Board of Directors: Meaning, Composition and Functions | Company

After reading this article you will learn about:- 1. Meaning of Board of Directors 2. Composition of the Board of Directors 3. Functions.

Meaning of Board of Directors:

The director of a company collectively are referred as the “Board of Directors” or “Board” [Sec. 252(3)]

Only Individuals to be Directors:

Nobody corporate, association or a firm can be appointed director of a company. It is essential that a director must be an individual. [Sec.252]

If all the members of a company are bodies corporate, the provisions of this section can be complied with only when:

(1) The articles of the company do not provide for qualification shares for directors so that outsiders may be appointed as directors of the company; or

(2) In case the articles provide for qualification shares for directors the bodies corporate who are the members of the company, appoint their own nominees and transfer qualification shares to them.

Composition of the Board of Directors:

Following factors are essential for the scientific composition of the Board of Directors:

1. Harmony of Interests:

The Board should be characterised by homogeneity. Members of the Board should not be motivated by divergent interests. Mutual trust, common interests, sincere outlook among directors will lead to integrated management of the company under their charge.

2. Able Persons:

Ability should have its prime weightage in electing or co- opting directors on the Board. In view of the sophistication of modern business, technically versatile experts should find their due place on the Board. There should be provision in the Articles of each company to attract talented persons to join the Board and make use of their expertise in scientific organisation of the company.

Outside directors having outstanding merits are to be inducted into the Board. Such Directors “are believed to raise the prestige of the company by their eminence, known integrity and professional experience.”

Business acumen, moral trustworthiness, pragmatic or realistic bent of mind are the basic attributes of competent Directors. “Some Directors must have technical knowledge concerning industrial processes, management and accounting.” Engineers, financiers, market or sales experts, industrial psychologists, etc. should be co-opted on the Board.

3. Representation to Economic Groups:

Since a company has wide Amensions extending to the entire economic processes of production, exchange and consumption, it is necessary to give representation to all the economic groups partaking of the corporate business. Workers’, consumers’ and sometimes Bankers’ representatives should be included in the Board to make it a forum of all interests.

4. The Size:

The size of the Board, i.e., the number of directors should be determined as per the size or scale of the company’s business. Big concerns with elaborate business operations should have more number of directors inside (representatives of shareholders) and outside (experts, representatives of workers and consumers). Companies with lesser capital and smaller scale of business may have a compact Board.

On an average 6 to 8 directors would be suitable for companies of medium scale business. Smallest-size companies may have only 3 directors while for large-scale companies there may be as many as 12 to 16 directors.

5. Age:

It is preferable to include both aged and young persons as directors so as to blend maturity, experience and caution with enthusiasm, drive and new outlook.

6. Prevention of Interlocking of Directorship:

Directors in the Board should not hold similar office of management in many other companies. Person having stakes in too many companies can hardly put their heart and soul in the administration of all such companies. Too much interlocking of directorships is to be discouraged.

7. Functions of the Board should be clearly Set:

Efficient functioning careful planning, cordial relations with the personnel and cognizance of shareholders’ interests should be the prime responsibilities of the Board.

Functions of the Board of Directors:

Following are the usual functions of the Board of Directors:

(a) Determination of the broad objectives of the business.

(b) Framing the basic policies as guidelines to implement the objectives envisaged in the business, for example, production, marketing, financial and personnel policies are formulated to fulfil the objectives of higher output, quick sales, minimum costs, maximum profit, better productivity, cordial industrial relations and consumer good will.

(c) Devising suitable organisational structure to administer the policies. ‘Establishment of different departments like Production, Purchases, Sales, Research, Personnel, Accounts, Public Relations etc. to execute the actual business operations and allied or supporting activities.

(d) Appointment of Chief Executive to advise, guide, lead and regulate all the business operations as per the proved plans and policies.

(e) Acting as a fiduciary in conserving the shareholders’ assets and to shoulder the responsibility (operational) for making fruitful use of the funds.

(f) Appointment of departmental Executive Officers to play their role in administrative and operative tasks of the undertaking.

(g) Deciding about ways of mobilising capital to maintain and expand company’s business, viz issue of shares, etc.

(h) Entering into contracts for the purchase of assets, goods etc., required for the company. This is subject to the restrictions on powers contained in the Companies Act.

(i) The usual routine duties are (i) to make calls on shares, (ii) to invest the funds, (iii) to operate bank accounts, (iv) to recommend dividends etc.

(j) Appraising and reviewing the work of the organisation executives so as to evaluate the performance in terms of the objectives and plans.