Board meetings being of paramount importance, the role of the Chairperson has remained increasingly pivotal. In all companies, whether listed, or unlisted, irrespective of ownership, the Chairperson plays a crucial role in establishing Board effectiveness, shaping the strategic vision of the company and acting as a custodian of sound values.
The Chairperson heads the Board and is the first among equals. The Chairperson of the Board holds a unique position of leading the Board, setting tone at the top, steering meetings, ensuring that the Board performs its role properly, and making sure that the company upholds the highest standards of governance. It is also his/her role to ensure that the Board does not step into the shoes of management.
Practitioners of corporate governance believe that for the Board to perform its role well, it must be headed by a non-executive Chairperson. SEBI LODR Regulations, 2015, had separation of posts of Chairperson and Managing Director (MD) as a discretionary practice that would promote good governance in companies. The Kotak Committee Report on Corporate Governance in 2017, had recommended appointment of separate persons to the post of Chairperson and MD in top 500 listed entities. The notification of this requirement has been given up, and it continues to be a discretionary requirement.
The advantage of having separate persons manning the posts of Chairperson and MD are –
- Proper accountability to the Board of management
- Role clarity for holders of both of the positions
- Better functioning of the Board
- Elimination of actual/ potential conflict of interest
- Healthy and productive working relationship between the Board and the management
- Clear communication channels for reporting
Law and regulations have not defined the role of Chairperson. However, there are many expectations from a Chair. Today’s Chairpersons are expected to do more than just presiding over meetings. There are rising investors’ expectations, regulatory changes, and increased scrutiny of boardroom practices. The Chairperson’s effectiveness is subject to Board evaluation. They are expected to encourage diversity of thought and promote sound decision-making after constructive discussions in the boardroom. They should ensure that critical issues are handled properly, especially those which impact the reputation of the company.
Some roles that are associated with the role include
- To lead the Board
- To play an important link between the board and the management of company, especially in times of crisis or transition
- To handle matters impartially and fairly
- To promote a culture of openness and transparency.
Board related roles
- To set the tone for the Board
- To lead board meetings and contribute to setting the agenda in collaboration with the CEO and the Company Secretary
- To ensure active and constructive participation from all directors
- To ensure Board members receive timely and accurate information
- To ensure enough time is allocated for important discussions such as on strategy
- To act as a facilitator and guide
- To put in place processes for succession planning, board evaluation etc
- To ensure that committees are properly constituted with clear terms of reference.
Company related roles
- Participating in CEO assessment/evaluation
- Ensuring that AGM is conducted efficiently
Stakeholder related roles
- To communicate with shareholders and other stakeholders of the company
- To uphold governance standards and protect minority shareholder interests.
A Chairperson’s role is vital. The proper functioning of the Board is in his/her hands. Companies and Boards should have Chairs who add value, and are not merely figurative heads.
Prerna Mohan