As the Global Economies are Growing, the Number of Companies are increasing and the Number of Firms Going for Listing also increasing across the world, industry veterans are insisting on Having Great Corporate Governance Practices Leading to the Stabilization of the Industries and Strengthening the Economies across the Globe. Even Governments across the World are Setting Up Several Parliamentary Committees in Order to Form the Legislatures and Laws Related to Corporate Governance Practices in Their Countries. Also, These Setting of the Parliamentary Committees were triggered by the Occasional Violations of Corporate Governance Practices in their countries. This Specific Management Insight Describes the Board Structure, Board Composition and Their Relationship to Organizational Performance; CEO Characteristics and Organizational Performance, Role of Different Committees, Role of Independent Directors, Role of Auditors, and the Role of Key Managerial Personnel Related to Organizational Performance.
1. Board Structure: Corporate Governance is Carried out by the Board of the Company. Basically Every Board comprises Executive or Non-Executive Chairman/Managing Director/Managing Director cum CEO; or Chairman/Managing Director and a Separate Executive CEO, Some Key Managerial Personnel Such as Full Time Executive Directors, CEO, and Senior Full Time Directors, if any. Also Board Structure Comprises Different Following Committees, which are taking care of the board functioning and taking care of the board tasks in Coordination with Chairman; the Committees include:
i) Nomination and Remuneration Committee,
ii) Audit Committee,
iii) Risk Management Committee,
iv) Corporate Social Responsibility Committee,
v) Stakeholder Relationship Committee,
vi) Minority Shareholders Committee,
vii) Independent Directors Committee,
viii) Performance Evaluation Committee
Using Above Specified committees, the board functions. In addition to structural components, Auditors, Independent Directors, Female Directors are Part of the Board Structure. The board conducts Annual General Meetings (AGMs) and Extra Ordinary General Meetings (EGMs) and in these Meetings, it passes the Resolutions and Communicates them to the Shareholders of the Company. The Entire Board is Responsible to the Shareholders and Organizational Reputation. The board May act as Advisory to CEO and Provides Strategic Vision, Mission, and Sets Business Objectives to CEO; and Different Committees also Evaluate the Board Performance.
2. Board Composition: It is Very Much Important. The Factors Such as Board Member Diversity, Demographic Diversity, Skill Diversity, Educational and Qualification Diversity such as Finance Experts, Legal Experts, CA/CS/ICWA accountants, Engineers, Marketing Experts, ESG (Environment, Society and Governance) Specialists; Age Diversity Contribute to the Organizational Performance. The More Diversified is the Board, The More Diversified are the Ideas, The More Diversified are the Product Portfolios, the More Diversified are the Innovations and Markets and Revenue Sources. If Board is Capable, Cost Management also Can be Done in an Efficient way to the Organization. First Skill Required for all Board Members is Understanding Financial Statements such as Balanced Sheet, Profit and Loss Account and Cash Flow Statements. They Should Have the Idea about Financial Health of the Company.
3. CEO Characteristics and Organizational Performance: This is the area Historically, Several Management Professors and Researchers done lot of Research and Published in Different Reputed Journals such as Academy of Management Journals, Group and Organization Journal, Management Decision, etc. Here The areas One Needs to Focus on are the CEO Tenure, CEO Attitude/Behavior, CEO Competency, CEO Skill Set, CEO Leadership Style, CEO Educational Qualifications, Age Group, Demographic Details, are Related to and Have Effect over the Organizational Financial Performance. Similarly, CEO Characteristics also Effect the Equity Markets and Share Price Movements. CEO Personality can impact the External Organizational Visibility, Positioning and Reputation.
4. Role of Different Committees: Different Committees Play Different Role in the Board Structure. For example, Nomination and Remuneration Committee Appoints the Directors in Board and decides the Compensation related to Sitting Fees. Similarly, Audit Committee ensures Compliance to Accounting Standards, and Transparency in Business Transactions, and reports to Board if any Violations; and it Seeks Corrective Action from Board. Further, CSR Committee ensures the Mandatory Spending to be done towards the Societal Upliftment and Empowerment. Similarly Stakeholders Relationship Committee ensures the Regular Payment of Dividends to Shareholders; Protecting Shareholder Funds and addresses Shareholder concerns; and takes their advises as well.
5. Role of Independent Directors: if Chairman is Executive Chairman, the board should have 1/3rd of the Directors are Independent Directors. These Independent Directors should look at the Activities of the Board in an Independent Unbiased Manner, following Ethical Standards and due diligence. They Should Ensure Compliance to Regulatory Corporate Governance Guidelines. They will be paid sitting fee for board meetings. They should know Evaluation of Organizational Performance and Check Financial Health of the Organization. They need to Give the Feedback, Comments, and Advises Whenever are Needed; they Should not Keep Quite When Things are Going in Other Direction. Independent Directors are Basically the Non-Executive Directors. They won’t look into the Micro Level Day to Day Functioning of the Organization. Their Role is more of Monitoring and Ensuring Compliance Role. They need to Press the Alarm Bell in an Independent Manner (without any favoritism or bias) whenever Required in order to Avoid Major Shutdowns.
6. Role of Auditors: they verify the Financial Statements, Balance Sheets, Profit and Loss Accounts, Cash Flow Statements, Transactions, Debt, Credit details, Compensation Details, any Related Party Transactions, Pending Payments, Advances Taken and Given, Valuations of the Assets, Capital Expenditure, Working Capital Details, Bank Balance Details, Investments, Shareholder Payments, Dividend Payments, etc. They Verify all Money Related Transactions of the Organization; and if any deviation identified, they seek clarification from the Board. Sometimes, these External Auditors, may even Press the Alarm Button and Leave the Organizational Audit Responsibility if any frauds or misrepresentations are identified.
7. Role of Key Managerial Personnel: Key Managerial Personnel are the Day to Day Executive Directors of the Organization. They have the Better Control Over the Organizational Activities and the better Control over Employees to compare with Other Directors. They Know More about the Organizational Products and Services, Their Quality Levels, Cost Aspects, Profit Margin Aspects, etc. These are the Full time Executive Directors.
Thus, all these aspects will effect the Organizational Financial Situation, Reputation of the Organization, Market capitalization, Organizational Valuation, Growth, Investor Sentiments, Share Price, and Reputation to the Board Governance. Board is Basically an Advisory to CEO; and CEO propagates the Board Vision and Strategy till the Employee Level in the Organization in Serving the Customer.
Yes. It is Good Stuff.
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All the best.
Dr.Goparaju Purna Sudhakar