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Corporate Governace Role of Borad of Directors Essay Sample

Corporate Governace Role of Borad of Directors Pages
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If the board of directors have been more involved then I think maybe they would have caught on that there were fraudulent and unethical activities happening. However, since they were not proactive they were not able to stop the misbehavior from the company’s employees. The board of directors were to be held with as much fault as the culpants. The tax evasion, inflated profits, commingling of assets was illegal and the unauthorized bonuses that they were handing out were not authorized, but they still continued to do it. They also paid off other officials to remain quiet. Overall, the harmful parties knew what (Stanwick A.(they were doing was illegal, unethical, and costly to Tyco. &D. ) The Role of the Board of Directors the role of the board of directors to hire the CEO and assess the overall direction and strategy of the business. The CEO is responsible for hiring all of the other employees and overseeing the day-to-day operation of the business. Problems usually arise when these guidelines are not followed. Conflict occurs when the directors begin to meddle in the day-to-day operation of the business. Conversely, management is not responsible for the overall policy decisions of the business.

The seven points below outline the major responsibilities of the board of directors.

1) Recruit, supervise, retain, evaluate and compensate the manager. Recruiting, supervising, retaining, evaluating and compensating the CEO or general manager are probably the most important functions of the board of directors. Value-added business boards need to aggressively search for the best possible candidate for this position. Actively searching within your industry can lead to the identification of very capable people. Don’t fall into the trap of hiring someone to manage the business because he/she is out of work and needs a job. Another major error of value-added businesses is under-compensating the manager. Managerial compensation can provide a good financial payoff in terms of attracting top candidates who will bring financial success to the value-added business.

4) Govern the organization and the relationship with the CEO. Another responsibility of the board is to develop a governance system. The governance system involves how the board interacts with the general manager or CEO. Periodically the board interacts with the CEO during meetings of the board of directors.

5) Fiduciary duty to protect the organization’s assets and member’s investment. The board has a fiduciary responsibility to represent and protect the member’s/investor’s interest in the company. So the board has to make sure the assets of the company are kept in good order. This includes the company’s plant, equipment and facilities, including the human capital (people who work for the company.)

1. Effective board leadership
The effective functioning of a board depends on a number of factors, including the mix of knowledge and experience among the directors, the quality of information they receive and their ability to operate as a team. The chairman’s role (or that of the lead director on many U.S. boards) is pivotal in managing the group dynamic, playing to the board’s strengths and maintaining regular contact with directors between meetings. High-functioning boards rotate meetings around company locations, simultaneously educating directors about different aspects of the business and giving them access to key executives. Directors are invited to attend all committee meetings and are free to ask questions, however difficult. Boards not only evaluate the performance of the CEO, but take the formal assessment of their own work seriously and use the findings to develop — and hold themselves to — objectives for improvement. Transparency and trust prevail.

As businesses reinvent themselves, so should boards. Effective boards ensure that they have the right people at the right time. This is largely the responsibility of the chairman and the nomination or governance committee. Together they play a vital role in defining the board’s needs, seeking the appropriate diversity of perspectives, and overseeing a rigorous recruitment process. As an individual director, however, you have a responsibility to ask yourself periodically whether you are still the right person for the board. It takes considerable self-awareness to assess the value of your contribution, to consider your “period of validity” and to be prepared to step down if necessary when the business has moved on.

Boards can get more out of their directors by adopting processes that promote efficiency and good communication, both among directors and with external parties. Ensuring that board papers are timely and thorough and that information is easily accessible to directors between meetings is essential. One criticism leveled at board papers is that they are top-heavy with facts and figures, too backward-looking, and not sufficiently focused on strategic issues. Another way of helping directors give their best to the board is through well-planned induction programs and by offering continual opportunities for directors to increase their understanding of the business and keep abreast of changes to legislation or governance codes. Finally, effective boards place a premium on good communication, whether it be with fellow board directors, key executives or shareholders. This needs to be orchestrated by the CEO and/or chairman, but directors need to insist on the highest possible standards of communication — whether it be presenting compensation decisions to shareholders or feedback from the latest board assessment. 2. Strategy

Progressive boards put their companies at a distinct advantage; nowhere is this more evident than in the way they address strategy, from formation through to execution. The conventional delineation of responsibility is that the executive team develops strategy, the board fine tunes it and then oversees its execution by management, measuring the CEO’s performance against a set of agreed-upon objectives. The most common catalyst for this process is an annual strategy day where the CEO, supported by his or her management team, reviews a set of strategic options, assesses competitors’ strategy, and makes recommendations. Given that the company’s success and shareholder satisfaction are dependent on the board making wise strategic decisions, it is vital that every director be fully engaged. However, for this to be the case they must be absolutely clear about what is expected of them in the strategy discussion and how much leeway exists to question, challenge or throw out proposals.

Great boards consist of independent directors who are “rowing together in the boat.” They see the development of strategy as a collective effort between themselves and management, rather than a question of “us versus them.” Management generates and shares ideas that stimulate debate among directors who are there to make positive, valuable contributions to strategy development, not just to provide a critique of the ideas they are presented with.

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3. Risk vs. initiative
Since the start of the most recent economic crisis, boards have been urgently rethinking their approach to risk oversight. Outside financial services, where risk committees are well established, responsibility for risk still tends to lie with the audit committee, where the majority of time is spent on financial risk. These days, risk needs to be defined in the broadest terms, encompassing not just financial matters, but also areas such as health and safety, the environment, IT security, industrial relations and corporate reputation. Boards should determine whether they have the optimal structure for overseeing risk, including whether there is a clear delineation of risk management responsibilities between the board and the executive. Great boards institutionalize risk, they don’t necessarily police it. They tailor their participation and committee structure to the sensitivity of their business to risk.

The board should review its risk appetite on a regular basis. It is worth directors stepping back to assess the extent to which personal considerations may affect their attitude to risk, since this will have an impact on the degree of latitude available to management to pursue their business objectives. Boards need to be aware that heightened sensitivity to risk may stifle innovation and creativity. These days, risk downside tends to get far more attention than risk upside; many take the view that entrepreneurialism inside large corporations is under threat due to increased risk aversion. A strong and fearless board will acknowledge that risks are inherent in any business that is going to deliver long-term value to its shareholders and, with the right executive team in place, its members will have the confidence and trust to back the CEO when new opportunities arise. 4. Succession

When asked about succession planning, most directors acknowledge its importance but admit that more could be done by their board to establish a rigorous process to identify the next CEO. This is borne out by periodic high-profile emergency succession events that reveal a remarkable lack of preparedness by boards, usually spooking the market and diminishing the share price. On those occasions when companies manage a seamless CEO transition, whether it is planned or an emergency, the reaction is invariably one of surprise that preparations should have been handled so discreetly and effectively.

A great board will make succession planning a regular agenda item. It will start the process as early as possible — even if this makes the incumbent uncomfortable — and will also consider succession for the chairman (where the roles are separated) and the rest of the board. When the lead CEO candidates are internal, boards will also conduct external benchmarking. In Germany, the supervisory board must by law involve itself in succession planning for the entire senior management team. Elsewhere, the best boards take the initiative on succession, usually led by a committee, and ensure they have regular contact with senior executives in all divisions and geographies, requiring the CEO to plan for the succession of his or her senior leadership team. A conscientious director will want to be satisfied that the board has a rigorous succession planning methodology in place providing for both planned and emergency scenarios, and that the board is confident in the tools available to assess potential successors. 5. Sustainability

Boards of listed companies have an obligation to build and protect long-term shareholder value and to ensure that short-term decisions do not jeopardize the sustainability of the enterprise. I All forms of capital — financial, human, natural and social — are seen as essential for value creation. Other societies and governance codes are far less explicit about the link between sustainable practices and shareholder value, but evidence is mounting that boards overlook corporate social responsibility at their peril. While this issue will manifest itself in different ways depending on the industry sector, it is worth directors reviewing their board’s attitude to corporate social responsibility and wider stakeholder issues and consider whether they require more attention — ignoring both can carry a strong element of risk.

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