What is the Board of Directors?

• The Board of Directors is a group of people elected by shareholders to oversee the

management of a company.
• It acts as a bridge between shareholders and management.
• The board’s main role is to ensure the company is run ethically, transparently, and
in the best interests of stakeholders.

Why is Board Structure Important in Corporate Governance?

• A well-structured board ensures:

o Checks and balances
o Transparency in decision-making

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o Protection of stakeholder interests
o Strategic direction and risk management

Types of Directors on a Board

Type of Director Meaning (in simple words)

Directors who are also part of the management team (e.g., CEO,
Executive Directors
CFO).

Non-Executive
Directors who are not involved in daily operations.
Directors
Independent Non-executive directors with no financial or personal ties to the
Directors company.
Appointed by banks, financial institutions, or major
Nominee Directors shareholders.
Under Company Law in India, certain companies must have at
Women Directors least one woman director.

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Ideal Board Structure (According to Good Governance Practices)

1. Balanced composition of:

o Executive and Non-Executive Directors
o At least 50% independent directors (for listed companies)
2. Separate Chairperson and Managing Director/CEO
o To avoid concentration of power
3. Independent Audit, Nomination, and Remuneration Committees
o Ensures fair oversight and accountability

Roles and Responsibilities of the Board

Role Explanation

Strategic Guidance Approving business plans, goals, and major investments

Monitoring
Reviewing the performance of management and company
Performance

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Risk Management
Identifying and overseeing key business risks

Ensuring the company follows laws, regulations, and ethical

Compliance
standards
Balancing the interests of shareholders, employees,
Protecting
customers, and others
Stakeholders
Hiring and reviewing the performance of the CEO/Managing
Appointing
Director
Management

Board Committees (Specialized Groups within the Board)

Committee Main Role

Oversees financial reporting, internal controls, and the audit

Audit Committee
process
Recommends appointments of directors and evaluates board
Nomination Committee composition

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 Committee Main Role

Remuneration Committee Decides pay and compensation of key managerial personnel

Plans and monitors Corporate Social Responsibility

CSR Committee
activities

Risk Management
Identifies and monitors business risks and mitigation plans
Committee

Legal Requirements in India (As per Companies Act, 2013 & SEBI LODR)

• At least:
o 1 Woman Director (for listed and some public companies)
o 1 Resident Director (staying in India for at least 182 days)
o Minimum 3 directors for a public company, 2 for private, 1 for One-Person
Company

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• Independent directors are mandatory for listed companies
• Board must meet at least 4 times a year

Conclusion (In Simple Words):

The board of directors is the . heart of corporate governance

A strong, independent, and diverse board helps a company grow ethically, efficiently, and
responsibly, while protecting the interests of shareholders and stakeholders.

Who is the Board of Directors?

The Board of Directors is a group of individuals elected by shareholders to oversee the

management and ensure the company is being run in the best interests of all stakeholders.

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Main Roles of the Board of Directors
Role Explanation (in Simple Words)

Approves the company’s vision, mission, goals, and major

1. Strategic Direction
business plans.

2. Monitoring Regularly reviews the performance of the CEO and top

Management management.
Identifies key business risks and ensures there are proper controls
3. Risk Oversight and risk management systems.
Ensures accurate financial reporting, approves budgets, and
4. Financial oversees audits.
Oversight Makes sure the company follows all laws, regulations, and
5. Compliance & ethical standards.
Ethics Balances the interests of shareholders, employees, customers,
6. Stakeholder creditors, and society.

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Protection Appoints and removes the CEO/Managing Director and sets their
7. Appointing compensation and duties.
Leadership Builds and maintains strong governance systems like independent
8. Corporate committees, board policies, etc.
Governance

Additional Duties

• Approve mergers, acquisitions, and restructuring

• Review and approve annual reports and financial statements
• Ensure transparency in business conduct
• Guide the company during crises or uncertainty

Board’s Role in Corporate Governance (In Simple Words)

A good board:

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 • Doesn’t interfere in day-to-day operations but keeps a watchful eye
• Acts as a coach and watchdog
• Helps the company grow in a legal, ethical, and sustainable way

How the Board Ensures Good Governance

1. Creates Independent Committees (Audit, Risk, Nomination, CSR)

2. Promotes Transparency in operations and finances
3. Sets the Tone at the Top – encourages ethical culture
4. Avoids Conflict of Interest and promotes independence
5. Monitors Related Party Transactions carefully

Conclusion (In Easy Words):

The Board of Directors plays a central role in corporate governance .

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It ensures that:

• The company is moving in the right direction

• Rules are being followed
• Everyone’s interests are protected

A strong board = a well-governed and successful company.

What are Board Committees?

• Board Committees are smaller groups formed within the Board of Directors.
• Each committee focuses on specific governance areas, like audit, risk,
remuneration, etc.
• They help the board work more efficiently, transparently, and professionally.

Why Are Board Committees Important?

• Allow detailed focus on key issues.

• Improve accountability and oversight.

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 • Help in specialized decision-making.
• Ensure compliance with laws and regulations.

Key Board Committees & Their Functions (Explained Simply)

Committee Name Main Functions (in Easy Words)

- Reviews financial statements and reporting.

1. Audit Committee - Monitors internal controls, risk, and compliance.
- Works with external and internal auditors. -

Recommends the appointment or removal of

directors and key management.
2. Nomination and Remuneration
- Decides salaries, bonuses, and perks.
Committee (NRC)
- Ensures fair and performance-based
remuneration policies. - Identifies financial and

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operational risks.
3. Risk Management Committee - Recommends risk mitigation strategies.
- Ensures business continuity and safety. - Plans

and monitors the company’s Corporate

Social Responsibility activities.
4. CSR Committee
- Ensures spending of 2% of average net profit on
CSR (as per law).
- Resolves complaints of shareholders and
investors.
5. Stakeholders Relationship
- Handles issues related to dividends, share
Committee
transfers, etc.
- Monitors performance on Environmental, Social,
and Governance goals.
6. ESG Committee (if applicable) - Reports ESG impact and sustainability measures.

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Legal Requirements in India (As per Companies Act, 2013 & SEBI LODR):
Committee Required For

Audit Committee Mandatory for all listed and large public companies

NRC Committee Mandatory for all listed companies

CSR Committee Mandatory if CSR rules apply (company meets threshold)

Risk Committee Mandatory for top 1000 listed entities by market cap

Stakeholders Committee Required for listed companies to handle investor grievances

Benefits of Board Committees

• Specialized attention to critical areas

• Faster decisions in complex matters

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• Promotes transparency and good governance
• Helps the board focus on strategy

Conclusion (In Simple Words):

Board committees are like mini task forces within the board.
They focus on important areas like audit, salaries, risks, CSR, and investor issues.

By dividing responsibilities, they make the company more ethical, efficient, and accountable.

What is Insider Trading?

Insider Trading means buying or selling shares of a company using unpublished or
confidential information that is not available to the general public.
This information is usually known only to company insiders like directors, executives,
employees, or auditors.

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Example (Easy to Understand):
Imagine a senior manager of a company knows that the company is about to announce a
profit or a big loss. major
If that person buys or sells shares before the news is public, they are doing
insider trading.

Types of Insider Trading

Type Explanation

Legal Insider When directors or employees trade shares and properly report it to
Trading the stock exchange.
Illegal Insider When someone trades based on secret price-sensitive information
Trading not available to others.

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Who is an Insider?

According to SEBI, an insider includes:

• Directors
• Employees
• Auditors
• Legal or financial advisors
• Friends or relatives of insiders (if information is shared with them)
• Anyone who has access to unpublished price sensitive information (UPSI)

What is UPSI (Unpublished Price Sensitive Information)?

UPSI means any important company information that is not publicly available and can affect
the stock price.

Examples of UPSI:

• Financial results
• Mergers or acquisitions
• Bonus or rights issues
• Major business deals

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 • Resignation of key management
• Legal disputes or penalties

Why Insider Trading is a Problem (Governance View):

• Unfair advantage to insiders over regular investors

• Damages trust in the stock market
• Violates principles of fairness, transparency, and accountability
• Leads to manipulation and corruption

Laws Against Insider Trading in India

Law/Regulation Main Points

- Prohibits insider trading.

SEBI (Prohibition of Insider Trading) - Requires listed companies to maintain a code

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Regulations, 2015 of conduct.
- Insiders must not trade based on UPSI.
Earlier prohibited insider trading. Now replaced
Companies Act, 2013 (Section 195)
fully by SEBI regulations.
(now removed)

Corporate Governance Measures to Prevent Insider Trading

1. Code of Conduct for employees and directors

2. Trading Window restrictions (No trading during sensitive periods)
3. Disclosure of trades by insiders to stock exchanges
4. Training and awareness programs for employees
5. Strict penalties for violations

Punishment for Insider Trading (SEBI Rules)

• Penalty up to Rs. 25 crores or 3 times the profit made

• Ban from holding directorship or managerial position
• Criminal charges in serious cases

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Conclusion (In Simple Words):
Insider trading is unfair and illegal.
It allows a few people to use secret information for personal profit, which
confidence and goes against the values of good corporate governance. hurts investor

What is Whistle Blowing?

Whistle blowing means reporting unethical, illegal, or dishonest activities happening inside
an organization.
The person who reports such wrongdoing is called a
whistle-blower.

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Who Can Be a Whistle-Blower?

• An employee
• A manager or director
• An external auditor, vendor, or consultant
• Any person who has evidence or knowledge of wrongdoing in the company

Examples of Whistle Blowing:

• Reporting a financial fraud or scam

• Exposing insider trading
• Revealing sexual harassment or discrimination
• Disclosing bribery or corruption
• Reporting environmental or legal violations

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Importance of Whistle Blowing in Corporate Governance:
Why It Matters Explanation

Promotes Transparency Encourages openness and honesty in the organization

Helps in catching fraud or illegal activities before they grow

Detects Fraud Early
bigger

Improves Accountability Puts pressure on management to act ethically

Protects Stakeholders Saves the interests of shareholders, employees, and the public

Strengthens
Builds a culture of ethical behavior and responsible leadership
Governance

Whistle Blower Policy (Under SEBI & Companies Act):

SEBI LODR Regulations, 2015 and Companies Act, 2013 (Section 177):

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• Every listed company and large public company must:
o Have a vigil mechanism (whistle-blower system)
o Protect the identity of whistle-blowers
o Ensure no retaliation or victimization

Key Features of Whistle Blower Policy:

1. Confidential reporting channels (email, hotline, web portals)

2. Anonymous reporting allowed in some cases
3. Proper investigation process
4. Protection against harassment or job loss
5. Reporting to Audit Committee or an independent person

Famous Whistle Blowing Cases (India & Abroad):

Company Issue Reported

Satyam (India) Financial fraud was revealed internally

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 Company Issue Reported

Enron (USA) Sherron Watkins exposed accounting fraud

Infosys (India) Anonymous whistle-blower reported irregular accounting

Challenges Faced by Whistle-Blowers:

• Fear of job loss or retaliation

• Lack of protection or support
• Social or professional isolation
• Sometimes whistle-blowers are not taken seriously

Conclusion (In Simple Words):

Whistle blowing is an important part of good corporate governance.
It allows people to speak up against wrongdoings and helps build a company that is honest,

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ethical, and transparent.
Companies must support and protect whistle-blowers to ensure clean and responsible business.

What is Shareholder Activism?

Shareholder activism means when shareholders actively try to influence the decisions of a
company’s management and board to protect their rights, improve company performance , or
ensure ethical and transparent governance .

They do this by raising questionsvoting

, on important issues, and sometimes even publicly
challenging company policies or decisions.

Who Are Shareholder Activists?

• Institutional investors (like LIC, mutual funds, pension funds)

• Retail investors (individual shareholders)
• Foreign investors

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 • NGOs or shareholder groups

Why Do Shareholders Become Activists?

Reason Explanation

If the board is not transparent or is involved in unethical

Poor Governance
practices
Like investing in loss-making businesses or giving high
Bad Financial Decisions salaries to directors
If the company’s share price is falling due to bad decisions
Low Shareholder Value
When companies hold too much cash and don’t reward
Lack of Dividend or Return shareholders
If the company is involved in polluting, child labor, or other
Environmental or Social unethical acts

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Issues

Tools of Shareholder Activism

Tool How It Works (Simple Explanation)

Shareholders vote on decisions like director appointments,

Voting at AGMs/EGMs
mergers, etc.

Raising Questions Asking tough questions at meetings to hold the board accountable

Filing Resolutions Proposing formal issues to be voted on by other shareholders

Media & Public

Using press or social media to criticize company actions
Pressure

Filing cases under Company Law or SEBI laws if shareholder rights

Legal Action
are violated

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Examples of Shareholder Activism in India
Company Issue

Tata Group Activism during removal of Cyrus Mistry as Chairman

Infosys Shareholders raised concerns about CEO pay and governance

Reliance Shareholders opposed certain resolutions related to related party

Industries transactions
Eicher Motors Some shareholders opposed high salary hike of MD (Siddhartha Lal)

Importance in Corporate Governance

Benefit Explanation

Ensures Accountability Keeps management and board answerable

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Pressure from shareholders can push for better strategy
Improves Performance
and results
Makes sure big shareholders or promoters don’t misuse
Protects Minority
their power
Shareholders
Demands better disclosure and communication
Promotes Transparency

Legal Support in India

• Companies Act, 2013: Gives shareholders rights to vote, ask questions, and
propose resolutions.
• SEBI Regulations:
o Requires disclosure of voting results
o Gives more rights to institutional investors
o Allows proxy voting and e-voting

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Conclusion (In Simple Words):

Shareholder activism is like shareholders saying,

"We own part of this company — we have a right to speak up!"

, which is essential for

It makes companies more accountable, transparent, and responsible
good corporate governance.

Who are Institutional Investors?

Institutional investors are large organizations that invest money in companies on behalf of
others.

Examples include:
• Mutual Funds

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• Insurance Companies (like LIC)
• Pension Funds
• Foreign Institutional Investors (FIIs)
• Banks and Financial Institutions

Why are They Important?

They hold large amounts of shares in many companies.

So, they have power and influence to monitor and improve how companies are managed.

Roles of Institutional Investors in Corporate Governance:

1. Monitoring Management

• They review performance of directors and top executives.

• Ask tough questions in AGMs (Annual General Meetings) and board meetings.
• Prevent misuse of company funds or unethical actions.

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2. Promoting Accountability

• Push for transparent financial reporting and better disclosures.

• Demand clarity on executive compensation, business strategy, and risk
management.

3. Protecting Minority Shareholders

• Act as a voice for small investors who can’t always raise their concerns.
• Help stop oppressive actions by promoter groups or majority shareholders.

4. Exercising Voting Rights

• Vote on key matters like:

o Appointment/removal of directors
o Mergers/acquisitions
o Corporate policies
• Their votes influence major corporate decisions.

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5. Engaging in Shareholder Activism

• Raise objections to:

o Unreasonable director salaries
o Related party transactions
o Poor corporate governance practices

• Can file resolutions or even go to court in extreme cases.

6. Influencing ESG Practices

• Institutional investors now also push companies to follow Environmental, Social,

and Governance (ESG) norms.
• They want companies to be not just profitable but also ethical and sustainable.

Legal Backing in India

• SEBI Mutual Fund Regulations and LODR Regulations encourage institutional

investors to:
o Vote on corporate matters
o Disclose their voting patterns
o Act in the interest of all shareholders

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 • Companies Act, 2013 gives them rights to participate in AGMs and decision-
making.

Examples (India)
Company Institutional Investor Action

Infosys Investors questioned CEO’s salary and demanded better transparency

Tata Sons LIC and others played a role during Cyrus Mistry’s removal controversy

Eicher Motors Shareholders opposed high salary hike for the MD

Challenges Faced

• Some investors don’t actively use their power (called passive investors).

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• Sometimes they support promoters instead of being neutral.
• Conflicts of interest may arise (e.g., if they do business with the same company).

Conclusion (In Simple Words):

Institutional investors play a very important role in corporate governance.

They act like watchdogs and help keep companies honest, efficient, and fairby using their
financial power and voting rights.

What is a Class Action Suit?

A Class Action Suit is a legal case filed by a group of shareholders or depositors who have
similar complaints against a company.
Instead of each person filing a separate case, they
come together as a group and file one case
against the company, its directors, auditors, or advisors.

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Example (Easy to Understand):
Suppose a company hides important financial information and investors lose money.
Instead of hundreds of people filing individual cases, they can join together and file a
action to get compensation or justice. class

Why Class Action is Important in Corporate Governance?

Reason Explanation

Especially small investors who may not have the resources to

Protects Shareholders
fight alone

Increases
Company directors, auditors, and advisors become more careful
Accountability

Management avoids fraud or negligence due to fear of legal

Deters Wrongdoing

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action

Saves Time and Cost One case for many people reduces legal burden and expense

Legal Provision in India – Section 245 of Companies Act, 2013

Class action suits are allowed under Section 245 of the Companies Act, 2013.
Who Can File?

• Members (shareholders) of a company

• Depositors (people who invested money in the company)
• Must be a minimum number as prescribed (e.g., 100 members or a percentage of
total members)

Against Whom?

• The Company
• Directors of the company
• Auditors (including audit firms)
• Advisors, consultants, or experts if they were involved in wrongdoing

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What Can the Class Action Demand?
The group can ask the court (NCLT – National Company Law Tribunal) to:

• Stop company from doing an illegal act

• Cancel misleading advertisements
• Compensate for losses
• Punish fraud or mismanagement
• Reform company practices or policies

Famous Example (India):

• IL&FS Crisis: Shareholders and depositors considered filing class action suits after
the collapse due to financial mismanagement.
• Satyam Scam: Though Section 245 was not in force then, the case encouraged the

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need for such a provision.

Benefits of Class Action (Governance View):

Benefit Result

Investor Empowerment Encourages shareholders to speak up

Improves Governance Promotes ethical behavior and transparency

Legal Pressure Board, auditors, and advisors act more responsibly

Challenges of Class Action in India

• Lack of awareness among retail investors

• Legal process may be slow
• Difficult to gather minimum number of members

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Conclusion (In Simple Words):
Class Action suits are a powerful tool for
mismanagement, or negligence. investors and depositors to fight against fraud,
They help ensure that companies and their directors act
which is the core of good corporate governance. fairly, transparently, and responsibly ,

1. CSR (Corporate Social Responsibility) and Corporate Governance

What is CSR?
CSR means that businesses are responsible not just for profits
society and the environment.
, but also for the well-being of

It involves voluntarily giving back to society through education, health, environment, rural
development, and more.

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CSR under the Companies Act, 2013 (Section 135):

Certain companies must spend at least 2% of their average net profits (last 3 years) on CSR
activities if they meet any of these:

• Net worth of ₹500 crore or more, or

• Turnover of ₹1000 crore or more, or
• Net profit of ₹5 crore or more

CSR Activities Include:

• Promoting education and skill development

• Supporting healthcare and sanitation
• Helping rural development projects
• Environmental protection
• Supporting orphanages or women empowerment

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How CSR Connects with Corporate Governance:
CSR Aspect Governance Benefit

Ethical
Shows the company cares about society, not just profit
Responsibility
Transparency
CSR spending and goals are disclosed in the annual report
Board Role
Board forms a CSR Committee to plan and monitor CSR activities

Ensures that companies are responsible to both shareholders and

Accountability
society

2. Concept of Gandhian Trusteeship

What is Gandhian Trusteeship?

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The Gandhian idea of trusteeship is a moral and ethical principle where businessmen are seen
as "trustees" of wealth.
They should not own wealth for selfish use, but
hold and use it for the benefit of society .

Mahatma Gandhi believed that:

“The rich should act as caretakers of wealth for the poor.”

Key Principles of Gandhian Trusteeship:

Principle Meaning in Simple Words

Wealth is a trust Rich people hold wealth on behalf of society

Not selfish ownership Businesses should use profits for social good, not personal luxury

Moral responsibility Business leaders must think ethically, not just legally

Voluntary giving Encouraged donation and social service, not forced taxation

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Gandhian Trusteeship and Corporate Governance:
Trusteeship Value Governance Application

Service to society CSR activities aligned with ethical corporate behavior

Encourages moral conduct among directors and top

Ethical leadership
management
Promotes responsible use of natural and financial resources
Fair use of resources

Long-term value
Balances profit with social and environmental concerns
creation

Conclusion (In Simple Words):

• CSR and Gandhian Trusteeship both promote the idea that businesses should do
more than make money — they must serve society.

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• This aligns with corporate governance, which is all about being responsible,
transparent, and accountable.
• Companies that follow these principles earn trust, loyalty, and long-term success.

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