BOARD OF DIRECTORS

Over the years, businessmen, business associations, lawyers, and scholars have turned out literature attempting to describe more detailed functions for directors, and some of these statements of functions for directors have considerable intellectual acceptance in corporate circles. But there is a disparity in the literature. Much of it describes the roles that boards should play, not those that they really do.

For over a quarter century, we have observed, served on, and studied boards of directors. In the process, I have developed a healthy skepticism about the prevailing and generally accepted concepts of boards of directors. What my experience bears out has, in fact, little relationship to the classic statements concerning their appropriate functions.

Advice & counsel

We have found that most president and board members agree that the role of directors is largely advisory and decision-making nature. Trustee’s are managed the Trust, and board members serve as sources of advice and counsel to the management. In addition, most presidents exploit the sources of advice represented on the board, both at board meetings and outside as well. And some thoughtful presidents, when selecting new members of the board to fill vacancies, identify the particular sets of desired qualities or areas of advice—general or specialized—which the presidents believe will add something to their management decisions.

My field interviews turned up some interesting comments on the important function of the board in providing advice and counsel.

 “We get a little advice from the outside board members, but the management runs the Trust. The board rubber-stamps the action of management, and the board members are there to mollify the outside stack holders.” (Donors)

Establish objectives

Boards of directors of the Trust do not establish objectives, strategies, and policies, however defined. These roles are performed by Trust managements. Presidents and Secretary and directors generally are agreed that only management can, and should have, these responsibilities.

 “Management creates the policies. We decide what course we are going to paddle our canoe in. We tell our directors the direction of the Trust and the reasons for it. Theoretically, the board has a right of veto, but they never exercise it. Naturally, we consult with them if we are making a major change in direction. We communicate with them. But they are in no position to challenge what we propose to do.”

The determination of an organizational objectives, strategies, and direction requires considerable study of the organization’s strengths and weaknesses and its place in the competitive environment; careful, time-consuming, penetrating analysis of market opportunities; and a matching of the organizational capacities to meet and serve the changing requirements of the market. And the market, for more and more companies, includes opportunities abroad, thus adding another complicating dimension of analysis.

Management and Board Governance

1. The Board of Directors has to exercise strategic oversight over business operations while directly measuring and rewarding management’s performance. Simultaneously the Board has to ensure compliance with the legal framework, integrity of financial accounting and reporting systems and credibility in the eyes of the stakeholders through proper and timely disclosures.

2. Board’s responsibilities inherently demand the exercise of judgment. Therefore the Board necessarily has to be vested with a reasonable level of discretion. While corporate governance may comprise of both legal and behavioral norms, no written set of rules or laws can contemplate every situation that a director or the board collectively may find itself in. Besides, existence of written norms in itself cannot prevent a director from abusing his position while going through the motions of proper deliberation prescribed by written norms. Therefore behavioral norms that include informed and deliberative decision making, division of authority, monitoring of management and even handed performance of duties owed to the company as well as the shareholders are equally important.

3. However in a situation where companies have grown in size and have large public interest potential, it is important to prescribe an appropriate basic framework that needs to be complied with by all companies without sacrificing the basic requirement of allowing exercise of discretion and business judgment in the interest of the company and the stakeholders. The liability of compliance has to be seen in context of the common law framework prevalent in the country along with a wide variety of ownership structures including family run or controlled or otherwise closely held companies.

The Committee is of the view that law should facilitate use of technology to carry out statutory processes efficiently. Meetings of the Board of Directors by electronic means (Teleconferencing and video conferencing included) to be allowed and directors who participate through electronic means should be counted for attendance and form part of Quorum. Minutes should be approved/ accepted by such directors who attended by way of teleconferencing/ videoconferencing (Signature may be accepted by use of digital signature certification. If any director has some reservation about the contents of the Minutes, he may raise the issue in succeeding meeting and the dissent, if any, may be recorded in the minutes of that meeting.

Quorum for emergency meetings

Matters to be discussed at a Board Meeting

There is a need to ensure that the meetings of Board of Directors provide sufficient time for consideration of important matters. The Committee was of the view that there should be a clear recognition of vital issues for which Board discussion in the meeting of the Board should be mandatory. These matters should not be left to Resolution by circulation since this practice is open to abuse. The suggestions made in the Organization (Amendment) Bill, 2001 may be taken as the basis.

Restrictions on Board’s Powers

MEETINGS OF MEMBERS

Our Organization should be permitted to transact any item of business as it deems fit through postal ballot apart from items for which mandatory postal ballot is prescribed. However, the government should prescribe a negative list of items which should be transacted only at the AGM and not through postal ballot. These negative items could be the following items of Ordinary Business :- (i) consideration of annual accounts and reports of Directors and Auditors; (ii) declaration of dividends; (iii) appointment of directors; and (iv) appointment of and fixing the remuneration of the auditors.

Place of Meeting – AGM may also be held at a place other than the place of its Registered Office, provided at least 3 members in number reside at place in India only.