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The Board of Directors Play a Pivotal Role in Any Effective Organisation

Info: 2422 words (10 pages) Essay
Published: 7th Aug 2019

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Jurisdiction / Tag(s): UK Law

Corporate governance is a system which deals with rules, regulation and procedure of a business that how can it be proceeded and to overcome the problem. It also deals about interior issues as describe by official, shareholder or by the terms and condition of a organization, similarly as for outdoor problems for example as costumers, buyers and government rules and regulation. This is called corporate governance

Different writers define the corporate governance in such a way as,

Sir Adrian Cadbury says that: “this is a system by which companies are directed and controlled.”

Shleifer and Vishny, 1997

“Corporate governance deals with the way suppliers of finance assure themselves of getting a return on their investment.

Board of Directors


To oversee different task mentioned in the company charter when the share holders of a company choose some people as the member of company by which the company procedure can be run. This system is called board of director. Board of director is also called with different name like executive board, governor’s board, or board of trustee. Simply it is also called “the board.” The board of directors usually plan guiding principle of the board without contribution regularly administrative resolutions, while it is the responsibility of board to select the chairman and chief executive of the company. And the share holders of a company chose the members.

A board of directors is a community of some people which is chosen by the shareholders of an organization and they authorities to make decision and voting , and some particular farm duties that is different and individual in every case to one another from the power and duties of share holders and Management of the organization or company. It is not compulsory for a director that he should be the owner or the manager of board entity but the director must be individual if the director is from owners or manager are referred to insider or interested director and who are managers sometime he is referred to as executive director and the director who are neither manager nor shareholder is called outsider, independent director or non executive director.


“The group which is responsible for supervising the activities of a company or organization is called board of director”.

We can understand by viewing its definition from the, e certain books as

In Farlex Financial Dictionary it is define as

“A organization chosen by the stake holders of a company to organize, manage and proceed the system of a company that organization is called boards.”

Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD.

“The leading body of an organization, charged with establishing policy and with taking steps to see that the policies are implemented.”


The history of boards of director is not so old. In nineteenth century it is felt that to manage a company there should be a board of directors to growth of a divide board of director. It seems that convention of the company and presence of all shareholders is the major appendage of a corporation and it seems that the director are just the representative subject matter to manage of the shareholders in usual sessions.

However in (Automatic Self Cleaning Filter Syndicate Co. v Cunningham 1906) case has decided and cleared partition of authorities that in common words it depended upon an organization that which article it has created and where the executive powers were vested. And it was decided in the case that in common sessions it could not intervene with their legal implement.

This modern progress did not shelter instant support, but it was certified in (Quin & Axtens v Salmon [1909] AC 442) by the House Of Lords. As according to British Law, following descriptions of Table A have toughened mean that, except the directors are different action to legal requirement of articles, it also describe the authorities by which how to perform the administration and dealings of the organization are vested in them.

Latest policy which is describe in (Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113) by Greer LJ as under :

“Corporation is an individual diverse as similar beginning of its stake holders also member of the board. As major authorities of it are being used by the directors and the remaining might be kept for share holders that which they can use in regular meetings. And if to manage the company the powers are divided among the director then the directors can implement such rules. There is just a one way by the only way in which the common organization of shareholders can organize work out rules by through law , or, as chance comes up according to law , through rejecting toward reselected of member of board whose dealings they dislike.

Election and removal

Like other democratic system the directors are also appointed by election the share holders of a company nominate directors and voted them. There removal is also possible in same way that if majority of share holder refused to accept him a director.

There are different way by which a member of board seat may be empty as it is by the resignation of a director or due to his death or in other situation board of a directors have a authority that they can eliminate the director by resolution against him.

According to some laws as when a vacancy is empty due to his resignation, death or his removal by resolution, the board has a power to fulfill that vacancy board can assign the other person as a director to run the company system.

It observed that in general meetings it is very difficult to eradicate a member by a resolution. , it can be quite difficult to remove a director by a resolution in general meeting. In numerous official organizations the executive and non executive both have authority of getting particular observe of every declaration of his removal. corporation should frequently provide a copy of the suggestion to member of board , to whom there is generally allowed to be attended the session. The director might need the corporation to flow every illustration which he desires to create. also, the director’s agreement of service will regularly permit him to recompense if director is eradicated, and might regularly contain a liberal “golden parachute” as well that performs like a prevention to abolition.]

In the Journal of Finance, Drexel University’s LeBow College of Business professors Jie Cai, Jacqueline Garner, and Ralph Walkling has concluded in their modern research that as the stakeholders have chosen the 2500 members of board in USA, It was examined that the director which have loose performance have gotten less votes as compared to the others whose performance is better or whose attendance is not so good.


The board of every company is produced by the shareholders to control and manages the corporation. Whereas the corporations are always care of the interest of stakeholder so the director are legally bound to care of some strict responsibilities in favor of the stake holder, there are some other responsibilities compels legally to directors during relation to the work out of their duties.

Major Duties of Board of Directors

Brenda Hanlon describe the following duties of the board in his book “In Boards We Trust”

The first duty of a board is that to give up the complete protection for the shareholder by setting up a corporation.

2. For the management and to administer the organization board appointed a chief executive. And also board review the performance of CEO including his relationship with the board and his hard working to improve the company interests.

3. Board duty is to give the policies and objectives to govern the corporation.

4. To get proper resources for the corporation’s organized action and to sponsors the products adequately.

5. Boards other responsibility is to determine the mission and purpose of the corporation.

6. It is boards responsibility to serve the corporation or organization as the court of appeal, to hear the cases of company and make the good decision on that.

7. To increase the image of company in public eyes and also in front of the entire shareholder.

However, we can explain this by Australian case of Mills v Mills (1938) 60 CLR 150 normally prevails: that,

“it is not compulsory for directors that legally to live in an incredible area of separate humanity and to perform here the indistinct frame of mind of perfect thought as of clear particulars that should be there in the mind of any sincere and intellectual person as he worked out his rules as a director”

Corporate Governance in United Kingdom

Director should neither use the corporation property in favor of their without permission of the organization nor occasions and also nor in sequence. This proscription seems flexible as compared to prohibition over the dealings with the company.

FSA impalement the rules of UK corporate governance especially in banking sector contains prudential administrative and rigid values to increase the corporate governance of United Kingdom officials departments. Such principles look for to deal with the chief – representative crisis via

(a) improve supervising; (b) enhance the confession and accounting practices; (c) superior improvement of its regulations and structure (d) growth of corporate governance departments by management of advertise regulations. It is also necessary for banks to promote their internal observance to overlook the all issues which arises due to the fiscal crises.

Legal responsibility

Usually, to measure the talent which is necessary for a director by which he is connected to non executive members. In ( Re City Equitable Fire Insurance Co [1925] Ch 407), it was articulated in simply prejudiced conditions, as the court decided that:

“a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience.

It is an old decision though in modern situation as describe in ( Dorchester Finance Co v Stebbing [1989] BCLC 498 )the court seized so as to the regulation in evenhanded flames linked merely in the direction of talent, and not toward caution. through admiration toward assiduousness, what was compulsory was:

“Such care as an ordinary man might be expected to take on his own behalf.”

And now it has been decided in recent situation that skill and diligence the both should be assessed according to all angles. As in United Kingdom the obligations on members of board are classified on bases of the new Companies Act 2006. six factors were being fixed according to this law to which a director must have to obey in completion of their responsibility. These are:

“probable penalty over at all resolution within extensive period

benefits of corporation ’s staff

need to it is necessary for company to promote promote the trade affairs to dealer, consumers and others

contact of the corporation ’s process over group of people and surroundings

appeal of organization continuing a repute in favor of elevated values of commerce conduct, and

It is necessary to perform a sincere role as among the directors and corporation ”

in previous Companies Act 1985 of United Kingdom it is very less protection provided to non member share holder as compared to the member of the board as in that act section 309 which give the permission to directors to obtain keen on account significance. It describes significant disappearance as of the customary view to directors’ responsibilities are payable just toward corporation. earlier as in United Kingdom, under the Companies Act 1985, fortifications to nonexecutive members were significantly additional imperfect for example in section 309 that allow the board of directors get interested in account of employees but that may well just be imposed through shareholders and not by the shareholder themselves..

Sir David Walker’s “government-commissioned review of corporate governance in UK banks and other financial entities” was published on 16 July 2009,

Walker believes that it is necessary for corporate governance of UK that there should be some principle which is comply with Combined Code. He added that there should not be the American corporate governance by law or Sarbanes Oxley Act for the UK.


After all this discussion I have concluded that everything is criticized but after all criticism the board of director is a good system to run a corporation and without board a company cannot be formed now it is the major element of company. It is to be need of some amendment there in board laws and regulation as in most country CEO and Chairman both are chaired by one person it is necessary to separate the rank because by this check and balance situation increases. Secondly it is need to be care of the rights of all shareholder not to the only care of members and high shared people.

Boards progressively are carrying out comprehensive analysis over their self presentation in not for interest but for the interest of the board. As for this purpose after every three or five years board and its members and Every three to five years, the director and other decision maker must locate backside since their common obsessions and replicate

As how to complete their responsibility. This comprised a look at how its membership work, member selection method, organization or formation, and generally performance can be build up. As they can did and anonymous written survey of board member awareness in progress of a seminar or retreat can cover the way for agreement on main concern. As a skilled other party catalyst is able to carry skill, independence, reliability, and viewpoint toward procedure. An all night live absent as of the organization’s hall joint in the midst of occasion on the way to socialize be able to make friendship and belief between director either they or executive or non executive.

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