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Independent Directors in an Organisation

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    All companies must have officers. A private limited company must have at least two director and a company secretary and a public limited company must have at least three directors and a company secretary. The director, or directors, must manage the company’s affairs in accordance with its articles of association and the law. Certain responsibilities apply to all directors, whether executive or non-executive, and to all types of company whether riding or not.

    The company secretary is the chief administrator of the company. Read more about company secretaries. There are two broad types of company director: * Executive director * Non-executive director Executive Directors (Chief Executive Officers) The chief executive officer has the overall, primary management and leadership role in the organization. Therefore, the CEO must have extensive knowledge and skills in a wide variety of areas. There is no standard list of the major responsibilities carried out by a chief executive officer, however the list below outlines the most common.

    Board Administration and Support Supports board members by advising and informing, going between board members and staff, and supporting the board’s evaluation of chief executive. * Program, Product and Service Delivery Oversees design, marketing, promotion, delivery and quality of programs, products and services. * Financial, Tax, Risk and Facilities Management Recommends an annual budget for Board approval and then manages resources within the budget. * Human Resource Management Oversees the management of the human resources team ensuring that they comply with current laws and regulations.

    Community and Public Relations Ensures that the venture is seen in a positive light from outsiders. * Fundraising (nonprofits-specific) Oversees fundraising planning and implementation. What is a Non-Executive Director? A non-executive’s role is less hands-on. A non-executive director may have less experience and less knowledge than an executive. However, the benefit here is that a non-executive can bring objectivity and an external awareness to the board. Non-executive directors are not usually involved with day-to-day management, however, the smaller the company, the more likely it is that here will be some hands-on work.

    The non-executive’s role is an over-viewer and whistle blower, ensuring adherence to good practice, respect for the interests of other stakeholders and adherence to the process of boardroom discipline. Non-executives are often thought of as “advisers” although this is not the case. The role is larger than this ? the non-exec is a director and shares the legal duties and responsibilities of the executive directors. As far as corporate governance is concerned, non-executives are usually associated with Independence and may be self employed.

    Who is an Independent Director? Independent Director means non-executive Director who, apart from receiving directors remuneration, does not have any material/ pecuniary relationship or transaction with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates, which in judgment of the Board may affect independence of judgment of the Director. The Companies Act, 1 956 do not specifically gives the definition of the Independent Director. However clause 49 of the Listing Agreement gives the definition.

    An Independent Director 1 Does not have a pecuniary relationship with the company, its promoters, senior management or affiliate companies. 2. Is not related to promoters or the senior management. 3. Has not been an executive with the company in the immediately three preceding financial years. 4. Is not a partner or executive of the auditors/ leavers/consultants of the company for the last three years. 5. Is not a supplier, service provider or customer of the company. 6. Does not hold 2 per cent or more of the shares of the company. Senior management’ means response Of the company who are members Of its core management team excluding the Board of Directors, and would comprise of all members of management one level below the executive directors, including all functional heads. Normally Nominee Directors of Bank or Financial Institution will not be considered as independent Director as per the Companies Act. However under Clause 49 of the Listing Agreement issued by SIB such Directors are considered as independent Director. Roles of an Independent Director An independent director is a person having many years of experience and acts as a guide for the company.

    The role they play in a company broadly includes improving corporate credibility and governance standards, function as watchdog, play a vital role in risk management. Independent Director plays an active role in various committees to be set up by a company to ensure good governance. Listed companies are required to set up audit committees of minimum three directors, on which, two-thirds should be Independent Director. The role and responsibility of an Independent Director arising out clause 49 requirements of role of audit committee would include 1.

    Oversight f company financial reporting process and disclosure of its financial information. 2. Recommending to Board on the appointment, re-appointment and if required replacement or removal of statutory auditor and fixation of audit fees. 3. Review with management, the annual financial statements before approval by the board with particular reference to Directors Responsibility Statement, changes in accounting policy, major accounting estimates, audit findings adjustments, compliance with listing and other legal requirements, disclosure of related party transactions and qualification in the raft audit report. . Review of quarterly financial statements. 5. Review with management, performance of statutory and internal auditors, adequacy of internal control systems, adequacy of internal audit function including their structure, frequency, reporting. 6. Discussing significant finding of internal auditors, including internal investigations made by them into areas of fraud, irregularities or major failures of internal control systems. 7. Discussing with auditors on the scope of the audit. 8. Reviewing reasons for defaults into payments. 9.

    Reviewing the whistle blower mechanism. 0. Mandatory review must be made of related party transactions and internal control weaknesses. 1 1. Review financial statements of subsidiary companies with special attention to investments made by them. 12. Review uses/application of funds from public issues, rights issues, preferential issues etc. 13. Disclose shareholdings in the listed company. Duties ; Responsibilities of an Independent Director The duties and responsibilities of independent Directors are normally as they are Of director Of the Company: 1.

    He should furnish information in the restricted form to the company about disclosure of General Notice of directorship, membership of body corporate and other entities. 2. He should also inform the Company about any change in the details submitted subsequently. 3. He should provide a list of his relatives as defined in the Companies Act and their directorship and interest in other concerns. 4. The Director shall have fiduciary duty to act in good faith and in the interest of the company. 5. It is the duty of the Independent Director to acquire proper understanding of the business of the Company. 6.

    He should act only within he powers laid down by the Memorandum of Association and Articles of Association and by applicTABLE law and regulations. 7. He should not be a Director of more than fifteen Companies. Such an Independent Director could be working as member of Audit Committee prescribed under Section AAA of the Companies Act. In such situation he has to look into the obligations of Audit Committee and perform the duty. Other Roles: * Watch dog of company’s shareholders One of the functions of the independent directors is to protect the shareholders Of the company from being cheated by the firm.

    In such a case they do not have right to vote but can always make such wrong doing public and caution the shareholders They are expected to maintain professionalism in the boardroom and promote adherence to corporate governance . This makes shareholders confident that the company is not being run casually and informally Strategic advisor to the controlling shareholder : Independent directors are also viewed as strategic advisor to the management who can help in taking important decisions which will in turn benefit the organization and the shareholder.

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