Question

1. Please describe the relationship of the Board of Directors for Company Bravo to the company. Provide the purpose, details of general responsibilities, etc. with support.
2. What types of items would constitute a Board members breach of duty to the company? Name and explain with details and support.
3. Is it acceptable for a company’s Board of Directors to approve a personal loan to the CEO of the company as long as the vote is unanimous? Why or Why not? Please explain in detail and support your response.

Answer 1

Relationship of the Board of Directors for Company:-The board of directors, including the general manager or CEO (chief executive officer), has very defined roles and responsibilities within the business organization. Essentially it is the role of the board of directors to hire the CEO or general manager of the business and assess the overall direction and strategy of the business. The CEO or general manager is responsible for hiring all of the other employees and overseeing the day-to-day operation of the business. Problems usually arise when these guidelines are not followed. Conflict occurs when the directors begin to meddle in the day-to-day operation of the business.

Following are the resposibility for Bords of Directors:-

1) Recruit, supervise, retain, evaluate and compensate the manager. Recruiting, supervising, retaining, evaluating and compensating the CEO or general manager are probably the most important functions of the board of directors. Value-added business boards need to aggressively search for the best possible candidate for this position. Actively searching within your industry can lead to the identification of very capable people. Don’t fall into the trap of hiring someone to manage the business because he/she is out of work and needs a job. Another major error of value-added businesses is under-compensating the manager. Managerial compensation can provide a good financial payoff in terms of attracting top candidates who will bring financial success to the value-added business.

2) Provide direction for the organization. The board has a strategic function in providing the vision, mission and goals of the organization. These are often determined in combination with the CEO or general manager of the business.

3) Establish a policy based governance system. The board has the responsibility of developing a governance system for the business. The articles of governance provide a framework but the board develops a series of policies. This refers to the board as a group and focuses on defining the rules of the group and how it will function. In a sense, it’s no different than a club. The rules that the board establishes for the company should be policy based. In other words, the board develops policies to guide it own actions and the actions of the manager. The policies should be broad and not rigidly defined as to allow the board and manager leeway in achieving the goals of the business.

4) Govern the organization and the relationship with the CEO. Another responsibility of the board is to develop a governance system. The governance system involves how the board interacts with the general manager or CEO. Periodically the board interacts with the CEO during meetings of the board of directors. Typically that is done with a monthly board meeting, although some boards have switched to meetings three to four times a year, or maybe eight times a year. In the interim between these meetings, the board is kept informed through phone conferences or postal mail.

5) Fiduciary duty to protect the organization’s assets and member’s investment. The board has a fiduciary responsibility to represent and protect the member’s/investor’s interest in the company. So the board has to make sure the assets of the company are kept in good order. This includes the company’s plant, equipment and facilities, including the human capital (people who work for the company.)

6) Monitor and control function. The board of directors has a monitoring and control function. The board is in charge of the auditing process and hires the auditor. It is in charge of making sure the audit is done in a timely manner each year.

Following are the example for Bord of member may breach of Duty at the time function :-

• Reviewing financial statements
• Travel and expense reimbursement policies
• Whistleblower policies
• Overseeing audits
• Overseeing investments
• Failure to set reasonable compensation for the executive director and to review their performance
• Micromanaging staff rather than leading by planning, strategizing and overseeing staff
• Avoiding hard questions and giving in to groupthink
• Not knowing and understanding federal, state and local laws
• Non-profit organization directors not knowing the laws for the type of non-profit organization they run
• Having ex parte discussions outside the boardroom
• Failure to cultivate diversity and independence on the board; lax board director recruitment
• Failure to know penalties for overpaying key employees or insiders
• Overstepping the threshold for lobbying and political activities
• Failing to document actions
• Having or allowing conflicts of interest
• Failing to hold executives accountable, or to restrict access to information during an investigation
• Inconsistency in filing disclosures

Yes it Is acceptable for a company’s Board of Directors to approve a personal loan to the CEO of the company with follwoing condition mention below:-

a) giving of any loan to a managing or whole-time director –

(i) as a part of the conditions of service extended by the company to all its employees; or

(ii) pursuant to any scheme approved by way of special resolution;

b) Company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan e.g Banking Companies and Loan NBFCs. (In respect of such loans an interest shall be charged at a rate not less than the rate of prevailing yield of 1 year, 3 years, 5 years or 10 years Government security closest to the tenor of the loan)

otherwise not allowed to the company bord of director any Loan. in this case company’s Board of Directors to approve a personal loan to the CEO of the company as long as the vote is unanimous is not acceptable .