Corporate governance

In order for a company to exist, it has to be set up and registered with the appropriate company authority. Once registered, the company is regarded as a legal person, with legal rights and obligations. A company’s existence and organization are continuously scrutinized through a well-established set of rules, laws, and policies that govern the way in which the company is run and controlled. This is known as corporate governance. Corporate governance exists to protect the shareholders of a company. It also aims to preserve the reputation of a company and its business against any fraudulent acts committed by its directors and officers. The directors of a company must always make decisions objectively, in the best interests of the company’s business and its shareholders. They have the responsibility to run the company successfully and bring in profits for the shareholders.

Executive director is

a term sometimes applied to the chief executive officer (CEO)

or managing director of an organization, company, or corporation. The role of the Executive Director is to design, develop and implement strategic plans for their organization in a cost-effective and time-efficient manner. The Executive Director is also responsible for the day-to-day operation of the organization, including managing committees and staff and developing business plans in collaboration with the board for the future of the organization.

Non-executive director of a firm who is not an executive director and, therefore, does not
participate in the day-to-day management of the firm. He or she is usually involved in planning and policy making, and is sometimes included to lend prestige to the firm due to his or her standing in the community. Non-executive directors are expected to monitor and challenge the performance of the executive directors and the management, and to take a determined stand in the interests of the firm and its stakeholders. They are generally held equally liable as the executive directors under certain statutory requirements such as tax laws. Also called external director, independent director, or outside director..A non-executive’s role is less hands-on. A non-executive director may have less experience and less knowledge than an executive. However, the benefit here is that a non-executive can bring objectivity and an external awareness to the board. Nonexecutive directors are not usually involved with day-to-day management, however, the smaller the company, the more likely it is that there will be some hands-on work. The non-executive’s role is an over-viewer and whistle blower, ensuring adherence to good practice, respect for the interests of other stakeholders and adherence to the process of boardroom discipline. Non-executives are often thought of as “advisers” although this is not the case. The role is larger than this – the non-exec is a director and shares the legal duties and responsibilities of the executive directors. As far as corporate governance is concerned, non-executives are usually associated with Independence and may be self-employed

Independent Director means non-executive Director who, apart from receiving directors
remuneration, does not have any material/ pecuniary relationship or transaction with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates, which in judgment of the Board may affect independence of judgment of the Director. The Companies Act, 1956 do not specifically give the definition of the Independent Director. However clause 49 of the Listing Agreement gives the definition. As per revised clause 49 of the Listing Agreement the definition of the term ‘independent directors’ would mean a non-executive director who: 1. Does not have a pecuniary relationship with the company, its promoters, senior management or affiliate companies. 2. Is not related to promoters or the senior management. 3. Has not been an executive with the company in the immediately three preceding financial years. 4. Is not a partner or executive of the auditors/lawyers/consultants of the company for the last three years. 5. Is not a supplier, service provider or customer of the company. 6. Does not hold 2 per cent or more of the shares of the company. ‘Senior management’ means personnel of the company who are members of its core management team excluding the Board of Directors, and would comprise of all members of management one level below the executive directors, including all functional heads.

From a legal point of view, there is no difference between the executive and nonexecutive directors in terms of their responsibilities towards the company and its stockholders. It is recognized, however, that executive directors have an active role in directing the company’s affairs for the benefit of, and in the best interests of, the stockholders. The executive directors—and especially the managing director—have overall responsibility for the performance of the company’s business. The non executive directors have a supervisory and balancing role, controlling the activities of the executive directors and the board in general.

The directors are responsible for the company’s books and accounts and are responsible to stockholders and investors for the company’s activities and results. They must act in good faith, in the best interests of the company’s business and stockholders. Any conflict of interest with the company’s business must be declared and approved by the board and, in certain circumstances, by the stockholders at a general meeting. Directors must always act with due skill and care and must keep up to date with the needs of the company and its business. They must also consider the needs of the company’s employees. Directors have a responsibility to establish the company’s objectives and policies and, once these have been established, to monitor their development and progress. They also appoint the company’s senior management. Directors have an active duty to comply with money-laundering regulations, which are now established internationally. In certain circumstances (when, for example,nonexecutive directors supply their services to the company via another business), they will have to register with certain government departments for the purposes of the money-laundering regulations. Duties & Responsibilities of an Independent Director The duties and responsibilities of independent Directors are normally as they are of director of the Company: 1. He should furnish information in the prescribed form to the company about disclosure of General Notice of directorship, membership of body corporate and other entities. 2. He should also inform the Company about any change in the details submitted subsequently. 3. He should provide a list of his relatives as defined in the Companies Act and their directorship and interest in other concerns. 4. The Director shall have fiduciary duty to act in good faith and in the interest of the company. 5. It is the duty of the Independent Director to acquire proper understanding of the business of the Company. 6. He should act only within the powers laid down by the Memorandum of Association and Articles of Association and by applicable law and regulations. 7. He should not be a Director of more than fifteen Companies. Such an Independent Director could be working as member of Audit Committee prescribed under Section 292A of the Companies Act. In such situation he has to look into the obligations of Audit Committee and perform the duty.


  Economic Times

An independent director on the board of Coal India Ltd. (CIL) has asked the state-run company not to sign fuel supply agreements (FSAs) with power producers till clarity emerges on the entire coal scam. The director has also sought complete information on the power projects and their owners to ascertain whether any of the individuals/companies have any link with Coalgate that has rocked the nation.

In a letter to CIL, independent director S. K. Barua has written that the company should not rush with the approval of signing FSAs during the board meeting on September 8 and, instead, provide the list of owners of the power plants who want to sign the FSAs. CIL has also been asked to submit a list of coal blocks allotted to the private firms, their date of allotment and by what date these firms were suppose to start work on production. “CIL should furnish a list of power projects and the owners of these projects who would be the customers for coal under FSA,” the letter said. “It would be myopic for the board to believe that „Coalgate‟ has nothing to do with the signing of FSAs. These FSAs are clearly designed to bestow favour on chosen projects and power producers. If they also happen to be those who received largesse from the government in terms of allotment or coal blocks, then we would also be guilty of favours to the same set of projects and owners. I would, therefore, urge CIL to keep the above information available for the board meeting. If possible, the same may be sent earlier,‟‟ the letter elaborates further. Keywords: Coal India Ltd board, fuel supply agreements, power producers, coal scam, coal blocks allocation, coalgate