Chairman Of The Board And Chairman Of The General Meetings

Abstract

The responsibility for the conduct of a meeting rests primarily on the chairman. The chairman is entrusted with the task to call the speakers, regulate the length of their speeches, deal with the items of the business in order, put motions to the meeting and control the arrangements of for any vote. The chairman while dealing with the situations must combine fairness with tact because the chairman may be faced with a difficult situation of organized interruptions by groups in the meeting as to disrupt the transactions in the meeting. The General Meetings are the means through which members exercise control over the management. Therefore a chairman presides over these meetings to regulate the proceedings as per The Companies Act, 1956 and the Articles of Association. A Co. is an artificial person having perpetual succession and common seal created by law. Since it has no body or mind and so it runs through the human agency called directors. The decisions are taken through the resolutions passed by the majority in the BOD at the duly convened and the properly constituted board meetings of the Co.

This paper is divided into two parts. In the first part the researcher has dealt with the Chairman of the Board and in the second part Chairman of General Meetings. With regard to the Chairman of the Board the issue that is being addressed is splitting the role of the chairman and the CEO. Also what should be the composition of the Board when the chairman is an executive director and when the chairman is a non executive director. Qualifications, appointment, role and removal of the chairman are also being dealt. In the second part with regard to the chairman of the General Meetings the researcher has tried to highlight how important is the office of the chairman. It is either the Articles of Association or Sec. 175 of the Companies Act that deals with the legal provisions of the Act. Apart from this there are certain common law principles also that govern the conduct of the chairman. The researcher has dealt with the appointment, manner of election, removal, powers and duties of the chairman of the board. Also circumstances where Sec. 175 is not applicable is also dealt.

I.                  CHAIRMAN OF THE BOARD OF DIRECTORS

The prime responsibility of the BOD is to determine the board strategy of the Co. and ensure its successful implementation. Every company should have a chairman for the meetings of the board.[1]Where the chairman of the board is an non-executive director, then at least one-third of the board should comprise of independent directors and in case he is an executive director, then at least one half of the board should comprise of the independent directors.  When the nonexecutive chairman is a promoter of the co. then at least one half of the board of the co. must consist of independent directors.[2]

A.    QUALIFICATION FOR CHAIRMAN OF THE BOARD

The Companies Act does not prescribe any qualification for the chairman. However, only a director can be the chairman of the board. Since a chairman is endowed with lot of responsibilities and he has to discharge his duties effectively therefore he must possess certain ability and quality both of heart and head. He must be patient, impartial, well informed of the law, practice, proceedings, procedure and rules of the meetings. The chairman shall be of sweet reasonableness and quiet determination. He must have faith in himself but not allow his masterfulness to obtrude too much.

B.     TYPES OF CHAIRMAN

Following are the types of chairman:

1.      Chairman and CEO

The CEO shall also hold the office of the chairman, in which case the member frequently names the independent member of the board as the lead director.

2.      Executive Chairman

As an office separate from the CEO his main work is to look after the day to day management and administration of the co. and functions as chief executive.

3.      Non Executive Chairman

This is also a separate post from the CEO. He is a part time chairman and his functions are basically to preside over the Board, Committee and General Meetings, conduct the proceedings, record the votes and proceedings in the minute books.[3] There are many companies across the globe that has separate office of the chairman and the CEO, often resulting in a non executive chairman saying that it helps in improving corporate governance.

C.    APPOINTMENT OF THE CHAIRMAN OF THE BOARD

To constitute a valid meeting, proper person must be in the chair. If the AOA provides that the chairman of their meetings shall be elected by the directors and if the chairman is not present within five minutes of the commencement of the meeting then the directors present shall elect one among themselves to be the chairman.[4] Any appointment of the chairman of the BOD made in contravention of the AOA will be void and consequently resolutions carried out by the casting vote of such a chairman will be inoperative.[5] In the absence of any chairman, the Board shall appoint any other director as the chairman of the meeting.[6]

D.    REMOVAL OF THE CHAIRMAN OF THE BOARD

If the chairman loses the confidence of the board then the BOD has the right to remove such a chairman appointed by him. In the case of Kashinath Tapuriah v. Incab Industries Ltd.[7] it was held that the chairman of the board cannot hold its office for an indefinite period when he has lost the confidence of the directors. If the board has the power to elect the chairman then it also has the power to remove the chairman. There can be no agreement in perpetuity in this regard. The chairman can be removed when the action of the chairman has been criticized by the majority of the directors.

E.     ROLE OF THE CHAIRMAN OF THE BOARD

The chairman should see that the meeting is duly convened and constituted in accordance with the Act and all the applicable guidelines, rules and regulations have been complied with before any business is transacted in the meeting. The chairman shall then ensure that only those items of the business and in order are transacted that are set out in the agenda. The chairman shall encourage deliberations and debate in the meeting and shall ensure that the proceedings of the meeting are correctly recorded. In the case of a public company, if the chairman is interested in any item of the business then he shall not chair the meeting when such item is transacted, rather he should entrust the proceeding to any disinterested director and should chair the meeting only after such item of the business is transacted.[8]

The supreme court has explained the role of the chairman in the case of Nazir Hoosein v. Drayas Bhatiliena[9] it said that the chairman of the board is the central figure in holding the meeting and controlling factor in the conduct of the meeting. Since the chairman has the support of the majority of the directors , it helps him to control the meeting and record the authenticated minutes.[10]

F.     SPLITTING THE ROLE OF THE CHAIRMAN AND THE CEO

The dispute as to splitting the role of the chairman and the CEO has been long and there are various committees which in their report has given certain recommendations with regard to it. Following are some of them:

1.      Hampel Committee Report (UK)[11]

An executive director other than CEO shall express their views which are different from the CEO provided that this is considered in the fairway and the individual does not suffer.[12] The CEO™s work is basically to run the business and to implement the policies and the strategies adopted by the Board.[13] The report has agreed with the Cadbury™s recommendations and reasoning and says that in the large companies there may be two full time jobs. However there are a significant number of companies that have combined the two roles successfully. The report views that the role of the CEO and the Chairman should be separate.

2.      Cadbury Committee Report[14]

This committee has described the role of the chairman. The report says that the chairman is responsible for the working of the Board, balance of its membership subject to the board and shareholders™ approval and to ensure that all the executive and non executive directors are able to perform their full part in their activities.[15] The report has strongly recommended that the roles of the CEO and the chairman should be in principal separate, for if it is combined in one person then there will be considerable concentration of power. The report says that when the roles of the chairman and the CEO are combined then there has to be strong and independent element on the Board with a recognized senior member.[16]

3.      UK Corporate Governance Code

The principal suggestions of the code has revolved around two central ideas i.e., the enhancement of the role of non executive directors and the splitting of the roles of the CEO and the chairman of the board. The code has also suggested for the separation of the offices of the CEO and the chairman as their roles are quite distinct.[17] Although the chairman is responsible for the leadership of the board and ensures its effectiveness on aspects of its role, still such role is hardly recognized in any statutory company law.[18] The chairman should be independent upon appointment. The code recognizes that the chairman will have such extensive contact with the executive management that his independence will be compromised and therefore the code suggests that a retiring or recently retired CEO shall not move on to become the chairman of the board. The code suggests that to overcome the difficulties a senior independent director should be identified as a sounding member for the chairman of the board.

4.      Report of the CII task force on Corporate Governance[19] by Naresh Chandra, Nov 2009

The task force after recognizing the ground realities in India has recommended separating the office of chairman and that of CEO, wherever possible.[20] It was observed by the task force that although there was no causality between the separation of the two offices and better corporate governance but internationally there has been a growing trend towards the separation of the two offices of the chairman and the CEO. Even in USA which has the longest trend of the same office for the CEO and the chairman is moving towards separation of the two offices. In the Indian context the task force has felt that most of the listed by the promoters and that the separation is not desirable because the dominant risk taking shareholder being both the chairman and the CEO and therefore there is a greater notion of risk sharing than otherwise. Further the separation of the two offices provides no guarantee of better leadership and corporate governance and can add to a layer of potential conflict.

5.      Report of the Kumar Mangalam Birla Committee on corporate Governance[21]

The report says that if the chairman is an executive director then at least one half of the BOD shall be independent and in other cases at least one-third of the total directors shall be independent. The committee is of the view that principally the role of the chairman and the CEO shall be distinct, although the same individual may perform both the roles. The committee recommends that a non executive director shall maintain the office of the chairman at the expense of the co. that will enable him to discharge his responsibilities effectively. However the role of the chairman as to the effective participation of all members is a non mandatory recommendation.

 6.      Report of the committee on regulation of private companies and partnership, Naresh Chandra Committee II, July 2003

When the chairman is an executive or a promoter or someone closely related to a promoter or a senior official then in such a case one half of the board shall consist of independent directors and in other cases independent directors should consist at least on third of the board size.

7.      The SEBI Committee on disclosure and accounting standard issued a discussion paper that considered proposal for separation of chairman and CEO, Sept 2009

In its discussion paper it has considered proposals for separation of the office of the chairman and the CEO.

Hence all these reports have uniformly suggested that there must be separation of the office of the chairman of the board and CEO so that there may be effective incentives to exercise control over strong minded CEOs.