Board Effectiveness – CS Professional Study Material

Chapter 3 Board Effectiveness – CS Professional Governance Risk Management Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.

Board Effectiveness – Governance, Risk Management, Compliances and Ethics Study Material

Question 1.
Write short note on the following:
(i) Shadow director (Dec 2013, 3 marks)
Answer:
Shadow Director: Shadow Director is a person who is not formally appointed as a director, but in accordance with whose directions or instructions the director of a company are accustomed to act. However, a person is hot a shadow director merely because the directors act on advice given by him in a professional capacity.

Question 2.
Write short notes on the following.
(i) Lead independent director
(ii) Performance evaluation of directors. [Old Syllabus] (June 2014, 3 marks each)
Answer:
(i) Lead Independent Director: Internationally, it is considered a good practice to designate an independent director as a lead independent director or senior independent director. He co-ordinates the activities of other non-employee directors and advices chairman on issues ranging from the schedule of board meetings to recommending retention of advisors and consultants to the management.

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;
Advices 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;
Recommends to the Board the retention of advisors and consultants who report directly to the Board;
Interviews, along with the chair of the Nominating and Corporate Governance Committee, all Board candidates and make recommendations to the Nominating and Corporate Governance Committee;
Serves as a liaison for consultation and communication with shareholders.

(ii) The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. The chairman should act on the results of the performance evaluation by recognising the strengths and addressing the weaknesses of the board. The board should state in the annual report how performance evaluation of the board, its committees and its individual directors has been conducted. Evaluation of the board of FTSE 350 companies should be externally facilitated at least every three years,
A statement should be made available of whether an external facilitator has any other connection with the company. The non-executive directors, led by the senior independent director, should be responsible for performance evaluation of the chairman, taking into account the views of executive directors.

Question 3.
Write short note on the following:
Board Charter. (June 2014, 3 marks)
Answer:
Board Charter
As a good practice companies may have a Board Charter which is intended as 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.

(Or)
Write short notes on the following:
(i) Importance of Board meetings in a good corporate governance structure.
(ii) Role of independent director. (June 2014, 3 marks each)
Answer:
(i) Importance of Board Meetings in a Good Corporate Governance Structure
The heart of corporate governance is transparency, disclosure, accountability and integrity. Legal and regulatory framework of corporate governance in India is mainly covered under the SEBI guidelines, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Companies Act, 2013. Hence, as per the above said matter board meeting is very important in a good corporate governance.
According to Section 173(1) of the Companies Act, 2013, every company shall hold the first meeting of the Board of Directors within 30 days of the date of its incorporation.

Further, as per Section 173 of the Companies Act, 2013, every company must hold a minimum number of 4 meetings of its Board of Directors every year and the gap between 2 Board meetings must not be more than 120 days.
A meeting of the Board shall be called by giving not less than seven days’ notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.
A meeting of the Board may be called at shorter notice to transact urgent business subject to the condition that at least one independent director, if any, shall be present at the meeting.
According to Section 174(1) of the Companies Act, 2013, the quorum for a meeting of the Board of Directors shall be 1/3rd of its total strength (any fraction contained in that 1/ 3rd to be rounded off to one) or two directors, whichever is higher. “Total strength” shall not include directors whose places are vacant. Again, interested director(s) shall not be counted for the purposes of quorum. “Interested director” means a director within the meaning of sub-section (2) of Section 184.

The participation of the directors by video conferencing or by other audio visual means’shall also be counted for the purposes of quorum. Interested Directors: If, at any time, the number of interested directors exceed or equal to 2/3rd of the total strength, the remaining directors, that is to say, the number of directors who are not interested, present at the meeting, being not less than two, shall be the quorum of such meeting. [Section 174(3)]
Regulation 18(2)(a) and 18(2)(b) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 requires that the Board shall meet at least four times a year, with a maximum gap of 120 days between any two meetings. It also specifies the minimum information which is to be made available to the Board.

(ii) Role of Independent Director
As per Schedule IV of the Companies Act, 2013, the independent directors shall:

help in bringing an independent judgement to bear on the Board’s deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct;
bring an objective view in the evaluation of the performance of board and management;
scrutinize the performance of management in meeting agreed goals and objectives and monitor the reporting of performance;
satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible;
safeguard the interests of all stakeholders, particularly the minority shareholders; balance the conflicting interest of the stakeholders;
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;
moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest.

Question 4.
Write short note on the following:
Woman director. [Old Syllabus] (Dec 2014, 3 marks)
Answer:
Woman Director
Every Listed Company /Public Company with paid up capital of ₹ 100 Crores or more / Public Company with turnover of ₹ 300 Crores or more shall have at least one Woman Director.

Question 5.
Write short note on the following:
Lead independent director (Dec 2014, 3 marks)
Answer:
Lead Independent Director: Internationally, it is considered a good practice to designate an independent director as a lead independent director or senior independent director. He coordinates the activities of other non-employee directors and advises chairman on issues ranging from the schedule of board meetings to recommending retention of advisors and consultants to the management.

California Public Employees’.Retirement System (Cal PERS) provides that where the Chairman of the board is not an independent director and the role of Chairman and CEO is not separate, the board should name a director as lead independent director who should have approval over information flow to the board, meeting agendas and meeting schedules to ensure a structure that provides an appropriate balance between the powers of the CEO and those of the independent directors.

Other roles of the lead independent director should include chairing meetings of non-management directors and of independent directors, presiding over board meetings in the absence of the chair, serving as the principle liaison between the independent directors and the chair and leading the
board/director evaluation process. Given these additional responsibilities, the lead independent director is expected to devote a greater amount of time to board service than the other directors.

Question 6.
Write a note on Secretarial Standard related to minutes of meeting. (June 2017, 5 marks)
Answer:
Secretarial Standard seeks to prescribe a set of principles for the recording of Minutes of the Meetings of:
(a) the Board or Committees of the Board,
(b) members,
(c) debenture holders,
(d) creditors,
(e) others as may be required under the Act, and matters related thereto. The expression “minutes” means a brief summary of the proceedings of a meeting. Minutes should contain a fair and correct summary of the proceedings of the meeting and should normally convey why, how and what conclusions were arrived at in relation to each business transacted at the meeting. It need not be an exact transcript of the proceedings.

Every company is required to keep Minutes of all meetings. Minutes kept in accordance with the provisions of the Act evidence the proceedings recorded therein. Minutes help in understanding the deliberations and decisions taken at the Meeting. The Company Secretary or authorized official of the company should record the proceedings of the meetings.

Question 7.
Write short note on the following:
(i) Key Managerial Personnel (KMP)
(v) Training of Independent Directors. (Dec 2018, 2 marks each)
Answer:
(i) Key Managerial Personnel:
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; and
such other officer as may be prescribed.

(v) Training of Independent Directors:
As per Regulation 25 of SEBI (LODR) Regulations:

The company shall provide suitable training to independent directors to familiarize them with the company, their roles, rights, responsibilities in the company, nature of the industry in which the company operates, business model of the company, etc.
The details of such training imparted shall be disclosed in the Annual Report.

Question 8.
Distinguish between ‘unitary board’ and ‘two-tier board’. (June 2014, 3 marks)
Answer:
Unitary Board
The unitary board, remains in full control of every aspect of the company’s activities. It initiates action and it is responsible for ensuring that the action which it has initiated is carried out. All the directors, whether executive or outside, share same aims and responsibilities and are on the same platform.

Two-tier Boards
The alternative board model to unitary board is the two-tier board, which was developed in its present form in Germany. A two-tier board fulfils the same basic functions as a unitary board, but it does so through a clear separation between the tasks of monitoring and that of management. The supervisory board (Asfusichtsrat) oversees the direction of the business and the management board (Vorstand) is responsible for the running of the company. The supervisory board controls the management board through appointing its members and through its statutory right to have the final say in major decisions affecting the company. The structure rigorously separates the control function from the management function and members of the one board cannot be members of the other. This separation is enshrined in law and the legal responsibilities of the two sets of board members are different.

Question 9.
Discuss briefly the following:
Chief Executive Officer (CEO). (June 2012, 3 marks)
Answer:
As per Regulation 17(8) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the chief executive officer and the chief financial officer shall provide the compliance certificate to the board of directors as specified in Part B of Schedule II.
Compliance Certificate: [See Regulation 17(8)]

The following compliance certificate shall be furnished by chief executive officer and chief financial officer:
A. They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief:
(1) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;
(2) these statements together present a true and fair view of the listed entity’s affairs and are in compliance with existing accounting standards, applicable laws and regulations.

B. There are, to the best of their knowledge and belief, no transactions entered into by the listed entity during the year which are fraudu.ent, illegal or violative of the listed entity’s code of conduct.

C. They accept responsibility for establishing and maintaining internal controls for financial reporting and that they have evaluated the effectiveness of internal control systems of the listed entity pertaining to financial reporting and they have disclosed to the auditors and the audit committee, deficiencies in the design or operation of such internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies.

D. They have indicated to the auditors and the Audit committee
(1) significant changes in internal control over financial reporting during the year;
(2) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and
(3) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the listed entity’s internal control system over financial reporting.

Question 10.
The independence of independent directors is one of the most debated aspects in Corporate Governance. Are they liable and can they be punished?” Discuss this statement in the light of available case studies. (Dec 2012, 6 marks)
Answer:
Independent director are invited to sit on the board purely on account of their special skills and expertise in particular field and they represent the conscience of the investing public and also take care of public interest. Independent director bear a fiduciary responsibility towards shareholders and the creditors. Yet, the independence of independent directors is one of the most debated aspects in corporate governance.

In Bhopal Gas tragedy verdict, the Court has held Keshub Mahindra reputed industrialist, the then non executive chairman of Union Carbide India Limited (UCIL) guilty and sentenced him to two years of imprisonment alongwith seven other accused. He attended only a few meetings in a year and took only macro view of the company’s developments. A non-vigilant act of non-executive chairman accounted for death of thousands. “Ignorance” of the system by the director of the company is unacceptable. Role of non-executive director in this case is questionable. Later he was granted bail.

Question 11.
Discuss the barriers to visionary leadership. (Dec 2012, 5 marks)
Answer:
Barriers to Visionary Leadership
1. Time Management: Lack of time to attend meetings read materials and maintain contact with each other in between meetings.
2. Resistance to risk taking: Board leadership must strike a balance between taking chances and maintaining the traditional stewardship role.
3. Strategic Planning: Boards are not involved in strategic planning at all. Therefore, the boards lose an important opportunity to hone exercise visionary leadership skills.
4. Complexity: Board members frequently lack a deep understanding of critical changes; trends and developments that challenge fundamental assumptions about how it defines its work and what success looks like.
5. Micro Management: When board is tempted to micro manage or to meddle in lesser matters an opportunity to provide visionary leadership is lost.
6. Clinging to Tradition: Board often resist change in order to preserve tradition.
7. Confused Roles: Some board assumes 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. Viewing things in this way, board did not consider market place pressures or for that matter a competitive market place. All that has changed. Yet for many boards their leadership style has not kept pace with this new awareness.

Question 12.
Discuss briefly the following:
Directors development programme (Dec 2012, 3 marks)
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:
1. Ongoing education
2. Site visits
3. Seminars; and
4. Various short term and long term courses.

Question 13.
Discuss briefly the following:
CEO/CFO certification (June 2013, 3 marks)
Answer:
(i) As per Regulation 17(8) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the chief executive officer and the chief financial officer shall provide the compliance certificate to the board of directors as specified in Part B of Schedule II. Compliance Certificate: [See Regulation 17(8)]

The following compliance certificate shall be furnished by chief executive officer arid chief financial officer:
A. They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief:
(1) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;
(2) these statements together present a true and fair view of the . listed entity’s affairs and are in compliance with existing
accounting standards, applicable laws and regulations.

B. There are, to the best of their knowledge and belief, no transactions entered into by the listed entity during the year which are fraudulent, illegal or violative of the listed entity’s code of conduct.

Question 14.
Discuss briefly the following:
(i) Training of directors (Dec 2013, 3 marks)
Answer:
Training of directors
An important aspect of Board effectiveness would be appropriate attention to development and training of directors on the lines of management development and training. Director induction should be seen as the first step of the board’s continuing improvement. Investing in board development strengthens the board and individual directors. As the Board of Director is primarily responsible for good governance practices, which is quite different from management, it calls for new areas of knowledge and different skills. Training should encompass both a through induction programme and an ongoing training and development opportunities for the board members.

Question 15.
“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. [Old Syllabus] (June 2014, 4 marks)
Answer:
Although the Constitution of India has granted men and women equal rights, we still find that employment of women is not preferred. Thus, opportunities for women are limited e.g. women are not preferred in Army/Air Force in certain areas like combat field, in flying zones. But today the scenario has changed. You find women employed as pilots flying aircrafts, occupying top posts in many companies be it a manufacturing sector or banking/financial sector. Women have also entered the board rooms of many companies of course in limited way. Our laws also have conferred many privileges or protection or relaxed provisions considering the fact that women are disadvantaged in some ways. In this scenario, Companies Act, 2013 has made a provision for employing women directors on the Boards of certain class of companies and this is a welcome move. Thus article focuses on the issue of representation of women directors on the board and its effect.

It is quite interesting to note certain facts about women directors from the statistics. According to ‘Catalyst’ a non profit research organisation in. America many of the fortune 500 companies which have highest representation of women directors on board have achieved better financial performance than those have less representation of women directors on board. Yes in 45 women held about 17% of the board seats of fortune 500 companies in the year 2012. In UK it is 19%. In Norway it is surprisingly 41 %. In India it is roughly 7% of the directors on listed companies in which is a very dismal percentage. Thrust given by the New Act, 2013 is certainly going to help in improving the representation of women directors on the board.

(Or)

Explain the following:
(ii) Separation of role of Chairman and Chief Executive. (Dec 2014, 3 marks)
Answer:
Separation of Roles 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. This is also provided in the Section 203 of the Companies Act, 2013.
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 same 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. The benefits of separation of roles of Chairman and CEO can be:
1. Director Communication:
A separate chairman provides a more effective channel for the board to express its views on management.

2. Guidance:
A separate chairman can provide the CEO with guidance and feedback orr his/her performance.

3. Shareholders’ Interest:
The chairman can focus on shareholder interests, while the CEO manages the company.

4. Governance:
A separate chairman allows the board to more effectively fulfill its regulatory requirements.

5. Long-Term Outlook:
Separating the position allows the chairman to focus on the long-term strategy while the CEO focuses on short-term profitability.

6. Succession Planning:
A separate chairman can more effectively concentrate on corporate succession plans.

Question 16.
“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. (Dec 2014, 4 marks)
Answer:
Independent Directors are known to bring an 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.

Independent Directors bring a valuable outside perspective to the deliberations. They contribute significantly to the decision-making process of the Board. They can bring on objective view to the evaluation of the performance of Board and Management. In addition, they can play an important role in areas where the interest of management, the company and shareholders may diverge such as executive remuneration, succession planning, changes in corporate control, audit function etc.

Independent directors are required because they perform the following important role:

Balance the often conflicting interests of the stakeholders.
Facilitate withstanding and countering pressures from owners.
Fulfill a useful role in succession planning.
Act as a coach, mentor and sounding Board for their full time colleagues.
Provide independent judgement and wider perspectives.

Question 17.
Discuss and elaborate the following:
(iii) Senior independent directors. [Old Syllabus] (Dec 2014, 3 marks)
Answer:
Senior Independent Directors
The board should appoint one of the independent non-executive directors to be the senior independent director to provide a representing board for the chairman and to serve as an intermediary for the other directors when necessary. The senior independent director should be available to shareholders if they have concerns which contact through the normal channels of chairman, chief executive or other executive directors has failed to resolve or for which such contact is inappropriate. The senior independent director is also expected to attend sufficient meetings with a range of major shareholders to listen to their views in order to help develop a balanced understanding of the issues and concerns of major shareholders.

Question 18.
“When violations occur, the ethics committee should have . ways to identify why they occurred.” Comment. [Old Syllabus] (Dec 2014, 5 marks)
Answer:
When violations occur, the ethics committee should have ways to identify why they occurred. It is also important that lessons learned from prior violations are systematically applied to reduce the chance that similar violations takes place in future.
It is very essential that if any violation occurs, the same be reported and dealt with in a timely manner. Appropriate punishment must be imposed and suitable remediation completed. The ethics committee should ensure that the same rules are applied at all levels of the organization including senior management. The Committee should develop on going monitoring and measurements to evaluate, remedy and continuously improve the organization’s violations detection techniques. If deficiencies are found committee should ensure that improvements and corrections are made as soon as possible. Committee should institute a follow-up plan to verify that corrective or remedial actions have been taken. The committee should establish measurement criteria to monitor and improve violations detection. These measures should be provided to the board on an ongoing basis.

Question 19.
Being the Company Secretary of a large scale company, how will you prepare Board agenda and what are the steps you will follow for circulation of notice and agenda. (June 2015, 5 marks)
Answer:
Board Agenda:
Preparation of Agenda:
The board agenda determines the issues to be discussed. The items for agenda should be collected from heads of all the departments. Secretary may segregate the ones that can be discussed and decided internally and the ones which need to be put up before the Board, in consultation with the Chairman and/or Managing Director and inputs from the CEO.

Any director can request that the chairman include a matter on the board agenda. It is the chairman’s obligation to offer directors the opportunity to suggest items, which cannot be reasonably denied. In the end, it is each director’s responsibility to ensure that the right matters are tabled.

Key success factors for setting the agenda include:

Agendas should strike a balance between reviews of past performance and forward-looking issues.
Strategic issues require more time for debate so it is a good practice that the allocated discussion time is indicated in the agenda.
Some issues will need to be brought to the board several times as projects progress and circumstances develop.

Factors to keep in mind:

Care should be taken not to consume too much board time on routine or administrative matters.
The agenda should show the amount of time allocated for each item, without unduly restricting discussion.

Circulation of Notice & Agenda:
Notice: Even if meetings have been scheduled in advance, the members of the Board should be adequately and timely sent notice to enable them to plan accordingly.

Agenda:
The agenda should be made available to the Board along with supporting papers at least seven days before the date of the meeting. The mode of circulation of agenda should ensure that all directors receive the agenda notes on time. All the material information should be sent to all Directors simultaneously and in a timely manner to enable them to prepare for the Board Meeting. This would enable the board and especially to non-executive independent directors to promptly prepare for the discussions based on the papers.
A system should exist for seeking and obtaining further information and clarifications on the agenda items before the meeting. Directors, including nominee directors, requiring any clarification before the meeting may be asked to contact the Secretary for additional inputs.

Board Briefing Papers:
Board materials should be summarized and formatted so that board members can readily grasp and focus on the most significant issues in preparation for the board meeting. It is not necessary that more information
means better quality. If relevant and complete information is presented in an orderly manner will be more useful than a bulky set of documents which has. been put together without any order.

The Papers for Board meetings should be:

Short.
Distributed at least seven business, days before the meeting.
Focused and action-oriented.

Question 20.
How can an organisation facilitate visionary Board leadership? (June 2015, 5 marks)
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 things, to take risks. Success in new venture is never granted. Boards need to acknowledge the tension point and discuss it with fenders and other key supporters. 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 that will have significant impact and develop strategies to respond to challenges. 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 hone/exercise visionary leadership skills.

4. Complexity: Board members frequently lack a deep understanding of critical changes, trends and developments that challenge fundamental assumptions about how it defines its work and what success looks like. 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. Maira and Scott-Morgan in “The Accelerating Organisation” point out that continuous shedding of operating rules is necessary because of changing environmental conditions. But shedding becomes more complicated in systems involving human beings, because their sense of self-worth is attached to many old rules. 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. Viewing things in this way, 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 21.
(i) Is shadow directpr equally liable with the other directors for obligations of the firm? (Dec 2015, 2 marks)
(v) Briefly explain the legal provisions regarding appointment of women director in a public company. (Dec 2015, 2
Answer:
(i) 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. This is a concept adopted from English law. However, a person is not a shadow director merely because the directors act on advice given by him in a professional capacity.
(v) Proviso to Section 149(1) read with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the following class of companies shall appoint at least one woman director:
(i) Every listed company;
(ii) Every other public company having:
(a) Paid-up share capital of one hundred crore rupees or more; or
(b) Turnover of three hundred crore rupees or more.
Any intermittent vacancy of a woman director shall be filled-up by the board at the earliest but not later than immediate next Board Meeting or three months from the date of such vacancy whichever is later.

Question 22.
Board of Directors of IT Solutions Ltd. conducted its adjourned meeting on a public holiday in the month of October, 2015. The Board Meeting was adjourned due to lack of quorum. Can the articles of association of a company fix such a quorum? (Dec 2015, 5 marks)
Answer:
As per Section 174 (4) of the Act, where a meeting of the board could not be held for want of quorum, then, unless the articles of the company otherwise provide, the meeting shall automatically stand adjourned to the same day at the same time and place in the next weel from if that day is a national holiday, till the next succeeding day, which is not a national holiday, at the same time and place.
Further the Articles of Association of company can stipulate a higher quorum.

Question 23.
Answer the following in brief: (Dec 2016, 2 marks)
(i) Board should have a proper blend of skills for effective and good corporate governance. Explain.
(ii) Which type of a company should have at least one woman director?
(iii) For a successful Board Meeting it is important to have a proper Board agenda. What are the key factors for setting the Board agenda?
Answer:
(i) The Board must possess the necessary blend of qualities, skills, knowledge and experience, to be able to undertake its functions efficiently and effectively. Each of the directors should make quality contribution. A Board should have a mix of the following skills, knowledge and experience:

Operational or technical expertise, commitment to establish leadership
Financial skills
Legal skills
Knowledge of Government and regulatory requirement.

(ii) As per Section 149(1) and Rule (3) of Companies (Appointment and Qualification of Directors) Rules, 2014:
(A) every listed company;
(B) every other public company having:
1. paid-up share capital of ₹ 100 crores or more; or
2. turnover of ₹ 300 crore or more shall appoint at least one woman director.
Regulation 17(1)(a) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 also provides that the Board of Directors of the Listed Entity shall have at least one woman director,

(iii) Key factors for setting the agenda include:

Agendas should strike a balance between reviews of past performance and forward-looking issues.
Strategic issues require more time for debate so it is a good practice that the allocated discussion time is indicated in the agenda.
Some issues will need to be brought to the board several times as projects progress and circumstances develop.

Question 24.
(i) What are different types of directors on a Corporate Board? (Dec 2016, 5 marks)
(ii) Independent directors bring valuable outside perspective and have objective view in Board deliberations. What are the various roles of an independent director?
Answer:
(i) Different types of directors on a Corporate Board are:

Residential Director [Section 149 (3) of Companies Act, 2013]
Independent Director [Section 149 (6) of Companies Act, 2013]
Small Shareholders Director
Woman Director [Section 149 (1) (a) of Companies Act, 2013]
Additional Director [Section 161 (1) of Companies Act, 2013]
Alternate Director [Section 161 (2) of Companies Act, 2013]
Shadow Director
Nominee Director
Executive Director & Non-Executive Director
Executive Director/ Managing Director [Section 2(54) of Companies Act, 2013]
Lead Independent Director.

(Or)

(iii) “For the first time in the history of Company Law in India, the Companies Act, 2013 has given statutory recognition to the Secretarial Standards issued by the Institute of Company Secretaries of India.” Discuss. (June 2017, 5 marks)
Answer:
The term ‘Secretarial Standards’ is* defined as an explanation to Section 205(1) of the Companies Act, 2013 to mean Secretarial Standards issued by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government.

Secretarial Standards lay down a set of principles which companies are expected to adopt and adhere to, in discharging their responsibilities. The Secretarial Standards seek to integrate, harmonize and standardize the diverse secretarial practices being followed by various corporates through assimilation of best practices. Secretarial Standards provide a clear direction to complement the laws, which at times have varied interpretations, thereby ensuring that the law is followed both in letter and spirit.

The Institute of Company Secretaries of India (ICSI), recognising the need for integration, hai monisation and standardisation of diverse secretarial practices, has constituted the Secretarial Standards Board (SSB) with the objective of formulating Secretarial Standards.

The Secretarial Standards Board (SSB) formulates Secretarial Standards taking into consideration the applicable laws, business environment and the best secretarial practices prevalent. Secretarial Standards are developed:

in a transparent manner;
after extensive deliberations, analysis, research; and
after taking views of corporates, regulators and the public at large.

Question 25.
(a) Mr. Allen has recently joined Delta Limited as the secretary and has been asked by the Board of Directors to draft the charter of the Nomination and Remuneration Committee for its approval in the BOD meeting. Provide a sample draft which Mr. Allen would be Supplementing to the BOD meeting in the light of provisions of LODR and Companies Act, 2013. (June 2017, 5 marks)
(b) Are there any separate provisions of the meetings of the Independent Directors? If yes, state such provisions and also their rationale. (June 2017, 5 marks)
(c) What are the primary responsibilities of the Chairman for leading the Board and ensuring its effectiveness? (June 5 marks)
Answer:
(a) The charter of the Nomination and Remuneration Committee of Delta Limited may contain information under the following heads:

Purpose and Objective
Constitution and Organisation
Responsibilities
Compensation policies including performance related pay and stock options plans and other beneficial plans
Nomination of Directors
Performance Evaluation and Leadership Development
Coordinating with Committees of the Board for good corporate governance
Advisors at forums of the organisation
Any other responsibilities
Meetings and Report- Details regarding meetings to be conducted, quorum, reporting at adequate forums and other disclosures.
Compensation of Committee Members.

(b) In accordance with Part VII of Schedule IV of the Companies Act, 2013, the Independent Directors of the company are required to hold at least one Meeting in a financial year, without the attendance of non-independent Directors and members of the management. The meeting shall:
(a) review the performance of non-independent directors and the Board as a whole;
(b) review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors;
(c) 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.
Further, SEBI (LODR) Regulations also 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.
These meetings give an opportunity to independent directors for exchanging valuable views on the issues to be raised at the Board Meetings. Such meetings are chaired by the senior/ lead independent director.

(c) The Chairman’s primary responsibility is for leading the Board and ensuring its effectiveness.
1. Being chairman of the board, he/she is expected to act as the company’s leading representative which will involve the presentation of the company’s aims and policies to the outside world;
2. to take the chair at general meetings and at board meetings. With regard to the latter this will involve;
3. the determination of the order of the agenda;
4. ensuring that the board receives proper information;
5. keeping track of the contribution of individual directors and ensuring that they are all involved in discussions and decision making. At all meetings the chairman should direct discussions towards the emergence of a consensus view and sum up discussions so that everyone understands what has been agreed;
6. to take a leading role in determining the composition and structure of the board. This will involve regular reviews of the overall size of the board, the balance between executive and non-executive directors and the balance of age, experience and personality of the directors (diversity).

The chairman is responsible for leadership of the board, ensuring its effectiveness on all aspects of its role and setting its agenda. The chairman is also responsible for ensuring that the directors receive accurate, timely and clear information. The chairman should ensure effective communication with shareholders. The chairman should also facilitate the effective contribution of non-executive directors in particular and ensure constructive relations between executive and non-executive directors.

Question 26.
A meeting of Board of Directors is to be held to review the financial performance of the company as well as declaration of dividend. Draft a notice and agenda of this meeting to be circulated to the Board of Directors in accordance with the relevant provisions of Companies Act, 2013. (June 2017, 5 marks)
Answer:
XYV Co. Ltd. New Delhi
Notice of ___________ (Serial Number of Meeting) Board Meeting 12th June, 2017
The ___________ (Serial Number of Meeting) meeting of the Board of Directors will be held on ___________ (Day) the 22nd day of June 2017 at Meeting Lounge of the registered office of the Company situated at ___________ (Complete Address) at 10:00 am. All directors are hereby requested to kindly make it convenient to attend the same.

The agenda for the meeting are as follows:

To elect a Chairman of the meeting (if applicable);
To grant leave of absence to Directors not present at the Meeting;
To take note of the minutes of the previous meeting;
To note the action taken in respect to earlier decisions of the Board;
To note the minutes of meetings of Board’s Committee(s);
To discuss the financial performance and decide on dividend declaration;
Any other matter, with the permission of the Chairman and majority of directors.

Annexure:
(a) Audited financial statements of last three quarters
(b) Copy of minutes of last meeting
(c) Action Taken Report (ATR) as received from the Administrative Division
(d) Resolution on dividend policy and report on dividend payment and declaration of the company of last three financial years
(e) Copy of minutes of the meeting of Audit Committee, Investment Committee, Remuneration Committee and Research Committee.
Sd/-
Company Secretary

Sd/-
Chairman, Board of Directors

Question 27.
Answer the following:
Should there be an induction programme for Directors? Discuss. (Dec 2017, 2 marks)
Answer:
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
the rights, duties and responsibilities of the directors
the roles and responsibilities of senior executives
the role of board committees.

Question 28.
“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. (June 2018, 5 marks)
Answer:
Board and executive leadership need to work together based on mutual respect, trust and commitment. A board provides counsel to management and should not get involved in the day-to-day affairs of the organization. Clear expectations for ‘<ie 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:
(1) Use a comprehensive strategic plan that has been developed in conjunction with the board, and supplement it with regular progress reports.
(2) Provide the board with relevant materials before board meetings, and explain why the materials are coming to the attention of the board.
(3) Facilitate board and board committee discussions so that the board stays focused on the larger issues.

(Or)
(i) You have been appointed as a Company Secretary of a Company. What would you ensure to comply with the provisions of Companies Act, 2013 regarding Quorum for Board Meeting? Narrate the Decision Making Process at Board as enunciated in the Act. (Dec 2018, 5 marks)
(ii) Describe the key role of Chief Executive Officer (CEO) and the benefits of separation of roles of Chairman and the CEO. (5 marks)
Answer:
(i) Quorum for a Board Meeting:
As per Section 174 of the Companies Act, 2013 and as per Secretarial Standard on Meetings of the Board of Directors (SS-1) provides that one third of total strength or two directors, whichever is higher, shall be the quorum for a meeting. If due to resignations or removal of director(s), the number of directors of the company is reduced below the quorum as fixed by the Articles of Association of the company, then, the continuing Directors may act for the purpose of increasing the number of Directors to that required fer the quorum or for summoning a general meeting of the Company. It shall not act for any other purpose.

For the purpose of determining the quorum, the participation by a director through Video Conferencing or other audio visual means shall also be counted. If at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of directors, then number of directors who are not interested and present at the meeting, being not less than two shall be the quorum during such time.

The meeting shall be adjourned due to want of quorum, unless the articles provide shall be held to the same day at the same time and place in the next week or if the day is National Holiday, the next working day at the same time and place.

Decision making process at the Board Meeting:

The Chairman and/or Managing Director should explain the proposal put up before the Board, the background and the expectation of the proposal in the short as well as the long-term to contribute to the growth of the company. If needed, a presentation may be made by the executive concerned for easing the considerations and discussions of the Board as they tend to highlight the key elements within the written data.
The criticality and viability of the proposal should be explained and their views should be elicited from all angles.
The Board could then deliberate all these issues and come to a decision.

(ii) 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. His main responsibilities include developing and implementing high-level strategies, making major corporate decisions, managing the overall operations and resources of a company, and acting as the main point of communication between the board of directors and the corporate operations.

The most important skill of a CEO is to think strategically. His key role is leading the long term strategy and its implementation, it further includes:

Developing the implementation plan of the actions, planned to meet the competition and keeping in mind the long term existence of the company.
Adequate control systems.
Monitoring the operating and financial outcomes against the set plan.
Remedial action.
Keeping the Board informed.

Separation of role of Chairman and Chief Executive Officer 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, (a) the articles of such a company provide otherwise; or (b) the company does not carry multiple businesses.

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 same 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.

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 fulfill 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 29.
What are qualifications of an Independent Director (ID)? Describe provisions under Companies Act, 2013 about separate meetings of Independent Directors (IDs). (Dec 2018, 5 marks)
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 Schedule IV of the Companies Act, 2013 provides the following regarding separate meeting of the Independent Directors:
(i) The independent directors of the company shall hold at least one meeting in a year, in absence of non-independent directors and members of management.
(ii) All the independent directors of the company shall strive to be present at such meeting.
(iii) The meeting shall:
a. review the performance of non-independent directors and the Board as a whole;
b. review the performance of the Chairperson of the company, taking
into account the views of executive directors and non-executive directors;
c. 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.
Answer:
The term “Pecuniary relationship” as provided in section 149(6)(c) of the Companies Act, 2013 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.
Hence, receipt of sitting fees would not be considered as pecuniary interest while considering his appointment in the holding company, subsidiary company or associate company of such company.

Question 30.
(i) 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. (5 marks)
(ii) 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? (Dec 2015, 5 marks)
Answer:
(i) “Independent Director5’ means a Non-Executive Director, other than a Nominee Director who fulfils the following criteria:
(i) who, in the opinion of the board of directors, is a person of integrity and possesses relevant expertise and experience;
(ii) 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;
(iii) who is not related to promoters or directors in the listed entity, its holding, subsidiary or associate company;
(iv) 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 three immediately preceding financial years or during the current financial year;

(v) none of whose relatives:
(A) is holding securities of or interest in the listed entity, its holding, subsidiary or associate company during the three immediately preceding financial years or during the current financial year of face value in excess of fifty lakh rupees or two percent of the paid-up capital of the listed entity, its holding, subsidiary or associate company, respectively, or such higher sum as may be specified;
(B) is indebted to the listed entity, its holding, subsidiary or associate company or their promoters or directors, in excess of such amount as may be specified during the three immediately preceding financial years or during the current financial year;
(C) has given a guarantee or provided any security in connection with the indebtedness of any third person to the listed entity, its holding, subsidiary or associate company or their promoters or directors, for such amount as may be specified during the three immediately preceding financial years or during the current financial year; or
(D) has any other pecuniary transaction or relationship with the listed entity, its holding, subsidiary or associate company amounting to two percent or more of its gross turnover or total income. However, the pecuniary relationship or transaction with the listed entity, its holding, subsidiary or associate company or their promoters, or directors in relation to points
(A) to (D) above shall not exceed two percent of its gross turnover or total income or fifty lakh rupees or such higher amount as may be specified from time to time, whichever is lower.

(vi) who, neither himself /herself, nor whose relative(s):
(A) holds or has held the position of a key managerial personnel or is or has been an employee of the listed entity or its holding, subsidiary or associate company or any company belonging to the promoter group of the listed entity, in any of the three financial years immediately preceding the financial, year in which he is proposed to be appointed. However, in case of a relative, who is an employee other than key managerial personnel, the restriction under this clause shall not apply for his / her employment.

(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
(1) a firm of auditors or company secretaries in practice or cost auditors of the listed entity or its holding, subsidiary or associate company; or
(2) 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;

(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 entity;

(E) is a material supplier, service provider or customer or a lessor or lessee of the listed entity;
(vii) who is not less than 21 years of age.
(viii) 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:
Explanation- In case of a ‘high value debt listed entity’:
(a) which is a body corporate, mandated to constitute its board of directors in a specific manner in accordance with the law under which it is established, the non- executive directors on its board shall be treated as independent directors;
(b) which is a Trust, mandated to constitute its ‘board of trustees’ in accordance with the law under which it is established, the non-employee trustees on its board shall be treated as independent directors.
(iii) A company can appoint a maximum of 15 directors. It is possible for a company to increase the number of directors beyond 15 by passing a special resolution to this effect. Moreover, one of the directors of the company must be resident in India, that is, he must have stayed in India for a period of not less than 182 days in the previous calender year.
A person who is intended to become a director must apply to the Registrar for obtaining a Director Identification Number (DIN) in Form No. DIR-3. The prospective director should give a declaration to the company that he holds a DIN and is not otherwise disqualified to become a director. A person who has been appointed as a director must notify the company about his consent to act as director in Form No. DIR – 2 and to the Registrar within thirty days of appointment in Form No. DIR -12.

Alternate Answer:
According to Section 184 of the Companies Act, 2013 and Rule 9 of the Companies (Meetings of Board and its Powers) Rules, 2014, 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, by giving a notice in writing in Form MBP 1.
Regulation 7(1) (b) of SEBI (Prohibition of Insider Trading) Regulations, 2015 provides that 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 a promoter, to the company within seven days of such appointment or becoming a promoter.
Thus, Mr. Pawan shall disclose his shareholding under above laws and regulations in the Combo Ltd. on accepting the offer of Directorship.

Question 31.
Ayesha Ltd. is engaged in managing events. A Board meeting is recently held at the head office of the company to expand its business operations to new areas. As a Company Secretary of the company, you are required to prepare minutes of this Board meeting. (June 2016, 5 marks)
Answer:
Specimen Minutes of a Board Meeting:
Minutes of the ___________ Meeting of the Board of Directors of ___________ (Company Name) held on ___________ (Day), ___________ (Date, Month and Year), at ___________ (Venue) from ___________ (Time of Commencement) till ___________ (Time of Conclusion)
PRESENT:
A.B. Chairman
C.D. Directors
E. F.I.J.K.L. Managing Director

IN ATTENDANCE:
X …………….. Secretary

INVITEES:
Y ……… Chief Financial Officer
Z ………. Designation and Organisation
1. Chairman for the Meeting:
Mr/Ms …….. was elected as the Chairman for the Meeting.

2. Leave of absence:
Leave of absence from attending the Meeting was granted to Mr. M.N. and Mr. O.P. who expressed their inability to attend the Meeting owing to their preoccupation.

3. Quorum:
The business before the Meeting was taken up after having established that the requisite quorum was present.

4. Minutes of the previous Board Meeting:
The Minutes of the ……………. Meeting of the Board of Directors of the company held on ………., as circulated, were noted by the Board and signed by the Chairman.

5. Minutes of the Committee Meetings:
The Minutes of the ……………. Meeting of the …………………… Committee held on ……….. as circulated, were noted by the Board.

6. Resolution passed by circulation since the last Meeting:
The following Resolution was passed by circulation on (date of passing of the Resolution) in terms of the provisions of Section 175 of the Companies Act, 2013. “RESOLVED THAT ……………………………………………… ”
Mr ……………… Director dissented on the Resolution.

7. Action Taken Report:
The following action taken was noted by the Board: Item No. Item Action Taken.

8. Register of contracts:
The Register of Contracts in which Directors are interested under Section 189 of the Companies Act, 2013 and the Rules thereunder was signed by all the Directors present.

9. Notices of Disclosure of Interest of Directors:
(a) The following Notices received from the Directors of the company, notifying their interest in other bodies corporate pursuant to the provisions of Section 184 of the Companies Act, 2013, were read and recorded: Name of the Director, Nature of Interest, Date of Notice.
(b) A Notice dated ……………… received from Mr. I.J. pursuant to the provisions of Section 170 of the Companies Act, 2013, disclosing his shareholding and the shareholding of Mrs. I.J. in the company was read and recorded.

10. Expansion of business operations in new areas:
The Chairman informed the Board that it was proposed to expand business operations in other states like ___________. The matter was discussed in this connection and it was decided to expand operations in ___________.

11. Conclusion of the Meeting:
There being no other business, the Meeting concluded with a vote of thanks to the Chair.
………… Chairman
Date ………….
Place ……………
Entered on
(to be initialled by the Company Secretary)

Question 32.
(c) A meeting of Board of Directors of Ashoka Business Corporation Ltd. is held on 30th June, 2017 at its registered office, .1, Ashoka Marg New Delhi, in which board considered and approved company’s financial statement for the F/Y ending 31s1 March, 2017 and made declaration of 20% dividends on its equity shares. You being the Company Secretary, draft the minutes of Board Meeting. (Dec 2017, 5 marks)
Answer:
Minutes of the ___________ (Serial Number of the Meeting) Meeting of the Board of Directors of Ashoka Business Corporation Ltd., held on Friday, the 30th June 2017 at ___________ (Time of Commencement) at Registered Office of the Company i.e. 1, Ashoka Marg, New Delhi.

PRESENT:
A Chairman
B Director
C Director
E Managing Director

IN ATTENDANCE:
X Company Secretary

INVITEES:
Y Chief Financial Officer
1. Chairman for the Meeting
Mr A being the Chairman of the Board chaired the Meeting.

2. Leave of absence
Leave of absence from attending the Meeting was granted to ………… and ………… who expressed their inability to attend the Meeting to the
Company Secretary owing to their preoccupation.

3. Quorum
The business before the Meeting was taken up after having established that the requisite quorum was present.

4. Minutes of the previous Board Meeting
The Minutes of the ……….. Meeting of the Board of Directors of the company held on at as circulated along with the agenda, were noted by the Board.

5. Minutes of the Committee Meetings
The Minutes of the …………….. Meeting of the …………….. Committee(s) held on ……………… as circulated along with the agenda, were noted by the Board.

6. Financial Statements
The draft balance sheet as at 31st March, 2017, the statement of profit and loss for the year ended 31st March, 2017 and the cash flow statement for the year ended 31st March, 2017 of the Company were placed before the Board for its approval.
Mr. Y made a detailed presentation to the Board on the financial statements. The Chairman of the Audit Committee confirms that there were no adverse remarks/observations of auditor on financial statements.
The Board, after discussion, passed the following Resolution: “RESOLVED THAT pursuant to the provisions of Section 134 of the Companies Act, 2013, the Financial Statements for the year ended 31sl March, 2017 comprising the Balance Sheet as at 31st March, 2017. Statement of Profit and Loss for the year ended 31st March, 2017 alongwith the Notes to the Financial Statements and Cash Flow Statement derived from the Financial Statement for the year ended 31st March, 2017, as recommended by the Audit Committee at its meeting
held on ………………. ; May 2017 be and are hereby approved.
RESOLVED FURTHER THAT the Balance Sheet as at 31st March, 2017, the Statement of Profit and Loss for the year ended 31st March, 2017 and the Cash Flow Statement derived from the Accounts for the year ended 31st March, 2017 be and are hereby signed on behalf of the
Board by Mr. ___________ (DIN:), Director, Mr. ___________ Managing
Director (DIN:), Mr. ___________, Chief Financial Officer and Mr. ___________, Company Secretary.”
The meeting was adjourned for receipt of Auditors’ Report. Thereafter, the Statutory Auditor submitted his report on the Financial Statement for the year ended 31st March, 2017 and the meeting resumed. The Board noted thatthere were no qualification/adverse remarks in the said Report and after deliberation passed the following Resolution:
“RESOLVED THAT the Annual Financial Statements of the Company for the year ended 31st March, 2017, as approved by the Board and the Auditors’ Reports thereon, be presented to the shareholders for adoption.”

7. Dividend
The payment of Dividend for the year ending 31s1 March, 2017 was considered on the basis of the audited Financial Statements of the company for the period from 1st April, 2016 to 31st March, 2017. The Directors opined that there were adequate profits/free reserves to permit payment of Dividend.

The Board, after discussion, recommended payment of final dividend @ 20% per equity share and passed the following Resolution: “RESOLVED THAT pursuant to the provisions of Section 123 of the Companies Act, 2013 and the rules made thereunder, final Dividend @ 20% amounting to ₹ ………… per equity share is and hereby recommended to be paid on all equity shares, out of the profits of the company for the year ending 31s’ March, 2017, after providing for depreciation in accordance with the provisions of the Companies Act, 2013, whose names appear in the Register of members of the company on the ………… of …………. (date).
RESOLVED FURTHER THAT the transfer books and the Register of Members be closed from the ……. of ………… to the ………….. of (dates), both days inclusive, for the purpose of payment of such dividend. RESOLVED FURTHER that the Dividend Distribution Tax shall be borne by the Company.”

8. Opening of a Bank Account for payment of Dividend
The Board passed the following resolution for opening a bank account for the purpose of payment of Dividend:
“RESOLVED THAT a Bank Account be opened in the name and style of ‘Ashoka Business Corporation Ltd. – Dividend’ (Bank Account) with the for payment of Dividend for the financial year ending 31st March, 2017.
RESOLVED FURTHER THAT the said Bank be and is hereby authorised to honour cheques/bank advices etc. drawn, accepted or made on behalf of the company and to act on any instruction(s) so given concerning the said Account by any two of the following signatories:
RESOLVED FURTHER THAT the said Bank be and is hereby authorised to change the name and style of the Bank Account to ‘Ashoka

Business Corporation Ltd. – Unpaid ‘Dividend ’on and from RESOLVED FURTHER THAT the authorised signatories be and are hereby authorised, in the manner stated above, to give instructions to the said Bank to close the Bank Account on disbursement of the Dividend.
RESOLVED FURTHER THAT the authorised signatories be and are hereby authorised, in the manner stated above, to sign and execute such documents, letters etc., as may be required by the said Bank.”

9. Conclusion of the Meeting
There being no other business, the Meeting concluded at ………… (Time) with a vote of thanks to the Chair.
……………… Chairman
Date ……………..
Place ……………
Entered on
(to be initialled by the Company Secretary)

Question 33.
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. (Dec 2019, 5 marks)
Answer:
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) Rule 2014, every listed company or public company having :
(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 Shall constitute the Audit Committee and Nomination and Remuneration Committee.
Further, as per section 178 of the Companies Act, 2013 Nomination and Remuneration Committee shall have at least three members out of which not less than one half shall be Independent Director.
Section 178 (2) of the Companies Act, 2013 stipulates that 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.
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 this, the proposal of the Company Secretary is valid as per the law.

Question 34.
Rakesh is the Managing Director of ABC Co. Ltd., a listed company having its registered office in Bangalore. In December, 2018 an allegation of the Managing Director’s immediate family members and Alfa Co. Ltd. which got a ₹ 1,000 crore contract from ABC Co. Ltd. entering into a quid pro quo deal surfaced in the public domain. The matter was personally enquired by the Chairman of the Board of Directors and nothing improper was found. In March, 2019 another complaint from an anonymous “Whistle Blower” was received alleging non-adherence to code to conduct, conflict of interest and quid pro quo by the Managing Director while dealing “with certain customers.”
The allegations were refused by the Board of Directors of ABC Co. Ltd. as “being malicious and baseless” but when the controversy started getting blown out of proportion the company stated in a regulatory filing that its Board had decided to institute an independent enquiry in the matter and pending such enquiry, the Managing Director had been asked to go on leave. The enquiry revealed that Rakesh did not make proper disclosure about his family links with the corporate customer to the Board. It also transpired that Rakesh gave scant respect to “conflict of interest and due disclosure or recusal requirements” while awarding contracts to Alfa Co. Ltd. with which his close family members had business interests. Upon the findings of the enquiry being made public, Rakesh resigned and the company stated that it will treat his resignation as “termination for cause” and will also stop payments of unpaid benefits due to him.
In the background of the aforesaid case, answer the following questions:
(a) How, if so, has Rakesh failed to discharge his duties as a director of ABC Co. Ltd.? Which regulations of the SEBI LODR have been breached by him?
(b) State the characteristics of an effective Board of Directors.
(c) Analyze the performance of the Board of Directors in handling the complaints against Rakesh, the Managing Director of ABC Co. Ltd.
(d) Discuss the principles for Corporate Governance in order to improve the
practices followed by ABC Co. Ltd. to prevent such situations from recurring. (Dec 2020, 5 marks each)
Answer:
(a) The directors of a company are required to act in the best interest of the company since they occupy a position of trust and owe a fiduciary duty to the shareholders of the company.
Under section 166 of the Companies Act, 2013 the duties of the directors include:
(a) duty to exercise his duties with due and reasonable care, skill and diligence and to exercise independent judgment.
(b) not to 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.
(c) not to 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.
In the instant case Rakesh has failed to disclose the business interest of his immediate family member have with Alfa Co. Ltd. which has business relations with ABC Co. Ltd. And had been given contract worth ₹ 1000 crores. Thus Rakesh has violated the provisions of section 166 of the Companies Act, 2013 in discharge of his duties. Further Rakesh should have made disclosure of his interest as per section 184 of the Companies Act, 2013.
Regulation 4(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 contains the responsibilities of the board of directors of a listed entity.

As regards, disclosure of information, it states the following:
Disclosure of information:
(1) Members of board of directors and key managerial personnel shall disclose to the board of directors whether they, directly, indirectly, or on behalf of third parties, have a material interest in any transaction or matter directly affecting the listed entity.
(2) The board of directors and senior management shall conduct themselves so as to meet the expectations of operational transparency to stakeholders while at the same time maintaining confidentiality of information in order to foster a culture of good decision-making.
Thus in view of the above Rakesh has breached the provisions of Regulation 4 of the SEBI (LODR) Regulations, 2015.

(b) The role of the board of directors in a company is to provide entrepreneurial leadership to the company. An effective board defines the purpose and then sets a strategy to achieve it shapes its culture and the way it conducts its business.

Following are the main characteristic of an effective board of directors:
(i) It should have a judicious mix of internal and independent directors with a variety of experience and core competence. The majority of the board of directors should be independent from the organization.
(ii) It should have a set of required competencies articulated for the board and committees, and current board members should as a whole display the entire set of required competencies.
(iii) It should have a board manual that articulates terms of reference for the board, board committees, individual directors, and the code of conduct? It should have a forward list of topics for the year.
(iv) At least one member of the board should have extensive experience in the industry of the organization.
(v) Each director should get a comprehensive orientation on the business of the organization and meet key senior staff before the first board meeting.
(vi) Directors should be offered continuing education in governance or a program of director certification.
(vii) Each director should display a keen interest or passion in the undertaking of the organization.
(viii) Directors should regularly attend both board and committee meetings.
(ix) Directors should been couraged and supported when asking difficult or awkward questions of management.
(x) The Chairman should solicit views from each director specifically.
(xi) The Chairman should ask board members to refrain from expressing their personal views at the outset of a discussion.
(xii) The Chair should manage the timing of the board meetings to ensure there is sufficient time for discussion after each topic addressed by management.
(xiii) The board should regularly have outside experts to advice on specific topics.
(xiv) The board should have an in-camera meeting both before and after each board meeting.
(xv) The board should retain an independent consultant to help evaluate director and board performance.
(xvi) At the beginning of a board meeting, the committee chairman should have an opportunity to summarize (verbally or in writing) the issues addressed and decisions taken at prior committee meetings.
(xvii) The board should have an effective system to provide board members with timely, relevant and reliable financial and strategic information about the organization.
(xviii) The board should review the risk identification and management system of the organization.
(xix) The board should approve the business plan and major expenditures.
(xx) The board should work with the CEO and senior staff to develop and review the strategic plan.

(c) It has been stated that initially the Chairman had enquired into the matter personally and had found nothing improper. However, this seems more of an opinion rather than based on any detailed enquiry. Thereafter when another complaint was received, the Board simply refuted the matter citing it as “malicious and baseless”.

The approach of the board in rejecting the allegations as “malicious and baseless” without conducting any enquiry into the matter raises serious questions on its functioning. Instead of addressing the concerns raised the board tried to sweep the matter under the carpet. The board should have tried to reassure the stakeholders immediately by taking steps to conduct an investigation into the matter to set the matter right. A voluntary investigation carried on behalf of the board would have increased the reputation of the board. The board could then have taken steps to protect the interest of the company. Only when the matter went out of hand, the Board decided to institute an independent enquiry. Later it was found that Rakesh had not followed the dictum of law.
Thus, overall the performance of the Board in handling the compliant against Rakesh doesn’t seem satisfactory. The Board should have acted proactively in the interest of the stakeholders.

(d) To improve its functioning and efficiency, ABC Co. Ltd. should align its corporate governance practices with the board principles for corporate governance by listed entities as given below:
(i) The company should ensure timely and accurate disclosure of all material matters including the financial position, performance, ownership and governance of the company.
(ii) The responsibilities of the board of directors should be clearly defined.
(iii) The board of directors shall lay down a code of conduct for all members of board of directors and senior management of the listed entity.
(iv) All members of the board of directors and senior management personnel shall affirm compliance with the code of conduct of board of directors and senior management on an annual basis.
(v) The Board should monitor and manage potential conflicts of interest of management, members of the board of directors and shareholders, including misuse of corporate assets and abuse in related party transactions.
(vi) The board of directors shall exercise objective independent judgement on corporate affairs.
(vii) The board of directors shall consider assigning a sufficient number of non-executive members of the board of directors capable of exercising independent judgement to tasks where there is a potential for conflict of interest.
(viii) Members Of the board of directors shall act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the listed entity and the shareholders.
(ix) The board of directors shall set a corporate culture and the values . by which executives throughout a group shall behave.
(x) The board of directors shall maintain high ethical standards and shall take into account the interests of stakeholders.

(Or)
(i) KLIP Travels Ltd. (KLIP) is a BSE listed company in the travel industry. Arun Kumar is the Chairperson of KLIP. There has been a major re-shuffle in the composition of the Board of Directors of KLIP with several old directors retiring and many new individuals inducted as directors. The Chairperson of the company, Arun, is keen to give an Induction kit to the newly inducted members on the Board but is unsure of its contents. As the Company Secretary of KLIP, prepare the induction kit. (Dec 2020, 5 marks)
Answer:
An induction kit to new directors which contain the following:

Memorandum and Articles of Association with a summary of most important provisions
Brief history of the company
Current business plan, market analysis and budgets
All relevant policies and procedures, such as a policy for obtaining independent professional advice for directors;
Protocol, procedures and dress code for Board meetings, general meetings, staff social events, site visits etc including the involvement of partners;
Press releases in the last one year
Copies of recent press cuttings and articles concerning the company
Annual report for last three years
Notes on agenda and Minutes of last six Board meetings
Board’s meeting schedule and Board committee meeting schedule
Description of Board procedures.

Question 35.
(d) SBL Limited is an unlisted public company having paid-up share capital of ₹ 10 crores and turnover of ₹ 300 crores. The Board of directors comprise of one nominee director, five non-executive directors, two non-resident directors and one managing director. Is the composition of the Board of directors valid? Answer with reasons. (Dec 2021, 5 marks)
Answer:
Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 prescribes that the following class of companies shall appoint at least one women director:

Every listed company; and
Every public company having paid-up share capital of one hundred crore rupees or more; or
Every public company having turnover of three hundred crore rupees or more.

Further, Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014 prescribes the following class of companies shall have at least two independent directors:

Public Companies having paid-up share capital of 10 crore rupees or more; or
Public Companies having turnover of 100 crore rupees or more; or
Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees.

Section 149(6) of the Companies Act, 2013 specifically excluded nominee director from being considered as Independent. Hence, nominee director cannot be treated as an independent Director.
In view of above legal provisions, the present composition of Board of Directors is not in compliance with the provisions of the Companies Act, 2013 as the Company satisfying the threshold criteria given above should have atleast:

Two Independent directors, and
One Women director.

Hence, it should appoint atleast two independent directors and one women director.

(Or)

(i) You are the company secretary of Q Ltd. a listed company. The Chairman of the Board of Directors of Q Ltd. is concerned that the CEO of the company will be reaching his retirement age in a couple of years. He is vaguely aware that the company has a succession planning policy in place, but seeks your advice on the nature and best practices for succession planning. (Dec 2021, 5 marks)
Answer:
Board succession planning is an ongoing process linked closely to a company’s strategy. It is essential for good governance, as it sets the stage for board engagement, performance and effective leadership. Succession plans address the inevitable changes that occur when directors resign, retire or die. It helps ensure the inclusion of directors with a balanced level of institutional knowledge and fresh perspectives.

It is of utmost importance that the board of directors are prepared for resignation and / or retirement of its members. Succession planning for the board includes planning for all board positions and for the composition of the board as a whole.

The nomination and remuneration committee should review the skills required, identify the gaps, develop transparent appointment criteria and inform succession planning. The committee may also carry out regular reviews of the composition of the board, and report to the board on recommendations for changes in the future. Executive directors may be recruited from external sources, but companies should also develop internal talent and capability. Initiatives might include middle management development programmes, facilitating engagement from time to time with non executive directors and partnering and mentoring schemes.

In view of the approaching retirement of the CEO, the nomination committee should start the process of identification of the successor, which may be an internal or external appointment.

Some leading practices for board succession planning are:

Using a skills metric 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.
Establishing and enhancing written director’s qualification standards that align with the company’s business and corporate strategy, and including these standards in corporate governance policies and bylaws as appropriate.
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.
Prioritizing an independent mindset on boards, including through board diversity, to foster debate, challenge norms and invigorate board oversight processes and strategy development.
Making sure mentoring and development opportunities are available for incoming directors.

Question 36.
M Ltd. is a listed entity having a paid up equity share capital of ₹ 100 crores. The company has 1500 small shareholders. It received a notice from 1200 small shareholders proposing Mr. X, a small shareholder as a candidate for the post of small shareholder director. The board of directors of M Ltd. are not interested in the appointment of Mr. X as small shareholder director, as they feel that there are sufficient numbers of independent directors on the board who are taking adequate steps to protect the interests of all shareholders including small shareholders. Can such nomination be rejected. Discuss. (Dec 2021, 3 marks)
Answer:
Section 151 of the Companies Act, 2013 read with the Rules made thereunder provides that a listed company, may upon notice of not less than one thousand small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders.
However, the use of “may” in both the Section and the Rules gives an impression that it is the prerogative of the Company with no obligation on the company to process the notice received from the small shareholders for appointment of a director representing small shareholders.
In the instant case, M Ltd. has sufficient number of independent directors who are taking adequate care of the interests of all shareholders including small shareholders. Under the circumstances, the board of M Ltd. may reject the appointment of Mr. X as small shareholder director by explaining the circumstances to the shareholders and the rationale for taking such decision. Space to write important points for revision

Question 37.
HP Ltd., a Non-Government unlisted company, have paid up share capital of ₹ 20 crores as on 31st March, 2019, it was increased to ₹ 25 crores during the financial year 2019-20. The company secretary advised that the company should have formal annual evaluation of performance of the Board, its committees and all the individual directors. Answer the following questions with reasons:
(i) Discuss the legal provisions in this regard.
(ii) Whether the annual performance evaluation is mandatory based on the provided facts ?
(iii) In the above case, if the company had been a Government Company, what would be your answer? (Dec 2021, 3 marks)
Answer:
(i) Section 134(3) (p) of the Companies Act, 2013 read with Rule 8(4) of the Companies (Accounts) Rules, 2014 provides that the Board Report of every listed company and every other public company having paid up share capital of ₹ 25 crores or more calculated at the end of the preceding financial year except Government Companies has to do formal annual evaluation of the Board, its committees and all individual directors. The Board’s report of such companies must include a statement indicating the manner and criteria of formal Board Evaluation.

Further, Section 178 of the Companies Act, 2013 contains that 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.

(ii) As per the provided facts, HP Ltd. is a Non- Government, public, unlisted company having paid up share capital of ₹ 25 crores in the preceding financial year (2019-20), thus the annual performance evaluation is mandatory in the Financial year 2020-21 in this case.

(iii) The Exemption has been granted to Government Company from compliance of the provisions of section 134(3) (p) of the Companies Act, 2013.

Question 38.
Write a short note on Succession Planning.
Answer:
Succession planning is a strategy for identifying and developing future leaders. Succession plans are used to address the inevitable changes that occur when directors resign, retire or die. Attention to succession planning can help ensure the board includes directors with a balanced level of institutional knowledge and fresh perspectives.

Succession planning for the Board includes succession and renewal for the Board as a whole and the Board’s leadership positions. The key to getting succession planning right is maintaining an ongoing and dynamic process. The nomination and remuneration committee should review the skills required, identify the gaps, develop transparent appointment criteria and inform succession planning. The nomination and remuneration committee should periodically assess whether the desired outcome has been achieved, and propose changes to the process as necessary.

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
Establishing and enhancing written director qualification standards that align with the company’s business and corporate strategy, and including these standards in corporate governance policies and bylaws as appropriate
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
Prioritizing an independent mindset on boards, including through board diversity, to foster debate, challenge norms and invigorate board oversight processes and strategy development
Making sure mentoring and development opportunities are available for incoming directors.

Board Effectiveness Notes

“Board of Directors”:
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 appointed to the Board of the Company.

Unitary Board:
The unitary board, remains in full control of every aspect of the company’s activities. It initiates action and it is responsible for ensuring that the action which it has initiated is carried out. All the directors, whether executive or outside, share the same aims and responsibilities and are on the same platform.

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. They are generally appointed to provide the company with the benefits of professional expertise and outside perspective to the board. They play an effective role in governance of listed companies, but they may or may not be independent directors.

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. This is a concept adopted from English law. However, a person is not a shadow director merely because the directors act on advice given by him in a professional capacity.

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 during the financial year. MCA has also issued clarification with regard to Resident Directors.
“Key managerial personnel”

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; and
such other officer as may be prescribed.
In the light of provisions of Section 2(60) of Companies Act, 2013 Company Secretary is also an officer in default.

Barriers to Visionary Leadership

Lack of Time Management
Resistance to risk taking
Lack of Strategic Planning
Complexity
Micro Management
Clinging to Tradition
Confused Roles
Past Habit

Familiarization Programmes:
The Familiarization Programmes are aimed to familiarize the independent directors with the company, their roles responsibilities in the company, nature of industry in which the company operates and business model of the company by imparting suitable training sessions.

Particulars:
Size of the Board

Companies Act, 2013:
Section 149(1) provides 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,
Atleast two directors in the case of a private company, and
Atleast one director in the case of a One Person Company; and
A maximum of fifteen directors provided that a company may appoint more than fifteen directors after passing a special resolution.
Note: Maximum directors’ clause not applicable to Government Company and Section 8 Company.

SEBI (LODR) Regulations, 2015:

Regulation 17(1)(a) 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 nonexecutive directors;
The top listed 500 companies shall have atleast one independent woman director by 1 April 2019 and for the top listed 1000 entities by 1 April 2020.
Regulation 17(1)(c) provides 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.
Regulation 17(1)(d) where the listed company has outstanding SR equity shares, atleast half of the board or directors shall comprise of independent directors.
Explanation: The top 500, 1000 and 2000 entities shall be determined on the basis of market capitalisation, as at the end of the immediate previous financial year.

Particulars:
Board Composition

Companies Act, 2013
Section 149(4) provides that every public listed company shall have at- least one third of total number of directors as independent directors and Central Government may prescribe the minimum number of independent directors jn any class or classes of companies.
Note: Not applicable to Government Company and IFSC Public Company Rule 4 of the Companies (A ppointment and Qualification of Directors) Rules, 2014 prescribes that the following class or classes of companies shall have at least two independent directors:

Public Companies having paid- up share capital of 10 crore rupees or more; or
Public Companies having turnover of 100 crore rupees or more; or
Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 crore rupees.

The following classes of unlisted public company shall not be covered under sub-rule (1), namely:
(a) a joint venture;
(b) a wholly owned subsidiary; and
(c) a dormant company as defined under section 455 of the Act.”]

SEBI (LODR) Regulations, 2015)
Regulation 17 (1) (b)
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 and 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: Provided that where the regular non-executive chairperson is a promoter of the listed entity or is related to any promoter or person occupying management positions at the level of board of director or at one level below the board of directors, at least half of the board of directors of the listed entity shall consist of independent directors.
(1C) The listed entity shall ensure that approval of shareholders for appointment of a person on the Board of Directors is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier. Explanation: For the
purpose of this clause, the expression “related to any promoter” shall have the following meaning:

(a) if the promoter is a listed entity, its directors other than the independent directors, its employees or its nominees shall be deemed to be related to it;

(b) If the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it.

(c) 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.
Explanation: The top 1000 and 2000 entities shall be determined on the basis of market capitalisation as at the end of the immediate previous financial year.
(d) where the listed company has outstanding SR equity shares, atleast half of the board of directors shall comprise of independent directors.

Regulation 17 (1A) specifies that no listed entity shall appoint a person or continue the directorship of any person as a non-executive director who has attained the age of seventy five years unless a special resolution is passed to that effect, in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such a person.

Board Effectiveness – Governance, Risk Management, Compliances and Ethics Study Material

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