Effective Board of a Company

Effective Board of an Institution

To run the Company a Board of Directors needed. The effectiveness of the Board of any Institution depends on Governance.

Governance

Governance refers to structures and processes that are designed to ensure accountability, transparency, responsiveness, rule of law, stability, equity and inclusiveness, empowerment, and broad-based participation.

Who’s Responsibility?

The overall responsibility of fostering a culture of good governance rests with their Board of Directors. The Board set the “Tone at the top” and oversee management’s role in fostering and maintaining a sound governance, compliance, and risk culture.

The Board is expected to ensure that the Institution is run by professionals with integrity, complies with all regulatory and legal requirements, and conducts its business in accordance with high professional and ethical standards.

To gain deeper insights by the Board, it have to engage with the management in a credible and constructive manner and it would be necessary.

• For the committees of the board, directors should be with the necessary specialist knowledge or practical experience consistent with the mandate given to various committees.
• To ensure the presence of majority of independent directors on board and various committees, to increase the probability of credible critique of the management proposals.
• To ensure that the channels of information to the specialized supervisory committees of the Board are independent of the influence of the risk takers. These measures could significantly enhance the quality of decisions by the Board and its committees.
• In response to the complex interplay between dominant shareholder(s), minority shareholders and management the Board should play a fine balancing act.
• This ability of steering through, distinguishes an effective Board from an ordinary one.

‘Independence’ of Independent Directors

1. Independent Directors counterbalance the interests between well represented on the Board with those which do not have representation or are inadequately represented on the board.

2. Independent Directors help to bring in clarity regarding responsibilities and also enhance accountability of the management to the stakeholders.

3. The most effective Boards are the ones that can overcome the challenges of the ‘principal-agent’ relationship and resolve the information asymmetry conundrum. The degree of this asymmetry is bound to increase in large and complex entities.

4. To resolve this challenge, the independent directors need to recognize that they are the ones who must overcome the information asymmetry.

5. The management functions under the superintendence, control, and direction of the board. So the Independent Directors need to be truly independent in form and in substance.