Section 2 (10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company.

The composition of a board of directors is crucial in determining how effectively it can govern an organization and fulfil its responsibilities. A well-constituted board comprises the right mix of members, diversity, and expertise to provide balanced oversight and strategic direction.

While there is no one-size-fits-all answer to the ideal board size, it typically ranges between seven and fifteen members. Smaller boards can facilitate more agile decision-making and closer collaboration among members. However, they may lack the breadth of expertise and perspectives necessary for comprehensive governance. Conversely, larger boards can bring diverse skills and knowledge but may face challenges in maintaining effective communication and decision-making efficiency.

The minimum and maximum number of the directors in a company is stated under section 149(1) of the companies act. The minimum number of directors in a private limited company is 2, for public companies it is 3 directors and an OPC shall have a minimum of 1 director. The maximum number of directors cannot be more than 15 in a company. Only by passing a special resolution in the general meeting the company can raise the number of directors beyond 15.

Under Section 166, directors of a company are bound by specific duties. They must adhere to the company’s articles and act in good faith to advance the company’s objectives, ensuring benefits for its members, and considering the best interests of the company, its employees, shareholders, the community, and the environment. Directors are required to perform their roles with care, skill, and diligence, exercising independent judgment. They must avoid conflicts of interest and refrain from seeking personal gains for themselves or their associates. Additionally, directors cannot assign their office, and any such assignment is deemed void.

Under Section 177 of Companies Act, 2013, Board of Directors may delegate certain matters to the committees set up for the purpose.

Structure and Composition

The composition of a board of directors usually includes a mix of executive and non-executive members. Executive directors, such as the Chief Executive Officer (CEO), are often involved in the day-to-day operations of the company. Non-executive directors, including independent directors, bring external perspectives and are not involved in daily management, allowing them to provide unbiased oversight. The chairperson, often a non-executive, leads the board and ensures it operates effectively.

Types of Board Members: Executive vs. Non-Executive

Executive Directors

Executive directors are typically part of the company’s senior management team and are involved in the day-to-day operations of the business. They provide an internal perspective and have detailed knowledge of the company’s workings. Examples include the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Their presence on the board ensures that the board has a clear understanding of the company's operational realities and strategic initiatives.

Every listed company shall appoint at least one-woman director within one year from the commencement of the second proviso to Section 149(1) of the Act. Every other public company having paid up share capital of Rs. 100 crores or more or turnover of Rs. 300 crore or more as on the last date of latest audited financial statements, shall also appoint at least one-woman director within 1 years from the commencement of second proviso to Section 149(1) of the Act. A period of six months from the date of company’s incorporation, has been provided to enable the companies incorporated under Companies Act, 2013 to comply with this requirement.

Non-Executive Directors

Non-executive directors (NEDs) are not involved in the daily management of the company but provide oversight and independent judgment. There are two main types of non-executive directors:

Independent Directors

Independent directors have no material relationship with the company beyond their board role. They are valued for their objectivity and impartiality, providing unbiased perspectives on corporate strategy and governance. Their independence allows them to challenge management decisions and advocate for the interests of shareholders and other stakeholders without conflicts of interest.

Under SEBI LODR regulations, for the top 500 listed entities, it has been obligatory to have at least one independent woman director starting April 1, 2019, and for the top 1000 listed entities, this requirement extends to at least one independent woman director since April 1, 2020.

Non-Independent, Non-Executive Directors

These directors may have relationships with the company, such as being a major shareholder or a representative of a significant stakeholder. While they do not engage in daily operations, their relationship with the company means they have a vested interest in its success. They bring valuable insights and a deep understanding of the company’s strategic priorities.

In addition to these roles, boards frequently establish various committees to focus on specific areas. These committees allow for more detailed scrutiny and specialized knowledge to inform the board's decision-making processes. The role and responsibilities of the different committee includes:-

Strategic Oversight

One of the board's core responsibilities is to provide strategic oversight. This involves setting the overall direction of the company, defining its mission and vision, and establishing long-term goals. The board works closely with the executive team to develop strategies that align with these goals and ensure that the organization is on the right path to achieve them. Strategic oversight also includes assessing potential risks and opportunities in the market and adjusting the company’s approach as needed to remain competitive and sustainable.

Fiduciary Duty and Accountability

The board of directors has a fiduciary duty to act in the best interests of the shareholders or stakeholders. This duty includes ensuring the company is managed effectively and ethically, and that its resources are used efficiently to maximize value. The board is accountable for the company’s financial health and must ensure that accurate financial records are kept, regular audits are conducted, and that the organization complies with relevant laws and regulations.

Risk Management

Risk management is another fundamental purpose of the board. The board must identify, assess, and manage potential risks that could impact the company's performance. This involves setting up risk management frameworks and ensuring that the company has appropriate controls and measures in place to mitigate identified risks. Effective risk management helps safeguard the company’s assets and protects it from potential financial, legal, and reputational harm.

Performance Monitoring

Monitoring the performance of the company and its management team is a critical function of the board. This includes evaluating the performance of the CEO and other senior executives, setting performance targets, and holding management accountable for achieving them. Regular performance reviews ensure that the company is meeting its objectives and allows the board to make informed decisions about leadership and strategic adjustments as necessary.

Corporate Governance and Ethical Conduct

The board is responsible for establishing and maintaining strong corporate governance practices. This involves setting ethical standards, creating policies and procedures that promote transparency and accountability, and ensuring compliance with legal and regulatory requirements. Good corporate governance is crucial for maintaining stakeholder trust and fostering a culture of integrity within the organization.

Stakeholder Relations

The board also plays a key role in managing relationships with various stakeholders, including shareholders, employees, customers, and the community. This involves ensuring that the company communicates effectively with stakeholders and considers their interests in decision-making processes. Building and maintaining positive stakeholder relations is essential for the company’s reputation and long-term success.

Conclusion

The composition of a board of directors is a foundational element of effective corporate governance. By carefully considering the number of members, ensuring diversity, and balancing the types of board members, companies can build boards that provide robust oversight, strategic guidance, and enhanced decision-making capabilities. This composition not only supports the company’s immediate governance needs but also positions it for long-term success and resilience in a dynamic business environment.