Situation of Directors and Board of Directors
Many small and medium businesses that are registered as a Private Limited Company or Public Limited Company have Directors who are not functioning effectively or productively in Kerala.
Many companies see it as a statutory formality and hence do not take it seriously from a management point of view. Many give directorship positions to shareholders who invested a specific amount in the company, without considering what “value” they can add to the business. These directors may or may not be involved in the management or leading the firm. Some even give directorship to all its shareholders!
So when the very purpose of the Board is neglected or misunderstood, it is obvious that the Board of Directors won’t be adding a good value to the business.
AASC can play a key role in professionalizing boards of companies
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The real role of a Director Board
Ideally, the Board of Directors will have a Chairman, the Directors and a Managing Director.
The role of the Directors is to lead the company, not essentially managing it. The management is done by the CEO, and may be under the direct leadership of the Managing Director.
The role of the Board of Directors can be briefly listed as,
- Ensuring legal compliance
- Ensuring the company and its management does not do anything that harms the shareholder interest
- Planning and monitoring the growth of the company
- Ensuring the company is operating as per its vision and mission. Creation of the vision.
- Assisting the management in problems that they find it difficult to solve. This requires technical knowledge and expertise from the director’s side.
- Designing or Approving Organization Structures, Systems, Policies, etc. Either the board has to do it, or engage consultants to do it, and then approve it
- Recruitment of senior employees (who will be recruiting the rest of the team). This includes the creation of the organization hierarchy, job descriptions, remuneration packages, and work culture principles. Either the board does it, or appoints a consultant to do it, and finalize the selection.
- Approve important financial transactions be it related to investment, buying of assets, or creation of liabilities, that the company management suggests
- Approve suggestions of the management with regards to the creation of reserves or payment of dividends
- The Board has to engage external agencies and consultants, to audit not just the financial performance of the business, but also do management audits to ensure that management is managing the business well. It will involve doing studies and surveys on employees (for employee satisfaction) and customers (for customer satisfaction). This will empower the Board with data, beyond the information provided by the Management
So as you can see, the role of the directors is not to do daily operations. But to be the guiding and monitoring force. It is part of the process of separating management from ownership.
What is wrong with our Director Boards?
But unfortunately, instead of the above-mentioned roles, most small and medium companies have managers who are given the title of directors, because they are also shareholders of the company.
This means the real function of the leading and direction does not happen. This is not an issue if the company does not have shareholders beyond the directors working as managers.
But in companies, where there are several shareholders, this system can mean a lack of accountability and be a cause of direction loss.
How Management Consultants Can Assist the Board of Directors?
Sometimes, the board of directors will require the assistance of external consultants (like AASC). Some of these situations can be,
- When the board of directors has an important decision to take and needs an external expert to give an opinion on the topic. This expert opinion is very useful to convince the shareholders
- When there is a crisis between the Board Members and important decisions are not possible, external consultants can help in resolving the matter
- As part of reviewing the performance of the management in terms of management, employee satisfaction, and customer satisfaction, the board of directors can employ management consultants to do the review and submit reports on the same
- If it’s a new venture, the Board of Directors can engage business consultants to prepare the detailed strategy plan or detailed project report with feasibility studies and organization structuring
If you have any points, experiences to add, or if you don’t agree to the post, please comment below.
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