Question

In the context of a public company, discuss “board of director’s role, functions, types, qualities expected of, and potential problems.

Answer 1

Role of BOD in a public company:

It is necessary for every public company to have BOD. The role of BOD includes hiring and firing of senior executives, framing dividend policies, deciding on executive’s compensation. They are also responsible for a company in setting its goals, and also to ensure that company has sufficient resources at its disposal.

Functions of BOD:

• Approving the company’s goals, budgets etc.
• Drafting the financial statements, monitoring the statements.
• Ensuring that the company is fulfilling its corporate objectives.
• Protecting the general interests of the company.
• Creating values that benefit the company’s shareholders.
• Approving the investments or transactions of the company which has special characters except those pending for shareholder’s approval.
• Approving the structure of group companies, deciding remuneration of senior executives, shareholder’s remuneration etc.

Types of BOD:

• Executive director: a director who is also the executive of the company such as a CEO or CFO.
• Non executive directors: these people are not part of the management of the company and they are generally valued for their unique expertise.
• Independent director: an independent director is a person who has no compensation from the company other than director fees, share options, not a recent employee, who has no material relationship with the company, who is not a long term member and a shareholder of the company.
• Shadow director: this person s not the member of the board but has some power and can be appointed as per the individual’s wish.

Qualities of BOD:

• Emotional balance: this is the quality required for the directors in order to make good decisions. A director can’t simply jump to a conclusion. He must have sound hearing, must be assertive, willingness to accept his wrong doings, willingness to get further information at the time of making decisions etc.
• Judgments: he must have the judgmental capability to segregate relevant and irrelevant data, to learn lessons from the past, to judge which are the actions to be performed on priority basis, to make balanced decisions that are accepted by everyone.
• Awareness: he must be aware of basic financial concepts, not necessarily an accountant, additional functional expertise like finance, sales, marketing etc. awareness about good business practices, responsibilities etc.
• Problem solving nature: finding better ways of doing things and thereby maintaining company standards, appreciating others ideas in solving problems, learning from the past at the time of bringing solutions to the problems etc.
• Leadership: achieving all of the above qualities will make a director a good leader.

              Problems for BOD:

              The BOD can face problems from shareholders in case of regulatory enforcement. Issues relating to tax strategies, issues relating to executive compensation, risk management, change of audit rules and regulaions