Management of Company01/03/2020
The company is a device that unites the efforts of a large number of people namely the Shareholders, Directors, Managing Director, Departmental Managers and Operatives.
The shareholders, who provide the funds for the company, are generally regarded as the owner of the company and its business and property.
But in practice, shareholders do not and cannot exercise control and carry out management of the business because they are diffused and scattered and live in different parts of the country, sometimes different parts of the globe.
They delegate their powers and authority to their elected representatives—the Board of Directors. So the management of a limited company is actually vested in the Board of Directors. Generally the Board appoints one of their members to be the Chairman and one to the position of the Managing Director.
With the election of directors, the function of the shareholder is over. The directors are selected by shareholders but in reality the shareholders elect the directors. The shareholders have nothing to do with day-to-day management of the company. The divorce between ownership and management is the most important feature of company management.
Other features are:
- The company as a legal entity is completely separate from its shareholders.
- The number of shareholders is so large and widely diffused that it is not possible for them to carry on day-to-day management of the company.
- The shareholders are a heterogeneous body of men belonging to different walks of life and may not be competent or interested to manage the difficult problems of management.
- The position of a shareholder is that of an entrepreneur who bears the risks and supply the funds but delegates the management to the directors or managing director. In theory, the shareholder is the master but in practice, he is a sleeping master.
The directors collectively constitute the Board of Directors which is the supreme policy-making body of the company. It assumes the powers and duties given in the Articles and carry on all those affairs of the company which are not done in general meetings of the shareholders. It distributes dividends amongst the shareholders, appoints and removes officers of the company and fill up any temporary vacancy if it may occur.
A distinguishing feature of company law in India is the statutory recognition of various types of managerial personnel.
The Companies Act, 1956 formerly provided for four alternative forms of management:
(I) By Managing Directors or Whole-time Directors,
(II) By Managing Agents,
(III) By Secretaries and Treasurers and
(IV) By Managers. But no company can have at the same time more than one of the above categories of personnel.
The amended Act of 1969 abolished (II) and (III) of the modes from 3rd April 1970. So now a company can appoint either managing director or manager as its managerial executive.
The form of company management will be as follows:
At the top there will be shareholders but they are not the managers. The management of the company lies in the hands of the elected representatives of the shareholders—the Board of Directors. For executing the accepted policies, the Board appoints the chief executive, who may be either the managing director or manager.
Under him is a small group of top managers, beneath them a larger group of middle managers, and below them, a still larger group of lower executives.
Problems of Company Management:
The company is managed by two main organs the shareholders in General Meeting and the Directors acting as a Board. The Board has to rely upon the Executives and staff to conduct the day- to-day business of the company. Though theoretically the General Meeting could direct the business of the company, but actually it is not feasible.
Hence law vests the executive authority in a Board of Directors, leaving only the ultimate authority to the general meeting which is not generally exercised because shareholders are widely diffused and they have small individual shareholdings. This raises a number of problems of corporate management.
These problems are discussed under the following heads:
- Company Management is oligarchic or democratic?
- How effective is the Board of Directors?
- The emerging pattern of company management.