the key to future success of the business.

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.

Name : Deepak Acharya

Reg. No.: CRO0369735

Course : CA Final with

Pursuing Article ship Training

Postal : 358, Narsisar Bass, Napasar,

Address Bikaner (Rajasthan)

M. No. : 8890223394, 9509897068

Email Id: [email protected]