Board Effectiveness – Governance, Risk Management, Compliances and Ethics Important Questions

Question 1.
The board of directors play a pivotal role in ensuring good governance. In the light of this statement discuss the role of directors in a company.
Answer:
The contribution of directors on the Board is critical to the way a corporate conducts itself. A board’s responsibilities derive from law, custom, tradition and prevailing practices.

The Boards have to respond to the explosive demands of the marketplace. The role of the Board of Directors is the cornerstone in evolving a sound, efficient, vibrant and dynamic corporate sector for attaining of high standards in integrity, transparency, conduct, accountability as well as social responsibility.

The role of Board in particular includes:

Providing direction for management.
Demonstrate ethical leadership, displaying – and promoting throughout the company-behaviour consistent with the culture and values it has defined for the organization.
Create a performance culture that drives value creation without exposing the company to excessive risk of value destruction.
Make well-informed and high-quality decisions based on a clear line of sight into the business.
Create the right framework for helping directors meet their statutory duties under the Companies Act, 2013, and/or other relevant statutory and regulatory regimes.
Being accountable, particularly to those that provide the company’s capital.
Think carefully about its governance arrangements and embraces evaluation of their effectiveness.

Question 2.
“Board and executive leaders need to work together based on mutual respect, trust and commitment”.
In the light of this statement discuss in brief the relationship between the Board and Executive Management.
OR
Write short note on the following; Relationship between directors and managers.
Answer:
The Board and Executive leadership need to work together based on mutual respect, trust and commitment. The Board provides counsel to management and should not get involved in the day-to-day affairs of the organization. Clear expectations for the board and the director need to be established and maintained, because a board that is overly active in management can inhibit the organization’s effectiveness.

The Executive Management can help the board govern more and manage less by adopting the following three methods:

Use a comprehensive strategic plan : that has been developed in conjunction with the board, and supplement it with regular progress reports. This will keep the board’s sights focused on the long term goals and mission of the organization. Regular reports will keep board members apprised of progress toward organizational goals, and provide part of the basis for evaluation of the executive management.

Provide the board with relevant materials : before board meetings, and explain why the materials are coming to the attention of the board. ‘ Let board members know how specific agenda items relate to the organization’s larger mission, and what kind of action or discussion is desired of the board on each item.

Facilitate board and board committee discussions so : that the board stays focused on the larger issues. Refer to set policies that define the limits of the board’s decision-making power, and strive to engage the board in a dialogue among themselves that leads to consensus-building.

Question 3.
Write short notes on the following; Key Managerial Personnel (KMP).
Answer:
According to section 2(51) of the Companies Act, 2013, key managerial personnel in relation to a company means:

The Chief Executive Officer or the managing director or the manager
The company secretary
The whole-time director
The Chief Financial Officer
Such other officer, not more than one level below the directors who is in whole time employment, designated as key managerial personnel by the Board Such other officer as may be prescribed

Question 4.
What are different types of directors on a Corporate Board?
Answer:
As per Section 2(34) of the Companies Act, 2013, Director means a director appointed to the Board of a Company.
Various types of directors on a Corporate Board are as under:
i. Executive Director/Managing Director: The term executive director is usually used to describe a person who is both a member of the board and who also has day-to-day responsibilities in respect of the affairs of the company.

According to Section 2(54) of the Companies Act, 2013 “managing director” means:
“A director who, by virtue of articles of a company or an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of a managing director, by whatever name called.”

ii. Non Executive Director : They are not in the employment of the company. They are the members of the Board, who normally do not take part in the day-to-day implementation of the company policy.

iii. Shadow Director. Shadow Director is a person who is not formally appointed as a director, but in accordance with whose directions or instructions the directors of a company are accustomed to act.

iv. Woman Director : Second Proviso to section 149 of the Companies Act, 2013 read with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014, prescribes that every listed company and every other public company having paid-up share capital of one hundred crore rupees or more; or turnover of three hundred crore rupees or more shall appoint at least one Woman director.

v. Resident Director : Section 149(3) of the Act has provided for residence of a director in India as a compulsory i.e., every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

vi. Independent Directors: Section 149(4) of the Companies Act, 2013 read with Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that every listed company shall have at least one-third of the total number of directors and the following class or classes of Companies shall have at least two directors as Independent Directors:

The Public Companies having paid up share capital of ten crore rupees or more.
The Public Companies turnover of one hundred crore rupees or more.
The Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.

vii. Nominee Director. A nominee director belongs to the category of non-executive director and is appointed on behalf of an interested party.

viii. Lead Independent Director. A director who coordinates the activities of other non-employee directors and advises the chairman on issues ranging from the schedule of board meetings to recommending retention of advisors and consultants to the management.

ix. Small Shareholders Director. A listed Company may have one director elected by small shareholders. Such director may be appointed upon notice of not less than 1000 shareholders or 1/10th of the total, shareholders, whichever is lower.

x. Additional Director. Section 161(1) of the Companies Act, 2013 provides that any person, other than a person who fails to get appointed as a director in a general meeting may be appointed as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.

Question 5.
Briefly explain the legal provisions regarding appointment of woman director in a public company.
OR
Answer the following in brief; Which type of a company should have at least one woman director?
Answer:
Proviso to Section 149(1) of the Companies Act, 2013 provides that certain classes of companies must have at least one woman director. Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 prescribes that the following class of companies shall have at least one Woman Director from 1st April 2015:-

Every Listed Company
Every other Public Company having
Paid-up capital of 100 crore rupees or more
Turnover of 300 crore rupees or more

Question 6.
“Corporate Boards are also involved in women empowerment.” Comment.
OR
“Women can play a significant role in the board of directors” Comment on the rationale for having a woman director on a company’s board.
OR
Write short note on the following; Woman director.
Answer:
Women directors can play a significant role in decision making Companies Act, 2013 has taken a positive step in this direction by providing for mandatory appointment of women director on corporate boards.
1. Proviso to Section 149(1) of the Companies Act, 2013 provides that certain classes of companies must have at least one woman director.

2. Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 prescribes that the following class of companies shall have at least one Woman Director from 1st April 2015:
(i) Every Listed Company

(ii) Every other Public Company having:

Paid-up capital of 100 crore rupees or more
Turnover of 300 crore rupees or more

Regulation 17(i) of the SEBI (LODR) Regulations requires that at least one woman director shall be appointed on the board of all listed entities.

Sebi (Lodr) (Amendment) Regulations, 2018:
The top 500 listed companies shall have atleast one independent woman director by 1st April 2019 and for the top 1000 listed entities by 1 April 2020. A company shall comply with above provisions within a period of six months from the date of its incorporation.

Question 7.
Is shadow director equally liable with the other directors for obligations of the firm?
OR
Write short note on the following; Shadow Director.
Answer:
Shadow Director is a person who is not formally appointed as a Director, but in accordance with whose directions or instructions the directors of a company are accustomed to act. However, a person is not a Shadow Director merely because the Directors act on advice given by him in a professional capacity.

Shadow Director is a holder of controlling or majority share of a private firm who is not technically a director and does not openly participate in the firm’s governance, but whose directions or instructions are routinely complied with by the employees or other Directors.

In the eyes of law, he or she is a De-facto Director and is held equally liable for the obligations of the firm with the other De-facto and De-jure Directors.

Question 8.
How is the board size of companies determined?
Answer:
Board size is an important determinant of board effectiveness. The composition and structure of the Board as prescribed under the law is given hereunder:

Companies Act, 2013:
Section 149( 1) of Companies Act, 2013, provides that every company shall have a Board of Directors consisting of individuals as directors and shall have –

A minimum number of three directors in the case of a public company.
At least two directors in the case of a private company.
At least one director in the case of a One Person Company.
A maximum of fifteen directors provided that a company may appoint more than fifteen directors after passing a special resolution.

Section 149(4) of Companies Act, 2013, provides that every public listed company shall have atleast one third of total number of directors as independent directors and Central Government may prescribe the minimum number of independent directors for any class or classes of companies.

SEBI (LODR) Regulations, 2015:
Regulation 17(1)(a) of SEBI (LODR) Regulations : 2015 provides that Board of directors shall have an optimum combination of executive and non-executive directors with at least one woman director and not less than fifty per cent of the board of directors shall comprise of non-executive directors.

Regulation 17(1)(6) of SEBI (LODR) Regulations : 2015 provides that the composition of board of directors of the listed entity shall be as follows: Where the chairperson of the board of directors is a non-executive director, at least one-third of the board of directors shall comprise of independent directors; where the listed entity does not have a regular non-executive chairperson, at least half of the board of directors shall comprise of independent directors.

Regulation 17(1)(c) of SEBI (LODR) Regulations : 2015 provides that the board of directors of the top 1000 listed entities (with effect from April 1, 2019) and the top 2000 listed entities (with effect from April 1,2020) shall comprise of not less than six directors.

Question 9.
Pawan, carrying 5.23% shares of Combo Ltd., a listed company, was offered directorship in the company. What will be the consequences of accepting the offer on his holdings?
Answer:
As per Section 184(1) of the Companies Act, 2013:
Every director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in such manner as may be prescribed.

As per Rule 9 of the Companies (Meetings of Board and its Powers) Rules, 2014 following are to Disclosures by a director of his interest:
(1) Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1.

(2) It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice.

(3) All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorised by the Board for the purpose.

As per Regulation 7(1) of SEBI (Prohibition of Insider Trading) Regulations, 2015:
Every person on appointment as a Key Managerial Personnel or a Director of the Company or upon becoming a promoter shall disclose his holding | of securities of the company as on the date of appointment or becoming J a promoter, to the company within seven days of such appointment or | becoming a promoter.

Thus, in light of the aforesaid laws on the disclosure requirements, Mr. Pawan shall disclose his shareholding under above laws and regulations in the Combo Ltd. on accepting the offer of Directorship.

Question 10.
“Independent directors are directors who apart from receiving director’s remuneration do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its , subsidiaries”. Elucidate.
Answer:
Section 149(6) (c) of Companies Act, 2013 requires that an independent director should have no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.

MCA vide a General Circular in 2014 has issued the following clarifications with respect to ‘Pecuniary Relationship’of Independent Director:

In case, a company carries out transactions in the ordinary course of business at arm’s length price with an Independent Director, such Independent Director would not be said to have ‘pecuniary relationship’ with the company.

In case of Independent Directors, ‘Pecuniary Relationship’ does not include receipt of remuneration by way of sitting fees, reimbursement of expenses for participation in the Board and other meetings and remuneration in the form of commission.

The matter has been examined in consultation with SEBI and it is clarified that ‘pecuniary relationship’ provided in section 149(6)(c) of the Act does not include receipt of remuneration, from one or more companies, by way of fee provided under sub-section (5) of section 197, reimbursement of expenses for participation in the Board and other meetings and profit related commission approved by the members, in accordance with the provisions of the Act.

Question 11.
In Pramod Ltd., vacancy of an independent director arose on 15th June, 2014. In the Board meeting held on 14th October, 2014, the Board of directors unanimously passed a resolution to appoint one of the nominee directors as an independent director for next two consecutive terms. Enumerate the selection criteria of an independent director.
Answer:
Section 149(6) of Companies Act, 2013 defines independent director as under : “Independent Director” : in relation to a company, means a director other than a managing director or a whole time director or a nominee director

a. Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience.

b. (i) Who is or was not a promoter of the Company or its Holding, Subsidiary or Associate Company
(ii) Who is not related to Promoters or Directors in the company, its holding, subsidiary or associate company.

c. Who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.

d. None of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year.

e. Who, neither himself nor any of his relatives –
i. Holds or has held the position of a Key Managerial Personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed.

ii. Is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of-

A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company.
Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm;.

iii. Holds together with his relatives two per cent or more of the total voting power of the company.

iv. Is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives twenty-five per cent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent or more of the total voting power of the company.

v. Who possesses such other qualifications as may be prescribed.

Further, – Schedule IV of the Companies Act, 2013, provides that the appointment of Independent Director of the Company shall be approved at the meeting of the Shareholders. Hence, the appointment made by the Board of Directors of Pramod Ltd. is not valid.

Question 12.
“Independent directors are known to bring objective view in board deliberations, they also ensure that there is no dominance of one individual or special interest group or the stifling of healthy debate. They act as the guardians of the interest of all shareholders and stakeholders, especially in the areas of potential conflict”.
Discuss the above statement in the light of Regulation 16(1)(b) of the SEBI.
Answer:
As per Regulation 16(1)(b) of SEBI (LODR) Regulations, ‘Independent director’ means a non-executive director, other than a nominee director of the listed entity:
1. Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience.

2. Who is or was not a promoter of the listed entity or its holding, subsidiary or associate company or member of the promoter group of the listed entity.

3. Who is not related to promoters or directors in the listed entity or its holding, subsidiary or associate company.

4. Who, apart from receiving director’s remuneration, has or had no material pecuniary relationship with the listed entity, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.

5. None of whose relatives has or had pecuniary relationship or transaction with the listed entity, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent or more of g its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year.

6. Who, neither himself nor any of his relatives :
A. Holds or has held the position of a key managerial personnel or is or has been employee of the listed entity or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed.

B. Is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of –

A firm of auditors or company secretaries in practice or cost auditors of the listed entity or its holding, subsidiary or associate company.
Any legal or a consulting firm that has or had any transaction with the listed entity, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm.

C. Holds together with his relatives two per cent or more of the total voting power of the listed entity.

D. Is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives twenty-five per cent or more of its receipts or corpus from the listed entity, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent or more of the total voting power of the listed company.

E. Is a material supplier, service provider or customer or a lessor or lessee of the listed company.

7. Who is not less than 21 years of age.

8. Who is not a non-independent director of another company on the board of which any non-independent director of the listed entity is an independent director.

Question 13.
Independent directors bring valuable outside perspective and have & objective view in Board deliberations. What are the various roles of an S independent director? OR
Write short note on the following; Role of independent director.
OR
“Independent directors are known to bring an objective view in board deliberations. They act as guardians of the interest of all stakeholders, especially in the areas of potential conflicts”. Discuss
Answer:
Schedule IV of the Companies Act, 2013 provides that, independent directors shall:
1. Help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct.

2. Bring an objective view in the evaluation of the performance of board and management.

3. Scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance.

4. Satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible.

5. Safeguard the interests of all stakeholders, particularly the minority shareholders.

6. Balance the conflicting interest of the stakeholders.

7. Determine appropriate levels of remuneration of executive directors, key managerial personnel and senior management and have a prime role in appointing and where necessary recommend removal of ex¬ecutive directors, key managerial personnel and senior management.

8. Moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest.

Question 14.
“Good governance is decisively the manifestation of personal beliefs and values which configure the organizational values, beliefs and actions of the board. A properly structured board capable of taking independent and objective decisions is the pivot of corporate governance.

A board should, therefore, be a mix of executive and independent directors with a variety of experience and core competence so that the board may effectively fulfil their responsibilities by laying down policies and strategies and monitoring managerial performance objectively”.

In the light of above statement discuss the role of independent directors in the corporate governance and state the provisions of the Companies Act, 2013 and the SEBI Regulations, 2015 with regard to appointment of independent directors on the board of directors of a listed company.

Good governance is a hallmark of the organizational objectives and values.

A properly structured board capable of talking independent and Object decision is the pivot of corporate governance a board should therefore be a mix of executive and independent directors with a variety of experience and code competence so that it may effectively fulfil its responsibilities by laying down policies and strategies, monitoring management performance j objectively.

In the light of the above statement discuss the role of independent directors j in the corporate governance with specific reference to the code of conduct I of independent directors as the provisions of the Companies Act, 2013.
Answer:
1. Help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy, performance, risk man-agement, resources, key appointments and standards of conduct.

2. Bring an objective view in the evaluation of the performance of board and management.

3. Scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance.

4. Satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible.

5. Safeguard the interests of all stakeholders, particularly the minority shareholders.

6. Balance the conflicting interest of the stakeholders.

7. Determine appropriate levels of remuneration of executive directors, key managerial personnel and senior management and have a prime role in appointing and where necessary recommend removal of executive directors, key managerial personnel and senior management.

8. Moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest.

Meaning of Independent Director under Section 149(6) of Companies Act, 2013:
Section 149(6) of Companies Act, 2013 defines independent director as under : “Independent Director” : in relation to a company, means a director other than a managing director or a whole time director or a nominee director

a. Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience.

ii. Is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of-

A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company.
Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm;.

iii. Holds together with his relatives two per cent or more of the total voting power of the company.

v. Who possesses such other qualifications as may be prescribed.

Conclusion:
In the given case, Board of Directors of Pramod Ltd. has appointed one of the nominee directors as an independent director. The Director so appointed cannot be considered independent as he is a Nominee Director. Further, – Schedule IV of the Companies Act, 2013, provides that the appointment of Independent Director of the Company shall be approved at the meeting of the Shareholders. Hence, the appointment made by the Board of Directors of Pramod Ltd. is not valid.

Meaning of Independent Director under Regulation 16(1)(b) of SEBI (LODR) Regulations:

As per Regulation 16(1)(b) of SEBI (LODR) Regulations, ‘Independent director’ means a non-executive director, other than a nominee director of the listed entity:
1. Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience.

2. Who is or was not a promoter of the listed entity or its holding, sub¬sidiary or associate company or member of the promoter group of the listed entity.

3. Who is not related to promoters or directors in the listed entity or its holding, subsidiary or associate company.

B. Is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of –

A firm of auditors or company secretaries in practice or cost auditors of the listed entity or its holding, subsidiary or associate company.
Any legal or a consulting firm that has or had any transaction with the listed entity, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm.

C. Holds together with his relatives two per cent or more of the total voting power of the listed entity.

E. Is a material supplier, service provider or customer or a lessor or lessee of the listed company.

7. Who is not less than 21 years of age.

8. Who is not a non-independent director of another company on the board of which any non-independent director of the listed entity is an independent director.

Question 15.
What are qualifications of an Independent Director (ID)? Describe provisions under Companies Act, 2013 about separate meetings of Independent Directors (IDs).
OR
Are there any separate provisions of the meetings of the Independent Directors? If yes, state such provisions and also their rationale.
Answer:
Qualification of an Independent Director:
Section 149(6) of the Companies Act, 2013 read with Rule 5 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that an independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business.

Separate meetings of the Independent Directors:
Companies Act, 2013 and SEBI (LODR) Regulations mandates the separate meeting of independent directors for all the listed companies. The provisions given in the Companies Act and that in the SEBI (LODR) Regulations regarding separate meeting are same.

Schedule IV of the Companies Act, 2013 and Regulation 25(3) of SEBI (LODR) Regulations, 2015 provides that:
1. The independent directors of the company shall hold at least one meeting in a year.

2. Such meeting will be without the attendance of non-independent directors and the members of management.

3. All the independent directors of the company shall strive to be present at such meeting to undertake following:

Review the performance of non-independent directors and the Board as a whole.
Review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors.
Assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.

Question 16.
Write short note on the following; Lead independent director.
OR
Discuss and elaborate the following; Senior independent directors.
Answer:
Designating an independent director as a lead independent director or senior independent director is considered as a good practice internationally

Following are the roles of the lead independent directors :

Acts as the principal liaison between the independent directors of the Board and the Chairman of the Board.
Develops the agenda for and preside at executive sessions of the Board’s independent directors.
Advises the Chairman of the Board as to an appropriate schedule for Board meetings, seeking to ensure that the independent directors can perform their duties responsibly while not interfering with the flow of Company operations.
Approves with the Chairman of the Board the agenda for Board and Board Committee meetings and the need for special meetings of the Board.

(Note : This list is inclusive and not exhaustive)

Question 17.
What are the primary responsibilities of the Chairman for leading the Board and ensuring its effectiveness?
OR
“The chairman’s primary responsibility is to lead the board and ensure its effectiveness”. Elucidate this statement.
Answer:
The role of the Chairman includes:
1. Demonstrating ethical leadership.

2. Setting a board agenda which is primarily focused on strategy, performance, value creation and accountability, and ensuring that issues relevant to these areas are reserved for board decision.

3. Ensuring a timely flow of high-quality supporting information; regularly considering succession planning and the composition of the board etc.

4. Encouraging active engagement by all members of the Board.

5. Taking the lead in providing a comprehensive, formal and tailored induction programme for new Directors, and in addressing the development needs of individual Directors to ensure that they have the skills and knowledge to fulfil their role on the Board and on Board Committees.

6. Evaluating annually the performance of each Board member in his/ her role as a Director, and ensuring that the performance of the Board as a whole and its Committees is evaluated annually.

7. Holding meetings with the non-executive Directors without the executives being present.

8. Ensuring effective communication with shareholders and in particular that the company maintains contact with its principal shareholders on matters relating to strategy, governance andTDirectors’ remuneration. Ensuring that the views of shareholders are communicated to the Board as a whole.

Question 18.
Describe briefly the following; Chief Executive Officer (CEO).
Answer:
As per Section 2(18) of the Companies Act, 2013, “Chief Executive Officer” means an officer of a company, who has been designated as such by it. The Board appoints the CEO based on the criterion of his capability and competence to manage the company effectively. He is involved with every aspect of the company’s performance. The CEO is supported and advised by a skilled board and CEO is ultimately accountable to the board for his actions.

His main responsibilities include:

Developing and implementing high-level strategies.
Making major corporate decisions.
Managing the overall operations and resources of a company.
Acting as the main point of communication between the board of directors and the corporate operations.

CEO should be able to, by the virtue of his ability, expertise, resources and authority keep the company prepared to avail the benefit of any change whether external or internal.

Question 19.
Explain the following; Seperation of role of chairman and chief executive. [December 2014, 3 Marks]
Answer:
The first proviso of Section 203(1) of Companies Act, 2013 states that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless:

The articles of such a company provide otherwise.
The company does not carry multiple businesses.

Need for separation of Chairman and Chief Executive Officer:
It is perceived that separating the roles of chairman and chief executive officer (CEO) increases the effectiveness of a company’s board. It is the board’s and chairman’s job to monitor and evaluate a company’s performance. A CEO, on the other hand, represents the management team. If the two roles are performed by the saflie person, then it’s an individual evaluating himself. When the roles are separate, a CEO is far more accountable.

A clear demarcation of the roles and responsibilities of the Chairman of the Board and that of the Managing Director/CEO promotes balance of power.

Benefits of separation – The benefits of separation of roles of Chairman and CEO can be:

Direct Communication : A separate chairman provides a more effective channel for the board to express its views on management.
Guidance : A separate chairman can provide the CEO with guidance and feedback on his/her performance.
Shareholders’ interest : The chairman can focus on shareholder interests, while the CEO manages the company.
Governance : A separate chairman allows the board to function more effectively and fulfil its regulatory requirements.
Long-Term Outlook : Separating the position allows the chairman to focus on the long-term strategy while the CEO focuses on short-term profitability.
Succession Planning : A separate chairman can more effectively concentrate on corporate succession plans.

Question 20.
Describe the key role of Chief Executive Officer (CEO) and the benefits of separation of roles of Chairman and the CEO.
Answer:
Role of Chief Executive Officer:
As per Section 2(18) of the Companies Act, 2013, “Chief Executive Officer” means an officer of a company, who has been designated as such by it. The Board appoints the CEO based on the criterion of his capability and competence to manage the company effectively. He is involved with every aspect of the company’s performance. The CEO is supported and advised by a skilled board and CEO is ultimately accountable to the board for his actions.

His main responsibilities include:

Developing and implementing high-level strategies.
Making major corporate decisions.
Managing the overall operations and resources of a company.
Acting as the main point of communication between the board of directors and the corporate operations.

CEO should be able to, by the virtue of his ability, expertise, resources and authority keep the company prepared to avail the benefit of any change whether external or internal.

Separation of roles of Chairman and the CEO:
The first proviso of Section 203(1) of Companies Act, 2013 states that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless:

The articles of such a company provide otherwise.
The company does not carry multiple businesses.

A clear demarcation of the roles and responsibilities of the Chairman of the Board and that of the Managing Director/CEO promotes balance of power.

Benefits of separation – The benefits of separation of roles of Chairman and CEO can be:

Direct Communication : A separate chairman provides a more effective channel for the board to express its views on management.
Guidance : A separate chairman can provide the CEO with guidance and feedback on his/her performance.
Shareholders’ interest : The chairman can focus on shareholder interests, while the CEO manages the company.
Governance : A separate chairman allows the board to function more effectively and fulfil its regulatory requirements.
Long-Term Outlook : Separating the position allows the chairman to focus on the long-term strategy while the CEO focuses on short-term profitability.
Succession Planning : A separate chairman can more effectively concentrate on corporate succession plans.

Question 21.
Discuss briefly the following; Training of directors.
Answer:
Board effectiveness can be achieved by paying appropriate attention to development and training of directors. Director orientation/induction should be seen as the first step of the board’s continuing improvement.

Following are the key points on training of directors:

Purpose	Explanation
Need for training of directors	Since the Board composition is getting more diverse, a system of formal training and evaluation is very important to foster trust, cohesion and communication among board members.
Benefits of Training of directors	Investing in board development strengthens the board and individual directors. As the Board of Directors is primarily responsible for good governance practices, which is quite different from management, it calls for new areas of knowledge and different skills.
Training pro – gramme	It should encompass both a thorough induction pro – gramme and an ongoing training and development opportunities for the board members.
Purpose of Training	Training should focus on improving the knowledge and skills of the board and individual members and on overall board performance.
Training of all board members	Training should be required for each board member and compliance with the requirement used to assess individual board member performance for reappointment to additional terms of board service. Requirements should be set forth in a board policy that describes the focus and type of education available.

Question 22.
Answer the following; Should there be an induction programme for Directors? Discus.
Answer:
Director orientation/induction should be seen as the first step of the board’s continuing improvement. Since the Board composition is getting more diverse, a system of formal training and evaluation is very important to foster trust, cohesion and communication among board members. Investing in board development strengthens the board and individual directors.

As the Board of Directors is primarily responsible for good governance practices, which is quite different from management, it calls for new areas of knowledge and different skills.

Common methods of induction:

Briefing papers
Internal visits
Introductions

An induction programme should be available to enable new directors to gain an understanding of:

The company’s financial, strategic, operational and risk management position.
he rights, duties and responsibilities of the directors.
The roles and responsibilities of senior executives.
The role of board committees.

An induction kit should be given to new directors which should contain MOA, AOA, brief history of the company, Current business plan, market ‘ analysis and budgets, Protocol, procedures and dress code for various meetings, Annual report for last three years, Board’s meeting schedule and Board committee meeting schedule, description of Board procedures, etc.

Question 23.
Write short notes on the following; Training of Independent Directors.
Answer:
As per Regulation 25(7) of SEBI (LODR) Regulations, 2015 : the listed entity shall familiarise the independent directors through various programmes about the listed entity, including the following:

Nature of the industry in which the listed entity operates.
Business model of the listed entity.
Roles, rights, responsibilities of independent directors.
Any other relevant information.

Schedule IV of the Companies Act, 2013 : provides for Code for Independent Directors, wherein the Independent Directors shall undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company.

Question 24.
Discuss briefly the following; Directors development programme.
Answer:
Directors Development should not be treated as merely another | training schedule rather it should be structured so as to sharpen the existing skills and knowledge of directors. It is good practice for boards to arrange for an ongoing updation of their members with changes in governance, technologies markets, products, and so on through:

Ongoing education;
Site visits;
Seminars;
Various short term and long term courses.

Question 25.
Write short note on the following; Performance evaluation of directors.
OR
RST Ltd. recently issued the Equity Shares on basis of right issue. Due to this, the paid-up capital of the Company has been increased from ₹ 7.5 crore to ₹ 15 crore. The Company Secretary in the Board Meeting put up the proposal for constitution of various committees including Audit ‘ Committee and Nomination & Remuneration Committee.

All members of the Committee were proposed to be Independent Directors. In the scope of Nomination & Remuneration Committee, it was inter alia added that the Committee shall also evaluate the performance of Chairman & Managing Director (CMD) of the company. The Directors present in the Board meeting strictly objected on the said proposal. CMD has also expressed dissent on the proposal.
In view of this, check the validity of the proposal of the Company Secretary.
Answer:
In order to check the validity of the proposal of the Company Secretary, one needs to understand the following:

As per Rule 6 of the Companies (Meeting of Board and its Power) Rules, 2014 read with Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014:

Every listed company or public company having the following shall constitute an Audit Committee and Nomination and Remuneration Committee:
(i) Paid up capital of ₹ 10 crore or more,
or
(ii) Turnover of ₹ 100 Crore or more,
or
(iii) Aggregate outstanding loan, debenture and deposit exceeding ₹ 50 Crore.

Role of Nominations and Remuneration Committee in performance evaluation of directors:

Under Section 178(2) of the Companies Act, 2013:
The Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall specify the manner for effective evaluation of performance of Board, its committees and individual directors to be carried out either by the Board, by the Nomination and Remuneration Committee or by an independent external agency and review its implementation and compliance.

Performance of the Chairperson:
The performance of the Chairperson is linked to both the functioning of the Board as a whole as well as the performance of each director. The Nomination and Remuneration Committee provides that the Independent Director should review the performance of the Chairperson of the company taking into account the views of the executive directors and non-executive directors. In view of the above, the proposal of the Company Secretary is valid as per the law.

Question 26.
“The Board of directors plays a pivotal role in ensuring good governance. The role of the Board is two-dimensional; as a cornerstone in evolving sound, efficient, vibrant and dynamic corporate for attaining of high standards in integrity, transparency, code of conduct, accountability as well as in promoting social responsibility. The contribution of the directors on the Board is critical to the way a corporate conducts itself.

An effective Board evaluation requires the right combination of dynamic factors of performance of the Board as entrepreneurial leader of the company within the
framework of prudent and effective controls, which enables risk to be assessed and managed.”
Answer:
As per the Companies Act, 2013 or SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Board evaluation would include following:
1. Evaluation of the Board as a whole

2. Evaluation of the Committees

3. Evaluation of Individual Directors

Managing Director/Whole time Director/Executive Director
Independent Directors
Non- executive Directors

4. Evaluation of the Chairperson

Following are the provisions on Board’s evaluation:
Provisions under Companies Act, 2013 – Section 134(3)(p) of Companies Act, 2013 : provides that there has to g be a formal annual evaluation of Board of its own performance and < that of its committees and individual directors.

The Company may undertake annual evaluation either in accordance with calendar year or financial year, as there is no clarity on this. Ideally, the same should be as per financial year.

Provisions under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 – It requires Boards to conduct an annual performance evaluation and its disclosure in the annual report through the following provisions:
1. Regulation 17(10) mandates that entire board of directors shall do the performance evaluation of independent directors, provided that in the evaluation process, the directors who are subject to evaluation shall not participate.

2. Regulation 19(4) read with Part D of Schedule II – It provides | that the role of committee shall, inter alia, include the following:

Formulation of criteria for evaluation of performance of independent directors and the board of directors.
Whether to extend or continue the term of appointment of the independent director, on the basis of the report of performance evaluation of independent directors.

Question 27.
How can an organization facilitate visionary board leadership?
OR
Discuss the barriers to visionary leadership.
OR
Describe briefly the following; Barriers to Visionary leadership.
Answer:
According to Frank Martinelli an organisation can facilitate visionary board leadership by identifying the following barriers and removing them:
1. Lack of Time Management : Lack of time to attend meetings, read materials and maintain contact with each other in between meetings. The board members need to organize themselves for maximum effectiveness and avoid wasting time on trivial matters.

2. Resistance to. risk taking : In order to be innovative and creative in its decision making, boards must be willing to take chances, to try new H things, to take risks. Board leadership must strike a balance between % taking chances and maintaining the traditional stewardship role.

3. Lack of Strategic Planning : Strategic planning offers boards an opportunity to think about changes and trends. Some boards are not involved in strategic planning at all; others are involved in a superficial way. Therefore, the boards lose an important opportunity to exercise visionary leadership skills.

4. Complexity : Board members frequently lack a deep understanding of critical changes, trends and developments. This lack of knowledge results in a lack of confidence on the part of the board to act decisively and authoritatively.

5. Micro Management : It is necessary that the board focuses its attention on items of critical importance to the organization. If the board is tempted to micro manage or to meddle in lesser matters, an opportunity to provide visionary leadership is lost.

6. Clinging to Tradition : Boards often resist change in order to preserve tradition. However, changing environment requires the Boards to be open to change This human tendency to hold on to the known prevents boards from considering and pursuing new opportunities which conflict with the old rules.

7. Confused Roles : Some boards assume that it is the job of the executive director to do the visionary thinking and that the board will sit and wait for direction and inspiration. This lack of clarity can result in boards that do not exercise visionary leadership because they do not think it is their job.

8. Past Habit : Time was when clients, members and consumers would just walk in the door on their own and boards did not consider market place pressures, or for that matter a competitive marketplace. All that has changed, yet for many boards their leadership style has not kept pace with this new awareness.

Question 28.
Describe various mandatory Board Committees for Insurance Companies in India with reference to the Insurance Regulatory and Development Authority of India (IRDAI) Corporate Governance Guidelines on Delegation of Function – Committees of the Board.
Answer:
The Insurance Regulatory and Development Authority of India (IRDAI) has revised the existing Corporate Governance Guidelines for Insurance Companies in the light of changes brought in by the Companies Act, 2013 vide Circular Dated 18th May 2016.

As per the said Guidelines, with a view to provide adequate Board time for g discharge of the significant corporate responsibilities, the Board can consider % setting up of various Committees of Directors by delegating the overall “ monitoring responsibilities after laying down theroles and responsibilities of these Committees to the Board.

IRDAI advises all insurers that it is mandatory to establish the following committees:

Audit Committee.
Investment Committee.
Risk Management Committee.
Policyholder Protection Committee.
Nomination and Remuneration Committee.
Corporate Social Responsibility Committee (only for insurers earning profits).

Regulation 34 of the IRDA (Non-linked Insurance Products) Regulations, 2019 : requires constitution of a ‘With Profits’ Committee by Life Insurance Companies comprising of one Independent Director of the Board, the Chief Executive Officer, the Appointed Actuary of the Company and an Independent Actuary.

Question 29.
“The Board of Directors is ultimately responsible for its firm’s success or failure, as well as for the ethical climate and practices of its company.” In the light of this statement, mention the areas of oversight by Board as suggested by Conference Board Commission on Public Trusts and Private Enterprises.
Answer:
The actions and attitudes of the board greatly influence the ethical climate of an organization. The directors on a company’s board assume legal responsibility for the firm’s resources and decisions. Board members have a fiduciary duty, Le., a position of trust and confidence.

Due to globalization and enhanced role of media and technology, the demand for accountability and transparency has increased greatly. This calls for ethical decision-makirrg as well as an ethical decision making framework.

A report by the Conference Board Commission on Public Trust and Private Enterprise suggested the following areas of oversight by a Board:

Designation of a Board Committee to oversee ethical issues.
Designation of an officer to oversee ethical practices and employees’ compliance with the code of ethics.
Inclusion of ethics-related criteria in employees’ annual performance reviews and in the evaluation and compensation of management.
Representation by senior management that all known ethical breaches have been reported, investigated, and resolved.
Disclosure of practices and processes the company has adopted to promote ethical behaviour.

Schedule IV of the Companies Act, 2013 prescribes Code for Independent Directors which cast duty on Independent Directors to report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.

Question 29(A).
“Investor Relations (IR) is a strategic management responsibility that integrates finance, communication, marketing & securities law compliance to enable the most effective two-way communication between a company, financial community and other constituencies”.
Elucidate the role and responsibilities of Investor Relations Officer (IRO) In the light of the above statement.
Answer:
Investor Relations (IR) is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.

They have the following roles and responsibilities:

To oversee most aspects of shareholder meetings, press conferences, private meetings with investors, (known as “one-on-one” briefings), investor relations sections of company websites, and company annual reports.
Responsible for transmission of information relating to intangible values such as the company’s policy on corporate governance or corporate social responsibility.
Managing the interactive data and the management of company filings through streaming-data solutions such as XBRL or other forms of electronic disclosure.
To be aware of current and upcoming issues that an organization may face, particularly those that relate to fiduciary duty and have an organizational impact.
Must be able to assess the various patterns of stock-trading that a public company may experience as the result of a public disclosure (or any research reports issued by financial analysts).
Must work closely with the Company Secretary on legal and regulatory matters that affect shareholders.

Question 30.
Write short note on the following; Board Charter.
OR
As a company secretary of ABC Ltd. prepare a board note listing out the items that should be included in the board charter.
Answer:
To
The Board of Directors ABC Ltd.

Subject: Contents of a Board Charter

Dear Sir
A Board Charter is a tool to assist directors in fulfilling their responsibilities as Board members. It sets out the respective roles, responsibilities and authorities of the Board and of Management in the governance, management and control of the organization. This charter should be read in conjunction with the Company’s Memorandum and Articles.

A Model Charter may include the following:

The Role of the Board
The Role of the CEO and Chairman
The Role of the Company Secretary
Directors Code of Conduct
Conflicts of Interests
Related Party transactions
Board Members Qualifications, skills, etc.
Board Meetings
Delegation of Authority by the Board
Role & power of Committees
Committee Meetings
Protocol for media contact and comment
Hospitality and Gifts
Board Evaluation
Directors liability insurance
Director Induction, training and familiarization
Non-Executive Director Remuneration
Reimbursement of expenses.

Thanking you
Your faithfully
Company Secretary
ABC Ltd.

Question 31.
Who are Directors and Board of Directors under Companies Act, 2013?
Answer:
Directors:
A Company being an artificial person it requires certain natural persons to represent the company at various fronts. The position of directors in their relationship to the company is not only as the agents, but also trustees of the company.

As per Section 2(34) of the Companies Act, 2013 ‘director’ means a director appointed to the Board of the Company.

Board of Directors:
Board of directors is a body of elected or appointed persons who jointly oversee the activities of a company. They are also referred to as board of governors, board of managers, board of regents, board of trustees, or simply referred to as “the board”.

As per Section 2(10) of the Companies Act, 2013 “Board of Directors” or “Board”, in relation to a company means the collective body of directors of the company.

Question 32.
Write a short note on the following; The duties of a director under Section 166 of the Companies Act, 2013.
Answer:
The following duties of the directors have been provided under section 166 of the Companies Act, 2013 which apply to all types of directors including Independent

Directors:

Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company.
A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and ” in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
A director of a company shall not assign his office and any assignment so made shall be void.
If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Question 33.
Briefly explain the following; Powers of the board that can be exercised only by means of a resolution passed at a meeting of the Board
Answer:
As per Section 179(3) read with Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014, the Board of Directors of a company shall exercise the following powers on behalf of the company only by means of resolutions passed at meetings of the Board, namely:

To make calls on shareholders in respect of money unpaid on their shares.
To authorise buy-back of securities under section 68.
To issue securities, including debentures, whether in or outside India.
To borrow monies.
To invest the funds of the company.
To grant loans or give guarantee or provide security in respect of loans.
To approve financial statement and the Board’s report.
To diversify the business of the company. .
To approve amalgamation, merger or reconstruction.
To take over a company or acquire a controlling or substantial stake ‘ in another company.
To make political contributions.
To appoint or remove Key Managerial Personnel (KMP).
To appoint internal auditors and secretarial auditor.

Question 34.
Write a short note on the following; The duties of an independent director.
Answer:
Schedule IV of the Companies Act, 2013 provides that the independent directors shall have following duties –

Undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company.
Seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company.
Strive to attend all meetings of the Board of Directors and of the Board committees of which he is a member.
Participate constructively and actively in the committees of the Board in which they are chairpersons or members.
Strive to attend the general meetings of the company.
Keep themselves well informed about the company and the external environment in which it operates.
Not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;

(Note: This list is inclusive and not exhaustive)

Question 35.
Write a note on the following; Succession planning.
Answer:
‘Succession planning’ is a strategy for identifying and developing future leaders. Succession plans are used to address the inevitable bhanges that occur when directors resign, retire or die.

A well-prepared board should develop a succession plan. It is an ongoing process of identifying, assessing and developing people to ensure the continuity of the Board.

Some leading practices for board succession planning are:

Using a skills matrix to proactively shape board composition that incorporates strategic direction and opportunities, regulatory and industry developments, challenges, and transformation.
Conducting robust annual performance evaluations, including facilitation by an independent third party.
Reviewing evolving committee and board leadership needs, including the time commitments required.
Considering director election results and engagement by investors regarding board composition, independence, leadership and diversity.

Legal Provisions on Succession planning.
Companies Act, 2013: There is no specific provision. It is usually included in terms of reference of NRC.

SEBI (LODR) Regulations, 2015:
Regulation 17(4) The Board of the listed entity shall satisfy itself that plans are in place for orderly succession for appointments to the Board and to senior management.

Question 36.
Briefly explain the following; Board effectiveness and the role of the company secretary.
Answer:
As per Section 2(24) of the Companies Act, 2013, “company secretary” or “secretary” means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act.

As per Section 2(60) of the Companies Act, 2013, the company secretary has also been included in the category of the officer of the company and shall be considered to be in default in complying with any provisions of the Companies Act, 2013.

Role of Company Secretary:

Acts as a vital link between the company and its Board of Directors, shareholders and other stakeholders and regulatory authorities.
Plays a key role in ensuring that the Board procedures are followed and regularly reviewed.
Provides the Board with guidance as to its duties, responsibilities and powers under various laws, rules and regulations.
Acts as a compliance officer as well as an in-house legal counsel to advise the Board and the functional departments of the company on various corporate, business, economic and tax laws.
Is an important member of the corporate management team and acts as conscience keeper of the company.

Board Effectiveness – Governance, Risk Management, Compliances and Ethics Important Questions

Board Effectiveness – Governance, Risk Management, Compliances and Ethics Important Questions

Governance Risk Management Compliances and Ethics Notes