Directors are appointed by the shareholders of the company to represent their interests, and to take decisions on their behalf, since a company is an artificial entity. Directors perform this role by setting long term goals for the company and by ensuring that the policies and processes are in place, and management does not treat the company as its personal fiefdom. Directors act as trustees for the assets of the company, on behalf of the owners, the shareholders.
Role of a Board/ Director
The role of the Board, as a collective of Directors, is superintendence, direction and control.
The primary role of each Director, whether Executive or Non-Executive, is to safeguard the interests of all the stakeholders of a company, including, but not limited to, the shareholders. In the process, he/she also plays the role of a watchdog, to ensure transparency in the functioning of the company, so that no frauds and wrongdoings are committed by management personnel. He/she also ensures that proper systems have been laid down, so that the company performs to promote and achieve its objectives.
Responsibilities of a Director
While a number of responsibilities for a Director are given under the Companies Act, 2013 and SEBI LODR Regulations, 2015, the overarching responsibilities include –
- To act in good faith, to promote the objects of the company for the benefit of all the stakeholders.
- To act in accordance with the Articles of the company, and laws and regulations.
- To exercise reasonable care, skill, and diligence whilst carrying out his/her role.
- To exercise independent judgement while taking decisions.
- To avoid any situation of conflict of interest, that could impact on independence of thought.
- To not disclose any confidential information about the company.
- To not indulge in insider trading.
- To ensure compliance of laws and regulations by the company.
- To not misuse the office of Director.
- To attend all meetings of the Board and committee, as also the AGM.
- To come prepared for meetings and constructively challenge management.
- To ask for additional information, if required.
Rights of a Board, as a collective body
While a number of rights are provided to the Board under the Companies Act, 2013 and SEBI LODR Regulations, 2015, the overarching rights include –
- To decide on Board and committee composition, including appointment of Chairperson.
- To finalise strategy, along with management.
- To discuss the business of the company.
- To decide annual operating plans and budgets.
- To receive a compliance certificate, as well as steps taken/ planned to be taken by the company to rectify instances of non-compliances, if any.
- To have an overview of legal matters.
- To have exposure to risks being faced/ anticipated by the company.
- To decide the process of succession planning for both the Board and senior management.
Rights of a Director
- At the time of onboarding, a proper induction programme.
- To receive notice and agenda papers of board/committee meetings sufficiently before meetings.
- To participate in board/committee meetings.
- To have access to accurate, relevant and timely information for fulfilling his/her responsibilities.
- To have access to the minutes, official documents, and financial statements of the company.
- To have the company take a Directors and Officers (D&O) insurance policy, of adequate coverage.
- To receive remuneration by way of sitting fee, stock options (not applicable for Independent Directors), profit linked commission, and reimbursement of expenses for participation in the Board and committee meetings.
- To receive legal advice for any matters relating to the company.
The consequences of a Director failing to perform his/her role can be severe. These could include liability (civil or criminal), monetary penalties, reputational damage, and in extreme situations, disqualification from directorship.
