BOARD OF DIRECTORS: ROLES, RESPONSIBILITIES, AND

GOVERNANCE
AUTHOR :SANJAY

https://taxguru.in/company-law/board-directors-roles-responsibilities-governance.html

Introduction:

The responsibility of the Board of Directors towards stakeholders is a fundamental and multifaceted aspect of
corporate governance. Boards play a pivotal role in guiding and overseeing the activities of a company, ensuring
that it operates in a manner that not only maximizes shareholder value but also takes into account the interests of
various stakeholders. This responsibility has gained increasing importance in recent years as businesses
recognize the need for sustainable and socially responsible practices.

Board of Directors plays a critical role in safeguarding and advancing the interests of shareholders. Their
responsibilities encompass a wide range of duties aimed at ensuring the company’s prosperity, ethical conduct,
and long-term value creation while maintaining transparency, accountability, and compliance with laws and
regulations. Effective governance by the board is essential for fostering trust and confidence among shareholders
and other stakeholders in the corporate ecosystem.

Meaning of Director’s

A Director is a person from a group of members who leads, manage, or supervise a company
A board of directors is a body of elected or appointed members who jointly over see the activities of a
company or organization, which can include a non-profit organization or a government agency or
corporation.
A director is one of those persons, who are responsible for directing, governing, & controlling the policy
or management of a company.

What Is a Stakeholder?

The Stakeholders encompass a wide range of individuals and groups who have a vested interest in the
company’s performance and actions. They include shareholders, employees, customers, suppliers,
creditors, the local community, regulatory bodies, and society at large. Each of these stakeholders has
specific expectations and concerns related to the company’s operations, and the Board of Directors must
navigate these interests to maintain the organization’s long-term viability and reputation.

Definitions:

Companies Act 2013

Sub-section 2(10) of the Companies Act 2013 ?” Board of Directors” or ?” Board”, in relation to a company,
means the collective body of the directors of the company;
SEBI (LODR) 2015

Regulation 2(c) “Board” means the Securities and Exchange Board of India established under section 3 of the
Act;

Regulation 2(d) “board of directors” or “board of trustees” shall mean the board of directors or board of
trustees, whichever applicable, of the listed entity;

Minimum Directors Required in Company

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 minimum number of Directors

1. In case of Public Company- Three Directors

2. In case of Private Company- Two Directors

In case of One Person Company- One Director

A maximum of fifteen Directors.

If the Company wants to appoint more than fifteen directors, it can do so after passing a Special resolution.

As per the Regulation 17 of Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulation 2015,

The composition of board of directors of the listed entity shall be as follows:

(a) Board of directors shall have an optimum combination of executive and non-executive directors with at least
one-woman director and not less than fifty per cent of the board of directors shall comprise of non-executive
directors;

(b) where the chairperson of the board of directors is a nonexecutive director, at least one-third of the board of
directors shall comprise of independent directors and where the listed entity does not have a regular
nonexecutive chairperson, at least half of the board of directors shall comprise of independent directors:

Provided that where the regular non-executive chairperson is a promoter of the listed entity or is related to any
promoter or person occupying management positions at the level of board of director or at one level below the
board of directors, at least half of the board of directors of the listed entity shall consist of independent directors.
Types of Directors

1. Residential Director: – As per Section 149(3) of Companies Act,2013 every company shall atone
director who has stayed in India for a total Period of not less than 182 days in the Previous calendar year.

2. Independent Director: – As per section 149(6) an independent director in relation to a company,

means a director other than a Managing Director, Whole Time Director, or Nominee Director. Companies
which have to appoint Independent Director: -As per Rule 4 of Companies (Appointment and
Qualification of Directors) Rules,2014 the following class of companies have to appoint at least two
independent directors: –

The Act has also introduced Schedule IV which is a Code for Independent Directors.

Every listed public company shall have at least 1/3rd of total number directors as independent directors. In case
of unlisted public companies, the Central Government may prescribe the minimum number of independent
directors.

An unlisted public company shall have at least two independent directors in its Board if on the last date of the
latest audited financial statements it has:

paid-up capital INR 10.00 crores or more or

having turnover of INR 100.00 crores or more or
having aggregate outstanding loans or borrowings, debentures, deposits, exceeding INR 50.00 crores

3. Small Shareholders Directors: – A listed Company may have one director elected by small shareholders.
May appoint upon notice of not less than 1000 Shareholders or 1/10th of the total shareholders, whichever is
lower have a small shareholder director which elected form small shareholder.

4. Women Director: – As per Section 149 (1) (a) second proviso requires certain categories of companies to
have At Least One-Woman director on the board. Such companies are any listed company, and any public
company having-

Paid Up Capital of Rs. 100 cr. or more, or

Turnover of Rs. 300 cr. or more.

5. Alternate Directors: – As per Section 161(2) A company May appoint, if the articles confer such power on
company or a resolution is passed (if a Director is absent from India for at least three months).

6. Additional Directors: Any Individual can be appointed as Additional Directors by a company under section
161(1) of the Companies Act 2013.

So, the Board of Directors leads and controls a Company and effective board is fundamental to the
success of the Company.

The process of 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 holds an Annual General
Meeting (AGM) at which the directors must provide a report to the 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 meeting 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.

THE BOARD MUST CONSIDER AND ADDRESS THESE DIVERSE INTERESTS WITHOUT
COMPROMISING THE COMPANY’S OVERALL PERFORMANCE AND INTEGRITY.

The Fiduciary Duty:

One of the fundamental responsibilities of the Board is to act in the best interests of the company and its
shareholders. This duty, often referred to as the fiduciary duty, requires the Board to make decisions that
maximize shareholder value over the long term. However, this does not imply that other stakeholders are ignored
or disadvantaged in the process.

Balancing Stakeholder Interests:

Effective corporate governance entails striking a delicate balance between the interests of different stakeholders.
While shareholders seek profitability and value appreciation, employees desire job security and fair treatment,
customers expect quality products and services, and communities look for responsible and sustainable practices.
The Board must consider and address these diverse interests without compromising the company’s overall
performance and integrity.

Ethical and Responsible Leadership:

The Board sets the tone for the company’s ethical and responsible conduct. It establishes a corporate culture that
promotes transparency, accountability, and compliance with legal and ethical standards. It is essential for the
Board to lead by example and ensure that ethical behavior is upheld throughout the organization.

Risk Management and Sustainability:

Stakeholders, including shareholders, are increasingly concerned about the long-term sustainability of
companies. Boards are responsible for identifying, assessing, and mitigating risks that may impact the
company’s ability to deliver sustainable returns and fulfill its obligations to all stakeholders. This includes
environmental, social, and governance (ESG) factors that have gained prominence in recent years.

Engagement and Communication:

Open and effective communication between the Board and stakeholders is crucial. Shareholders and other
stakeholders should have access to relevant information about the company’s performance, strategy, and
decision-making processes. Engaging with stakeholders through channels such as annual meetings, reports, and
feedback mechanisms helps build trust and transparency.

RIGHTS OF SHAREHOLDER

As per the Regulation 4(a) of the Securities Exchange Board of India (Listing Obligation and Disclosure
Requirement) Regulation 2015

The rights of shareholders: The listed entity shall seek to protect and facilitate the exercise of the following
rights of shareholders:

right to participate in, and to be sufficiently informed of, decisions concerning fundamental corporate
changes.
opportunity to participate effectively and vote in general shareholder meetings.
being informed of the rules, including voting procedures that govern general shareholder meetings.
opportunity to ask questions to the board of directors, to place items on the agenda of general meetings,
and to propose resolutions, subject to reasonable limitations.
Effective shareholder participation in key corporate governance decisions, such as the nomination and
election of members of board of directors.
exercise of ownership rights by all shareholders, including institutional investors.
adequate mechanism to address the grievances of the shareholders.
protection of minority shareholders from abusive actions by, or in the interest of, controlling shareholders
acting either directly or indirectly, and effective means of redress.

RESPONSIBILITIES OF BOARD OF DIRECTORS

As per the Regulation 4(f) of Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulation 2015,

Responsibilities of the board of directors: The board of directors of the listed entity shall have the following
responsibilities:

(i) Disclosure of information:

(1) Members of board of directors and key managerial personnel shall disclose to the board of
directors whether they, directly, indirectly, or on behalf of third parties, have a material interest in
any transaction or matter directly affecting the listed entity.

(2) The board of directors and senior management shall conduct themselves so as to meet the
expectations of operational transparency to stakeholders while at the same time maintaining
confidentiality of information in order to foster a culture of good decision-making.
(ii) Key functions of the board of directors-

(1) Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and
business plans, setting performance objectives, monitoring implementation and corporate
performance, and overseeing major capital expenditures, acquisitions and divestments.

(2) Monitoring the effectiveness of the listed entity’s governance practices and making changes as
needed.

(3) Selecting, compensating, monitoring and, when necessary, replacing key managerial personnel
and overseeing succession planning.

(4) Aligning key managerial personnel and remuneration of board of directors with the longer-term
interests of the listed entity and its shareholders.

(5) Ensuring a transparent nomination process to the board of directors with the diversity of thought,
experience, knowledge, perspective, and gender in the board of directors.

(6) Monitoring and managing potential conflicts of interest of management, members of the board
of directors and shareholders, including misuse of corporate assets and abuse in related party
transactions.

(7) Ensuring the integrity of the listed entity’s accounting and financial reporting systems, including
the independent audit, and that appropriate systems of control are in place, in particular, systems for
risk management, financial and operational control, and compliance with the law and relevant
standards.

(8) Overseeing the process of disclosure and communications.

(9) Monitoring and reviewing board of director’s evaluation framework.

(iii) Other responsibilities:

(1) The board of directors shall provide strategic guidance to the listed entity, ensure effective
monitoring of the management and shall be accountable to the listed entity and the shareholders.

(2) The board of directors shall set a corporate culture and the values by which executives
throughout a group shall behave.

(3) Members of the board of directors shall act on a fully informed basis, in good faith, with due
diligence and care, and in the best interest of the listed entity and the shareholders.

(4) The board of directors shall encourage continuing directors training to ensure that the members
of board of directors are kept up to date.

(5) Where decisions of the board of directors may affect different shareholder groups differently, the
board of directors shall treat all shareholders fairly.

(6) The board of directors shall maintain high ethical standards and shall take into account the
interests of stakeholders.
 (7) The board of directors shall exercise objective independent judgement on corporate affairs.

(8) The board of directors shall consider assigning a sufficient number of nonexecutive members of
the board of directors capable of exercising independent judgement to tasks where there is a
potential for conflict of interest.

(9) The board of directors shall ensure that, while rightly encouraging positive thinking, these do not
result in over-optimism that either leads to significant risks not being recognised or exposes the
listed entity to excessive risk.

(10) The board of directors shall have ability to ‘step back’ to assist executive management by
challenging the assumptions underlying: strategy, strategic initiatives (such as acquisitions), risk
appetite, exposures and the key areas of the listed entity’s focus.

(11) When committees of the board of directors are established, their mandate, composition and
working procedures shall be well defined and disclosed by the board of directors.

(12) Members of the board of directors shall be able to commit themselves effectively to their
responsibilities.

(13) In order to fulfil their responsibilities, members of the board of directors shall have access to
accurate, relevant and timely information.

(14) The board of directors and senior management shall facilitate the independent directors to
perform their role effectively as a member of the board of directors and also a member of a
committee of board of directors

As per the Section 166 of the Companies Act 2013 the duties of Directors as follows —

(1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles
of the company.

(2) A director of a company shall act in good faith in order to promote the objects of the company for the
benefit of its members as a whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment. 105

(3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and
shall exercise independent judgment.

(4) A director of a company shall not involve in a situation in which he may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of the company.

(5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to
himself or to his relatives, partners, or associates and if such director is found guilty of making any undue
gain, he shall be liable to pay an amount equal to that gain to the company.

(6) A director of a company shall not assign his office and any assignment so made shall be void.

(7) If a director of the company contravenes the provisions of this section such director shall be punishable
with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
ROLE AND DUTIES OF INDEPENDENT DIRECTORS

As per the SCHEDULE IV read with section 149(8) of the Companies Act 2013 Role and functions:

The independent directors shall:

(1) help in bringing an independent judgment to bear on the Board‘s deliberations especially on issues of
strategy, performance, risk management, resources, key appointments and standards of conduct;

(2) bring an objective view in the evaluation of the performance of board and management;

(3) scrutinise the performance of management in meeting agreed goals and objectives and monitor the
reporting of performance;

(4) satisfy themselves on the integrity of financial information and that financial controls and the systems
of risk management are robust and defensible;

(5) safeguard the interests of all stakeholders, particularly the minority shareholders;

(6) balance the conflicting interest of the stakeholders;

(7) determine appropriate levels of remuneration of executive directors, key managerial personnel and
senior management and have a prime role in appointing and where necessary recommend removal of
executive directors, key managerial personnel and senior management;

(8) moderate and arbitrate in the interest of the company as a whole, in situations of conflict between
management and shareholder‘s interest.

Duties : The independent directors shall—

undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity
with the company;
seek appropriate clarification or amplification of information and, where necessary, take and follow
appropriate professional advice and opinion of outside experts at the expense of the company;
strive to attend all meetings of the Board of Directors and of the Board committees of which he is a
member;
participate constructively and actively in the committees of the Board in which they are chairpersons or
members;
strive to attend the general meetings of the company;
where they have concerns about the running of the company or a proposed action, ensure that these are
addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded
in the minutes of the Board meeting;
keep themselves well informed about the company and the external environment in which it operates;
not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;
pay sufficient attention and ensure that adequate deliberations are held before approving related party
transactions and assure themselves that the same are in the interest of the company;
ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that
the interests of a person who uses such mechanism are not prejudicially affected on account of such use;
report concerns about unethical behaviour, actual or suspected fraud or violation of the company‘s code of
conduct or ethics policy;
acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its
employees;
not disclose confidential information, including commercial secrets, technologies, advertising and sales
promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by
the Board or required by law.