JAI NARAYAN VYAS UNIVERSITY,

JODHPUR

SESSION:2023-2024

SUBJECT: CORPORATE FINANCE

ROLE OF DIRECTOR OF CORPORATE GOVERNANCE

SUBMITTED TO SUBMITTED BY:

Dr. K.R. MEGHWAL AYUSHI SINGHAL
ROLLNO:23LLM30088

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 ACKNOWLEDGMENT:

Firstly, I would like to thank respected Professor for giving me such a

golden opportunity to show my skills and capability through this project.

This project is the result of the extensive ultrapure study, hard work and

labour, put into to make it worth reading. It is my pleasure to be indebted

to various people, who directly or indirectly contributed in the development

of this work and who influenced my thinking, behavior, and acts during the

course of study. Lastly, I would like to thank the almighty and my parents

for their moral support and my friends with whom I shared my day-to-day

experience and received lots of suggestions that improved my quality of

work.

Thanking You…

[AYUSHI SINGHAL ]

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TABLE OF CONTENT
INTRODUCTION ..................................................................................... 4
THE BOARD OF DIRECTORS – ROLES AND RESPONSIBILITIES . 5
ROLE OF THE CHAIRMAN ................................................................... 8
ROLE OF INDEPENDENT DIRECTORS ............................................... 8
ROLE OF BOARD COMMITTEES ......................................................... 9
Powers of the Board of Directors ............................................................ 10
CONCLUSION.........................................................................................11
BIBLIOGRAPHY: ................................................................................... 12

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 INTRODUCTION

Corporate Governance is concerned with the functioning of Board of Directors (BODs) –

its structure, styles, process, their relationships and roles, activities etc. Therefore, Boards
of directors (BODs) is considered as a crucial part of the Corporate Governance. Directors
are appointed by the shareholders of the company, who set overall policy for the company,
and the board appoints one or more of them as managing directors/whole time directors/
executive directors to be approved by the shareholders. They are a link between the people
who provide capital (the shareholders) and the people who use that capital to create value
(the managers). The board’s primary role is to monitor management on behalf of the
shareholders.

Board of directors is the important element of Corporate Governance. As Tricker says,

“Corporate Governance addresses the issues facing Boards of Directors”. In this view, the
main responsibility of governing a company is upon the Board of Directors and, therefore,
attention must be paid to their roles and responsibilities. The roles of the Board of
Directors and shareholders are interactive and, therefore, the quality of governance
depends upon the level of interface set up by them. The boards are accountable in many
ways to the shareholders and stakeholders in a company. The directors are required to
attain a balance between competing interests of shareholders, customers, lenders,
promoters and directors1.

Preferably, the board should be the heart and soul of a company. Whether or not, the
company grows or declines, depends upon the sense of purpose and direction, the values,
the will to generate stakeholders’ satisfaction and the drive to achieve them. Section 2(13)
of the Indian Companies Act 1956 defines a director as follows, “A director includes any
person occupying the position of director by whatever name called. The important factor
to determine whether a person is or is not a director is to refer to the nature of the office
and its duties. It does not matter by what name he is called. If he performs the functions
of a director, he would be termed as a director in the eyes of the law, even though he may
be named differently. A director may, therefore, be defined as a person having control
over the direction, conduct, management or superintendence of the affairs of a company.
Again, any person in accordance with whose directions or instructions, the board of
directors of a company is accustomed to act is deemed to be a director of the company.”

As per the Companies Bill, 2009 Section 2(1)(zi): “‘director’ means a director appointed
to the Board of a company, and includes a deemed director”. Section 2(6) of the Indian
Companies Act 1956 states that directors are collectively referred to as “Board of

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Directors” or simply the “Board”. As per the Companies Bill, 2009 Section 2(1)(j):
“Board of Directors” or “Board”, in relation to a company, means the collective body of
the directors of the company”.

Objectives of the study

1. To evaluate the role of Board of Directors for ensuring good corporate governance.

2. To study the structure, size and composition of board of directors as per Indian
regulations.

3. To study the role of various Board Committees to ensure good Corporate

Governance in the Indian Corporate.

4. To draft the powers of board of Directors in the Indian Corporate.2

THE BOARD OF DIRECTORS – ROLES AND

RESPONSIBILITIES

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. In India, there are many judgements on the role of directors and the
responsibility of directors/ Board of Directors in any Company. In Private Limited
Companies or the Public Companies, the role and responsibility of the Directors or the
Board of Directors depend upon the regulations in the Articles of the Company and the
provisions of the Companies Act, 1956. When it comes to listed Public Companies, other
provisions like the SEBI guidelines, regulations, provisions in the listing agreement etc.
Deserve consideration. Private Limited Companies or the closely held Companies are
actually run by the directors and we know as to how Annual General Meetings (AGM’s)
are conducted in these companies in reality. It may not be the case when it comes to listed
Public companies in view of various guidelines, regulations and the provisions of listing
agreement entered into with the Stock Exchange. Directors or the Board of Directors has
a very big role to play in any Company and they conduct the day-to-day affairs of the
company and it may not be possible for the AGM to give directions to the Company from

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time to time though every company should act as per the provisions of the companies act
1956 and certain decisions can only be taken by the shareholders in the AGM. Let us
examine the role of Board of directors (BoDs) in terms of Companies Act and other legal
provisions. Company is a legal personality
and Board of Director acts as its body and mind. Under Section 291 of the Companies
Act, BoD is authorized to do what the company is authorized to do, unless barred by
restrictions on their power by the provisions of the Companies Act. It is well settled that
directors, while exercising their powers, do not act as agents for the majority or even all
the members and so the members cannot by a resolution passed by a majority of even
unanimously, supersede the directors’ power and instruct them how they shall exercise
their power. The powers of management are vested in directors and they and they alone
can exercise these powers. The only way in which the General Body of a company can
overrule the BoDs is altering the Articles and refusing to re-elect the directors, whose
actions they disapprove. The shareholders cannot themselves usurp the powers, which by
Articles are vested in the directors. Thus the relationship of BoDs with the shareholders
is more of a federation than that one of subordinate and superior3.

The Board of Directors can be greatly helped by focusing on four key areas:
I) by establishing vision, mission and values;
II) by setting strategy and structure;
III) by delegating authority and responsibility to management; and,
IV) by exercising accountability to shareholders and be responsible to relevant
stakeholders.

In India, it is common to find family-owned concerns being run by promoters as their

personal fiefdoms. Though their investments may be meagre, they manage the firms,
holding positions of CEOs, managing directors, Chairman and members of the Board of
Directors. In such a setup, the board acts more like a rubberstamp, rather than shouldering
large responsibilities. For better governance, the board should function as follows:

1. The Board should meet regularly, retain full and effective control over the company
and monitor the executive management.

2. Directors should exhibit total commitment to the company. An efficient and

independent board should be conscious of protecting the interests of all
stakeholders and should attend and actively participates in the meetings.

3. Another important function of the directors is that they should steer discussions
properly. They should set priorities and ensure that these are acted upon.

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4. A director is expected to have the courage of conviction to disagree. Directors
should also be alert to any deteriorating situations in functional areas of finance,
stock market, sales, personnel, and especially those relating to moral issues.

5. Directors have great responsibility in the matter of employment and dismissal of

the CEO. The Board as a whole, should recruit the best CEO they can hire, based
on antecedents and market reports, evaluate objectively on a continuing basis his
or her implementing effectively or otherwise the strategic planning devised by the
board.

6. An efficient board should be able to anticipate business events that would spell
success or lead to disaster if proper measures are not adopted in time. The directors
should be alert to such ensuing situations and be ready with the strategy to meet
them so that either way the company stands to gain.

7. The directors should 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.

8. 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 favour the company.

9. Board of Directors should provide counsel and oversight on the selection,

evaluation, development and compensation of senior management.

10. Board of Directors should monitor corporate performance against strategic

business plans, including overseeing operating results on a regular basis to evaluate
whether the business is being properly managed.

11. Directors should ensure that processes are in place for maintaining the integrity of
the company by way of the financial statements, compliance with laws and ethics,
and integrity of relationships with customers, suppliers and other stakeholders.

12. Board of Directors should ensure that the company is in compliance with all
applicable statutory and legal requirements.

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 ROLE OF THE CHAIRMAN

The Chairman’s role includes managing the board’s business and acting as its
facilitator and guide. This includes;

1) Determining Board composition and organization.

2) Clarifying board and management responsibilities.

3) Planning and managing Board and Board Committee meetings.

4) Developing the effectiveness of the Board.

ROLE OF INDEPENDENT DIRECTORS

The revised clause 49 stipulates that in companies which have executive chairmen, at
least 50 per cent of the board is required to have independent directors. For companies
with non-executive chairmen one-third of the board must comprise independent directors.
An “Independent director” is a non-executive director on the board of a company who
has integrity, sense of accountability, track record of achievements, financial literacy,
experience and the independence to balance the interests of various stakeholders, ability
to think strategically, degree of commitment, sense of devotion. Independent Directors
play an active role in various committees to be set up by a company to ensure good
governance. Listed Companies are required to set up audit committees of minimum three
directors, on which, two-thirds should be Independent Directors. The audit committee
chaired by an Independent Director shall inspect the company’s financial statements and
can also recommend replacement of the statutory auditor. Independent directors are
responsible for formulating and implementing business strategies on behalf of
shareholders and have to ensure that the business activities of the company are compatible
with all legal requirements. They have to perform crucial governance functions. The
presence of independent Directors on the Board, capable of challenging the decisions of
the management, is widely considered as a means of protecting the interests of
shareholders and other stakeholders.

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 ROLE OF BOARD COMMITTEES

The Board of the Company has the following Committees:

1) Audit Committee: - Section 292A of the Companies Act, 1956 requires that every
public limited company (whether listed or unlisted) having a paid-up capital of at least
Rs.5 crore should constitute a committee of the board to be known as Audit Committee.
The meetings of the Audit Committee shall at least be held four times a year and
preferably on the day preceding the date of each of Board meeting. Being mandatory
under Section 292A of the Companies Act, 1956 and Clause 49 of the listing agreement,
the audit committee can be of facilitator of Board to implement, monitor and continue
good corporate governance practices for the benefit of the company and its stakeholders4.
The main function of Audit Committee is to oversee the company’s financial reporting
process and the disclosure of its financial information to ensure that the financial
statement is correct, sufficient and credible. The Audit Committee can recommend to the
Board, the appointment, re-appointment and, if required, the replacement or removal of
the statutory auditor and the fixation of audit fees.

The members of Audit Committee should have formal knowledge of accounting and
financial management or experience of interpreting financial statements.

2) Remuneration Committee: - The remuneration Committee shall be held at least four

times a year on the day preceding the date of every Board meeting. The Committee’s
principle functions are to authorize the remuneration, business and other benefits of
executive directors, including the CEO, and to grant awards under the Courtaulds Long-
Term Incentive Scheme.

3) Nomination Committee: - The Nomination Committee shall be held at least twice in a

year. The Committee’s functions are to make recommendations to the Board about the
future appointments of non-executive directors and of the chairman and the chief
executive, and to consider recommendations from the chief executive to the Board about
the future appointments of executive directors.

4) Shareholder’s/Investors’ Grievance and Administrative Committee: - The

Shareholders’/Investors’ Grievance and Administrative Committee meetings shall be at
least held thrice in a month. The Chairman of this Committee shall be a Non-executive

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Independent Director. This Committee shall approve transfer of shares, transmission of
shares, issue of duplicate share certificate, etc. This Committee shall also review the
queries/complaints received from the shareholders during the fortnight and responses
given to the shareholders. In addition to above committees the board may constitute other
committees, depending upon the organization’s size and other requirements.

Powers of the Board of Directors

Under the Indian Companies Act 1956, BoDs has powers to make calls on shareholders
in respect of money unpaid on their share, power to authorize the buy-back, power to
issue debentures, power to borrow moneys otherwise than on debentures, power to invest
the funds of the company and power to take and make loans. There is no doubt that BoDs
may, by a resolution passed at a meeting, delegate to any committee of Directors, the
Managing Director, the Manager or any other principal officer of the company, the above
powers.

However, the principal power still vests in BoDs and the Manager or Managing Director
acts only as an agent of the BoDs. Apart from this, BoDs has power to form opinion about
the solvency of the company in respect of buy back shares (Section 77A), power to fill
up casual vacancies in the office of Directors (Section 262), power to constitute Audit
Committee and specify terms of reference thereof (Section 292A), power to make
donation to political parties [Section 293A (2)], power to accord sanction for specified
contracts in which one or more directors are interested [Section 297(4)], power to receive
notice of disclosure of director’s interest [Section 299(3)(c)], power to appoint or employ
a person as Managing Director or Manager [Section 316(2)], power to invest in shares or
debentures of any other body corporate (Section 372A), power to appoint or employ a
person as its Manager [Section 386(2)], power to make a declaration of solvency, where
it is proposed to wind up the company voluntarily [Section 488(1)], power to approve the
text of advertising for inviting public deposits [Section 58A r/w Rule 4(4)]. Some of the
powers can only be exercised by resolution passed at the meeting with consent of the
Directors present at the meeting5.

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 CONCLUSION
In the eyes of law, a company is an artificial person, who however, has no physical
existence and has neither a body nor soul. Therefore, a company cannot act itself in its
own person, it can only act through directors. The directors are a body to who has
delegated the duty of managing the general affairs of the company. A board of directors
(BODs) is considered as a crucial part of the Corporate Governance. Directors are
appointed by the shareholders of the company, who set overall policy for the company.
The corporate board of directors assists in corporate governance by supervising executive
management and makes strategic decisions for the company. The board is generally
supposed to govern the corporation on behalf of the shareholders, effectively acting as
trustees for stockholder interests. The roles and responsibilities of a Board of Directors
vary, depending on the nature and type of business entity and the laws applying to the
entity. Similarly, the establishment of board committees is a means to channel the
functions of a board into segregated and specialized groups of directors that focus on
specific subject of the organization. In India, there are many judgements on the role of
directors and the responsibility of directors/ Board of Directors in any Company.
In Private Limited Companies or the Public Companies, the role and responsibility of the
Directors or the Board of Directors depend upon the regulations in the Articles of the
Company and the provisions of the Companies Act, 1956. When it comes to listed Public
Companies, other provisions like the SEBI guidelines, regulations, provisions
in the listing agreement etc. deserve consideration.

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 BIBLIOGRAPHY:

1) Afsharipour, Afra, “The Promise and Challenges of India's Corporate Governance

Reforms,” Indian Journal of Law & Economics, Vol. 1, UC Davis Legal Studies
Research Paper No. 223, 2010.

2) Indian Companies Act 1956.

3) Kumar, Aruna D. and Suvarna S.,“Independent Directors in Listed Companies,” 2005.

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