Responsibilities, Powers and Functions of a Board of Directors

A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization.

A board’s activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization’s bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet.

In an organization with voting members, the board acts on behalf of, and is subordinate to, the organization’s full group, which usually chooses the members of the board. In a stock corporation, the board is elected by the shareholders and is the highest authority in the management of the corporation. In a non-stock corporation with no general voting membership, the board is the supreme governing body of the institution; its members are sometimes chosen by the board itself.

Responsibilities, powers and functions of board of directors:

The board of directors of a listed company shall exercise its powers and carry out its fiduciary duties with a sense of objective judgment and independence in the best interests of the listed company.

The board of directors of a listed company shall ensure that:

(a) professional standards and corporate values are put in place that promote integrity for the board, senior management and other employees in the form of a Code of Conduct, defining therein acceptable and unacceptable behaviors. The board shall take appropriate steps to disseminate Code of Conduct throughout the company along with supporting policies and procedures and these shall be put on the company’s website;

(b) adequate systems and controls are in place for identification and redress of grievances arising from unethical practices.

(c) a vision and/or mission statement and overall corporate strategy for the listed company is prepared and adopted. It shall further ensure that significant policies have been formulated;

The significant policies for this purpose may include:

  • governance, risk management and compliance issues;
  • human resource management including preparation of a succession plan;
  • procurement of goods and services;
  • investors’ relations including but not limited to general investor awareness, complaints and communication, etc.;
  • marketing;
  • determination of terms of credit and discount to customers;
  • write-off of bad/doubtful debts, advances and receivables;
  • capital expenditure, planning and control;
  • investments and disinvestment of funds;
  • borrowing of moneys;
  • determination and delegation of financial powers;
  • transactions or contracts with associated companies and related parties;
  • the corporate social responsibility (CSR) initiatives and other philanthropic activities including donations, charities, contributions and other payments of a similar nature;
  • health, safety and environment; and
  • the whistle blower policy.

A complete record of particulars of the significant policies along with the dates on which they were approved or amended by the board of directors shall be maintained.

(d) a system of sound internal control is established, which is effectively implemented and maintained at all levels within the company;

(e) within two years of coming into force of this Code, a mechanism is put in place for an annual evaluation of the board’s own performance;

(f) the decisions on the following material transactions or significant matters are documented by a resolution passed at a meeting of the board:

  • investment and disinvestment of funds where the maturity period of such investments is six months or more, except in the case of banking companies, non-banking finance companies and insurance companies;
  • determination of the nature of loans and advances made by the listed company and fixing a monetary limit thereof.

(g) the board of directors shall define the level of materiality, keeping in view the specific circumstances of the company and the recommendations of any technical or executive subcommittee of the board that may be set up for the purpose.

The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For companies with publicly trading stock, these responsibilities are typically much more rigorous and complex than for those of other types.

Typically the board chooses one of its members to be the chairman, who holds whatever title is specified in the bylaws. The Chairman and the Chief Executive Officer (CEO) shall not be the same person. The Chairman shall be elected from among the non-executive directors of the listed company. The Chairman shall be responsible for leadership of the board and shall ensure that the board plays an effective role in fulfilling all its responsibilities. The Board of Directors shall clearly define the respective roles and responsibilities of the Chairman and CEO.

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