A good board is
distinguished by its ability to implement a strategy that provides the company
an edge over its competitors. They oversee that the company outperforms other
competitors while maintaining standard compliance. According to the recent
Economic Times Survey, India’s best boards include
companies across different industries, such as HDFC, Mahindra & Mahindra (M
& M), Dr. Reddy’s Laboratories, and Marico. A chairperson leads the board,
focuses on its strategic matters, oversees the company’s business practices,
and maintains governance standards. The chair is responsible for the smooth
functioning of the board. The chairperson is usually the one who represents the
company to the outside world. The role and responsibilities of the chairperson
include:
- The chairperson sets the meeting agenda and ensures all the
people on the board receive accurate, precise, and relevant information on
time to make business decisions pertaining to the company. It is the
responsibility of the chairperson to encourage the active participation of
board members and to make sure meetings are sufficiently timed to make complex
decisions. If there is a disagreement amongst board members on a specific
issue, the chair may ask for voting to determine the majority opinion. In
case of a tie, the chair may have the “casting vote” (depending on the
company’s constitution) to make a decision. Therefore, the chairperson is
sometimes referred to as the “Leader amongst Equals.”
- The chairperson evaluates the individual performance of all board
members (annually or depending on the company’s constitution) and the
board's performance as a whole.
- The chairperson ensures that there is effective communication
amongst the board members and the different stakeholders of the company
relating to significant matters like strategy, governance, and payroll.
- The chairperson ensures that new directors and board members go
through a formal induction program to understand their new roles and
responsibilities in the company. Additionally, the chair is responsible
for addressing any developmental needs of individual directors or board
members that may arise from time to time.
- The chair represents the company to customers, suppliers,
government, stakeholders, and the community. Therefore, the chairperson
must be aware of any external changes that may affect the company.
- Usually, the chairperson is the one who initiates change,
diversity, and planning in board appointments by following the procedures
outlined in the company’s constitution.
The chairperson works
closely with the Chief Executive Officer (CEO) to maintain the business's daily
operations. Sometimes, the roles of CEO
and chairperson are combined into one position called the CMD (Chairperson-cum-Managing-Director).
However, the OECD international standard recommends separating these posts as a
practice of good governance. Even the Security and Exchange Commission of India
(SEBI) is pushing companies to separate these
roles to minimize conflict of interests and ensure the smooth functioning of
businesses. It was planning to bring legislation that mandates such separation
of posts and requires the CEO not to be related to the Chairperson. However, it
was later decided to make the provisions
voluntary due to the constraints caused by the global pandemic. We may see this
legislation becoming mandatory at some point in the future. Below are some of
the duties that the chairperson performs in conjunction with the CEO:
- Working together with the CEO, the chairperson advises the board
to determine the fees of non-board members.
- The chairperson is supposed to be available for any advice or
suggestions that the CEO may need, particularly regarding strategy and
operations.
- The chairperson works with the CEO to provide input to different
remuneration committees on the policy related to the remuneration of
executive directors.
- Working with the CEO, treasurer, and directors, the chairperson
determines the budget of the company and makes sure that it is in
compliance with the company’s financial policies.
The above discussion
reflects how the role of the chairperson requires excellent organizational,
managerial, and leadership skills. The role of a chairperson is quite
challenging as they act as the primary point of contact between the board and
the company’s operations. They are responsible for building a healthy and
participatory board culture and structure. Thus, the chairperson plays an
essential role in maintaining a culture of good corporate governance within the
company and ultimately contributes heavily to its long-term success.
