The Board of Directors, or Board, is at the apex of any company. It comprises a group of individuals, who are elected by shareholders, to represent and safeguard their interests. The Board is responsible for holding the management of the company accountable, and for putting in place policies, processes and control mechanisms, to ensure checks and balances. Good Corporate Governance practices ensure that there is a distinction in the roles of the Board and the management. The Board is the seat of wisdom, while the management is the seat of knowledge. The Board should not get involved in the executive/ day-to-day operations of the company, that being the legitimate space for management.
For a Board to perform effectively, it is important for each Board member to have clarity with regard to his/her role and responsibilities. While the Companies Act, 2013 does not have any dedicated section for the role of a Board, SEBI LODR Regulations, 2015 indicate the key functions and responsibilities of a Board. These are more in the form of principles that a Board should adhere to.
The basic role of the Board is size and ownership-neutral. However, there could be additional dimensions to the role, which could depend on the industry and the operations of the company. The primary roles of the Board are Superintendence, Direction and Control. The Board is required to have an active supervision over management’s actions, to provide direction to management, and to have control over the actions/ activities of the management. The role of the Board is essentially to guide the management to act in the interest of the company and its stakeholders.
In addition, some of the key roles of the Board are –
- Set the vision, mission and value system for the company. This is important since the strategy and long-term plans of the company would depend on this.
- Set the tone at the top. There should be a culture of free, frank and constructive discussion and criticism.
- Provide guidance to the management.
- Ensure honest, fair, open and transparent culture, including, but not limited to, personal and financial integrity.
- Ensure that no real or perceived conflicts of interest exist.
- Ensure compliance with laws and regulations.
- Ensure that all the functions and the role expected of the Board are performed well.
- Co-create and co-own strategy with the management. This is important since while the Board may agree on the strategy, it is for the management to implement it.
- Delegate powers to the management, and in turn, hold them accountable. There should be constructive tension, and not peaceful coexistence with the management.
- Ensure that the Board level committees are performing optimally.
- Ensure proper Board processes are in place. Agenda setting, minutes and action taken reports are integral to the functioning and productivity of each meeting.
- Ensure proper policies, processes and systems are in place, to help set appropriate checks and balances.
- Ensure succession planning for all critical roles, including for Directors.
- Be accountable to shareholders and other stakeholders as their fiduciaries, and ensure that the obligations towards various stakeholders are met.
- Ensure that the company is a responsible corporate citizen. With ESG coming into focus, the Board should ensure that the company’s efforts in ESG are not found to be lacking.
While taking decisions, it is important for the Board to consider the interests of all the stakeholders, and not just those of minority shareholders of the company. This role of a Board is not static. While the major role of the Board does not change, it constantly evolves with changing circumstances and situations. It could also evolve on the basis of the situation that the company may be in. As a result, there is a need for the role to be evaluated periodically, for it to remain contextually relevant.