Corporation: a mechanism established to allow different

parties to contribute capital, expertise and labor for their mutual benefit

Corporation is governed by the board of directors that oversees top management with the concurrence of the shareholders.

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Corporate governance: the relationship among the

board of directors, top management and shareholders in determining the direction and performance of the corporation

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Due care: Board of directors are responsible that the

corporation is not harmed by members of the board. Directors can be held liable

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Responsibilities of the Board of Directors

Sets corporate strategy, overall direction, mission, or vision Hires and fires the CEO and top management Controls, monitors, or supervises top management Reviews and approves the use of resources Cares for shareholders interests Assures that the corporation is managed in accordance with state laws, security regulations and conflict of interest situations
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Key Responsibilities of Directors in India Determination of Board Functions, i.e. premises within which the board is to work annually Setting values, mission and vision Responsibility to prepare strategic plan, next years operating plan and budget. Providing standard benchmarks to evaluate the performance and activities to assign accountability, to look into requirements of resources and time frame Responsibility to ensure that company has adequate resources To monitor and progress towards achieving the agreed objectives Responsibility to prepare work plan for the year with monthly benchmarks and time lines Responsibility to mentor, monitor and evaluate CEO

Responsibility to ensure compliance and disclosure to various acts like Companies Act, SEBI ACT, Income Tax, Sales tax etc. To communicate with stake holders & Overseeing mergers and acquisitions

Role of the Board in Strategic Management Monitor developments inside and outside the
corporation

Evaluate and Influence management proposals,

decisions and actions strategies

Initiate and Determine the corporations mission and

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Members of a Board of Directors Inside Directors are officers or executives employed by

the boards corporation

Outside Directors are executives of other firms but are

not employees of the boards corporation

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Kinds of Directors
Executive Directors: full time employees of the company. Status and powers are derived from the position in the hierarchy Non Executive Director: does not hold any mgnt. Position. Chosen exclusively to sit in the board as a part time assignment. Nominee Director: appointed by the third party to ensure safety of their interest. For eg. Govt., Foreign Collaborators, Financial Institutions, Holding Companies Representative Director: appointed to represent the interest of stakeholders like suppliers, consumers or employees. They enrich company through their expertise and specialization and helps in conscience and mutual understanding

Kinds of Directors
Shadow Directors: Also called deemed directors. Have same powers are Board but remain in background. Can give instructions and exercise their power Associate Director: title is given to senior managers as a token of appreciation and recognition for the work done. They represent this title while dealing with outside parties and can be held liable as Director

Lead Director- is consulted by the Chair/CEO regarding

board affairs and coordinates the annual evaluation of the CEO

96% of U.S. companies that combine the Chairman and CEO positions had a lead director

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Members of a Board of Directors

Agency theory problems arise in corporations (where mgnt is different from owners) because top management is not willing to accept responsibility for their decisions unless they own a substantial amount of stock in the corporation - Select less risky strategies to ensure profits in short run - Secure their jobs - Boost sales and assets figures to increase their salaries

However, if the board is from outside, they will use their expertise and experience in making objective decisions to ensure profits in long run. They will not indulge in illegal behaviour
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Stewardship theory as the result of long tenure with

the corporation, insiders (top management) tend to identify with the corporation and its success. Act in the best interest of the corporation more than self-interest.

While outside directors are associated with so many companies, dont have time, interest and availability for one single company.

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Nomination and Election of Board Members

Criteria for a good director include:
Willingness to challenge management when necessary Special expertise that is important to the company Available for outside meetings to advise management Expertise on global issues Understands the firms key technologies and processes Brings external contacts that are potentially valuable to the firm Has detailed knowledge of the firms industry Has high visibility in their field Is accomplished at representing the firm to stakeholders

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Impact of the Sarbanes-Oxley Act on U.S. Corporate Governance Sarbanes Oxley Act 2002- designed to protect shareholders from excesses and failed oversight of boards of directors - Auditors should be outside independent directors - Whistleblower procedures - Ensure that no harsh action is taken anyone who reports wrong doings - ONE financial expert from outside the management - CEO and CFO will certify companys financial statements - No loans and advances to Corporate Officers

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Impact of the Sarbanes-Oxley Act on India

1. Does not apply directly 2. However, they are required to disclose their statements from time to time 3. Globalization has also stressed on periodic disclosure of companies since foreign collaborators invest only in companies where corporate governance rules are followed.

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