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Topic : Essentials for Corporate law
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Finance & Accounts |

CXO Forum

By : amit chaudhry, Senior Consultant, McKinsey Knowledge Centre India Private Limited
Activity:  5 comments  3788 views  last activity : 07 06 2010 20:18:04 +0000
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You must be wondering at times that what people at higher posts do and how their work is related to their posts

In olden days mostly companies were run by the family members but nowadays it is era of multi national companies with global exchanges .
Many companies are following a two-tier corporate hierarchy. On the first tier is the board of governors and directors while other is  upper management: these individuals are hired by the board of governors.Lets look at their functions
Elected by the shareholders, the board of directors is made up of two types of representatives. The first type involves individuals chosen from within the company. This can be a CEO, CFO, manager or any other person who works for the company on a daily basis. The other type of representative is chosen externally and is considered to be independent from the company. The role of the board is to monitor the managers of a corporation, acting as an advocate for stockholders. In essence, the board of directors tries to make sure that shareholders' interests are well served.

Board members can be divided into three categories:
1)Chairman Technically the leader of the corporation, the chairman of the board is responsible for running the board smoothly and effectively. His or her duties typically include maintaining strong communication with the chief executive officer and high-level executives, formulating the company's business strategy, representing management and the board to the general public and shareholders, and maintaining corporate integrity. A chairman is elected from the board of governors.
2)Inside Directors- These directors are responsible for approving high-level budgets prepared by upper management, implementing and monitoring business strategy, and approving core corporate initiatives and projects. Inside directors are either shareholders or high-level management from within the company. Inside directors help provide internal perspectives for other board members. These individuals are also referred to as executive directors if they are part of company's management team.
3)Outside Directors- While having the same responsibilities as the inside directors in determining strategic direction and corporate policy, outside directors are different in that they are not directly part of the management team. The purpose of having outside directors is to provide unbiased and impartial perspectives on issues brought to the board.

As the other tier of the company, the management team is directly responsible for the day-to-day operations (and profitability) of the company.

1)Chief Executive Officer (CEO) is the top manager, the CEO is typically responsible for the entire operations of the corporation and reports directly to the chairman and board of directors. It is the CEO's responsibility to implement board decisions and initiatives and to maintain the smooth operation of the firm, with the assistance of senior management. Often, the CEO will also be designated as the company's president and therefore also be one of the inside directors on the board (if not the chairman).

2)Chief Operations Officer (COO)Responsible for the corporation's operations, the COO looks after issues related to marketing, sales, production and personnel. More hands-on than the CEO, the COO looks after day-to-day activities while providing feedback to the CEO. The COO is often referred to as a senior vice president.

3)Chief Finance Officer (CFO)Also reporting directly to the CEO, the CFO is responsible for analyzing and reviewing financial data, reporting financial performance, preparing budgets and monitoring expenditures and costs. The CFO is required to present this information to the board of directors at regular intervals and provide this information to shareholders and regulatory bodies such as the Securities and Exchange Commission (SEC). Also usually referred to as a senior vice resident, the CFO routinely checks the corporation's financial health and integrity.

Both the tiers should work for maximizing shareholder value. In theory, management looks after the day-to-day operations, and the board ensures that shareholders are adequately represented. But the reality is that many boards are made up of management.
Always find a company where there is a balance between internal and external members , separation of CEO and chairman roles and a variety of professional expertise on the board from accountants, lawyers and executives. So it is in your hands to decide whether a corporate structure is in line with your interests .

 Top Comment : Suresh Jain   | 05 19 2008 21:37:20 +0000
The article does not contain the professional directors on the board and the nominees of financial institution on the board. You may add the roles of captioned directors.
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5 comments on "Fundamentals of corporate structure"
  Commented by  DILIP SINGH GAUR, SBU/Profit Center Head, EVEREST DEVELOPERS    | 02 18 2009 07:27:31 +0000
  Commented by  Bellala Gopinatha Rao, Project Manager Promax Management Consultants    | 01 03 2009 13:20:14 +0000
Nice one thanks
  Commented by  varsha ., Technical manger(QMS)    | 11 19 2008 17:37:43 +0000
good one........
  Commented by  Hardik Patel, Team Lead (Staffing and Recruitment), Rishabh Softwares Pvt. Ltd. / Rishi Infotech Pvt. Ltd    | 07 23 2008 13:06:34 +0000
Very Good One.
  Commented by  Suresh Jain, Chartered Accountant/CPA RBSM Consulting Pvt Ltd    | 05 19 2008 21:37:20 +0000
Rating : +1 
The article does not contain the professional directors on the board and the nominees of financial institution on the board. You may add the roles of captioned directors.
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