Corporate Governance – Role of Board of Directors

CORPORATE GOVERNANCE – ROLE OF BOARD OF DIRECTORS People often question whether corporate boards matter because their day-today impact is difficult to observe. But, when things go wrong, they can become the center of attention. Certainly this was true of the Enron, Worldcom, and Parmalat scandals. The directors of Enron and Worldcom, in particular, were held liable for the fraud that occurred: Enron directors had to pay $168 million to investor plaintiffs, of which $13 million was out of pocket (not covered by insurance); and Worldcom directors had to pay $36 million, of which $18 million was out of pocket.As a consequence of these scandals and ongoing concerns about corporate governance, boards have been at the center of the policy debate concerning governance reform and the focus of considerable academic research. Because of this renewed interest in boardsmuch of the research on boards ultimately touches on the question â€Å"what is the role of the board? † Possible answers range from boards’ being simply legal necessities, something akin to the wearing of wigs in English courts, to their playing an active part in the overall management and control of the corporation.No doubt the truth lies somewhere between these extremes; indeed, there are probably multiple truths when this question is asked of different firms, in different countries, or in different periods. So what is a Board of Director (BoD) and what do Directors actually do? â€Å"A Board of Directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors.It is often simply referred to as ‘the board’ †. A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the cou ntry’s company law, organization's bylaws and/or the Article of Association (AoA). The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. To better understand corporate boards, one should begin with the question of what do directors do’? Over the years there has been several indepth studies conducted and research literature published by some of the most brilliant academics only to answer this very question e. g. Mace, 1971, Whisler, 1984, Lorsch and MacIver, 1989, Demb and Neubauer, 1992, and Bowen, 1994 and their conclusions are presented breifly: The principal conclusions of Mace were that â€Å"directors serve as a source of advice and counsel, serve as some sort of discipline, and act in crisis situations†.The nature of their â€Å"advice and counsel† is unclear but Mace suggests that a board serves largely as a sounding board for the CEO and top management, occasionally providing exp ertise when a firm faces an issue about which one or more board members are expert. Yet Demb and Neubauer’s survey results find that approximately two-thirds of directors agreed that â€Å"setting the strategic direction of the company† was one of the jobs they did. 80% of the directors also agreed that they were â€Å"involved in setting strategy for the company†. 5% of respondents to another of Demb and Neubauer’s questionnaires report that they â€Å"set strategy, corporate policies, overall direction, mission, vision†. Indeed far more respondents agreed with that description of their job than agreed with the statements that their job entailed â€Å"oversee[ing], monitor[ing] top management, CEO† (45%); â€Å"succession, hiring/firing CEO and top management† (26%); or serving as a â€Å"watchdog for shareholders, dividends† (23%). According to Epstein and Roy (2006), a high performance board must achieve three core objective s; in other words Epstein and Roy nail the core responsibilities of the board: . Provide superior strategic guidance to ensure the company's growth and prosperity by Setting of Strategy: 2. Ensure accountability of the company to its stakeholders, including shareholders, employees, customers, suppliers, regulators and community; 3. Ensure that a highly qualified executive team is managing the company by The Hiring, Firing and Assessment of Management. Apart from what has been stated above one very significant and active role played by the board is in terms of â€Å"the hiring, firing, and assessment of management†.This is one role that is typically ascribed to directors is control of the process by which top executives are hired, promoted, assessed, and, if necessary, dismissed. Assessment can be seen as having two components, one is monitoring of what top management does and the other is determining the intrinsic ability of top management. The monitoring of managerial action s can, in part, be seen as part of a board’s obligation to be vigilant against managerial malfeasance. It is essential that the role, duties and responsibilities of directors are clearly defined.The Combined Code (2006) states that â€Å"the board’s role is to provide entrepreneurial leadership of the company within a framework of prudent and effective controls which enables risk to be assessed and managed†. According to UK Law, the directors should act in good faith in the interest of the company, and exercise care and skill in carrying out their duties. The Company Law Reform Bill (2005) defines, in section 154-161, the directors’ duties as follows: †¢ a duty to act within powers, that is, to act in accordance with the company’s constitution and only exercise powers for the purpose for which they are conferred; a duty to promote the success of the company, so a director must act in the way he considers, in good faith, would be most likely to promote success of the company for the benefit of its members as a whole; †¢ a duty to exercise independent judgment; †¢ a duty to exercise reasonable care, skill and diligence; †¢ a duty to avoid conflicts of interest; †¢ a duty not to accept benefits from third party †¢ a duty to declare an interest on proposed transactions or arrangements. But that does not quite answer our cardinal question as to ‘how the role the board plays is related to the overall corporate governance of the organization’.Nevertheless one thing is certain thus far is that the BoD lead and control a company and hence an effective board is fundamental to the success of the company. The board is the link between managers and the investors, and is essential to good corporate governance and investor relations. Since corporate governance represents the value framework, the ethical framework and the moral framework under which business decisions are taken; it therefore calls f or three factors: 1. Transparency in decision-making; 2. Accountability which follows from transparency because responsibilities could be fixed easily for actions taken or not taken, and; . The accountability is for the safeguarding the interests of the stakeholders and the investors in the organization. Decisions relating to board composition and structure will be of fundamental importance in determining whether, and to what extent, the board is effective and successful in achieving these objectives. A board will typically be composed of a Chairman, Chief Executive Officer, Executive Directors, Non- Executive Director, Independent Director, Company Secretary and then there are committees made from among the board for specific purposes with a view to increased corporate governance and hence accountability.It is important that the board has a balanced composition both in terms of executive and non executive directors and also in terms of experience, qualities and skills that individu als bring to the table. The Institute of Directors (IoD) has published some useful guidance in this area in 2006 which is shared below: †¢ Consider the ratio and number of executive and non executive directors. †¢ Consider the energy, experience, knowledge, skill and personal attributes of current and prospective directors in relation to the future needs of the board as a whole, and develop specifications and processes for new appointments, as necessary. Consider the cohesion, dynamic tension and diversity of the board and its leadership by the chairman. †¢ Make and review succession plans for directors and the company secretary. †¢ Where necessary, remove incompetent or unsuitable directors of the company secretary, taking relevant legal, contractual, ethical and commercial matter into account. †¢ Agree proper procedures for electing a chairman and appointing the managing director and other directors. †¢ Identify potential candidates of the board, make selection and agree terms of appointment and remuneration.New appointments should be agreed by every board member. †¢ Provide new board members with a comprehensive induction to board process, and policies, inclusion to the company and to their new role. †¢ Monitor and appraise each individual’s performance, behavior, knowledge, effectiveness and values rigorously and regularly. †¢ Identify development needs and training opportunities for existing and potential directors and the company secretary. Roles of the board members 1. Chief Executive Officer and ChairmanThe CEO has the executive responsibility for running of the company’s business; on the other hand, the Chairman has responsibility for the running of the board. The two roles should not therefore be combined and carried out by one person Conclusions Corporate governance, and in particular the role of boards of directors, has been the topic of much attention lately. Although this attention is par ticularly topical due to well-publicized governance failures and subsequent regulatory changes, corporate governance is an area of longstanding interest in economics (dating back to at least Adam Smith, 1776).Because of corporations’ enormous share of economic activity in modern economies, the extent to which corporations deviate from value-maximization is extremely important. Consequently, corporate governance and the role of boards of directors is an issue of fundamental importance in economics. Understanding the role of boards is vital both for our understanding of corporate behavior and with respect to setting policy to regulate corporate activities.

Separation Management in GlaxoSmithkline Case Study

Separation Management in GlaxoSmithkline - Case Study Example It is the only pharmaceutical company researching both medicine and vaccines for the WHO's three priority disease HIV/AIDS, tuberculosis & Malaria. As a company with strong foundations in science developed many drugs and spends heavily on R&D. GSK produces medicines that treat 6 major disease areas-Asthma, Virus control, infection, Mental Health, diabetes and digestive conditions. With the merger of top two British companies Glaxo & Smithkline in 1998, GSK increasing leaning's to the US in style and markets due to large US pharmaceutical markets. This merger and restructuring results in almost, 15,000 jobs loss of global workforce. Almost 300 Sr. Managers has been made redundant. Spencer Stuart, an international recruitment consultancy, was brought into look into areas of potential overlap between business units rather than the universe of managers at the new corporation, and would leave the vital R&D and marketing teams intact. By bringing in a recruitment consultancy to carry out a management audit, to executives once again expected to develop a level playing field so that few key individuals were lured away. This fear was further supported by anecdotal evidence, which suggested that the most valuable executives were likely to jump ship to competitors before the merger process was over. It has been evident that a well-planned separation management has been the part of GSK since its inception. GSK has spread over 116 countries but its policies and management of people/employees has always been based on the value of stringing for a balanced workforce and is committed to the principles of equal opportunity, equality of treatment, and creating a dynamic climate where diversity is valued as a source of enrichment and opportunity. All phases of employment relationship-including recruitment, hiring, training, promotion, compensation, benefits, transfers, separation and leaves of absence- will be carried out by mangers without regard to race, color religion, gender, age, sexual orientation ethnic or national origin, disability or (in US) status as a disabled veteran or veteran of war exist. GSK workplace environment force every employee to treat one another with equal respect and dignity, comply will all relevant employment laws and regulations in the various countries in which it do business and encourage employees to report immediately to m anagement or HR any incidences that are in consistent with their policies so that the GSK could be able to take corrective measures including separation from employment. GSK treat their employees with respect and dignity, encourage diversity and ensure fair treatment through all phases of employment. GSK provide safe and healthy environment, which support employees to perform to their full potential. GSK is committed to conducting its business with honesty and integrity and with ethical behavior and compliance with applicable laws and regulations. As we know GSK operations has been spread across 116 countries and each have its own employment laws to follow, GSK has established a corporate ethics and compliance department to look into every aspect of employee business conduct and serious violation of code results in separation from services. GSK employees have the responsibilities to comply with local legal requirements as well as GSK Policies &

Bring Your Own Device (BYOD Case Study Example | Topics and Well Written Essays - 750 words

Bring Your Own Device (BYOD - Case Study Example High numbers of employees in the current market organizations such as Russia and Brazil have developed their own way of making this strategy work. Bring Your Own Device initiative has been pointed out that businesses are unable to control their employees from bringing personal devices. However, this case study is divided in two ideologies. The benefits and risks involved in exercising Bring Your Own Device in workplaces (Wlech, 2015). The use of Bring Your Own Device at workplace has amplified substantially over the years. Hence, the use of paper and manual practices continues to diminish. For instance, schools have progressively used technology while studying through the use of gadgets such as tablets and personal computers. This type of learning assists students to be more cooperative and get involved in the learning process (Kelly, 2014). Bring Your Own Device has increased business productivity since organizations use green practices and positioning in a friendly environment. Bring Your Own Device saves money and creates peripheral support for employees’ hard work. However, Bring Your Own Device escalates productivity. This case study proves that employees are more productive if they are allowed to use their personal gadgets. There are numerous reasons for running a Bring Your Own Device strategy. One of these reasons is better satisfaction from the employees. Employees become more flexible while working. Bring Your Own Device saves cost expenditure in the workplace because it reduces spending on hardware maintenance and software licensing. While Bring Your Own Device increases motivation, the employees are more contented, more relaxed and often work efficiently with their personal devices (Evans, 2013). Though the use of Bring Your Own Device strategy is an advantage to a company as it makes employees more productive, the cost of this strategy is a great financial assurance to companies that procure many

Discussion Essay Example | Topics and Well Written Essays - 500 words - 43

Discussion - Essay Example In addition, the student portal is a crucial place to visit regularly since I get updates and information about my current school grades for the past years and it is easy to note any changes on such grades. With the school email, regular access makes me remain updated on things like course soft copies and presentations as sent by respective teachers. If I were driven by fear of consequences, being informed through the school notice board, school email, and student portal would be to gain critical information like exams and other dates that would affect my course completion. For instance, missing on exam dates would result to facing disciplinary action or expulsion, which is a big blow to my education and good grades. I believe the drive by fear of consequences is the best option. The university has set clear rules on all assignments and coursework submission. Some of the consequences of course requirements include penalizing like in late or plagiarised assignments, likelihood of expulsion for failed submission without notice, and sanctioned for disciplinary action for repeated failure. Additionally, I have some self-set goals and objectives to assist me in attaining the best grades for my career. In this case, I have to pass in my entire course works for fear that they would lower my cumulative grade. For me, this would mean missing the career of my dreams while observing time and instructions in my course work would maximize my chances of attaining a high grade. I would also gain high confidence in all my work and this would instil a sense of problem analysis, and solving that would be useful even in my real life (ODonnell, Reeve and Smith 132). If I followed my sense of obligation, there are high chances of relaxing and not being so keen on time and coursework instructions especially where the tutor is not strict. This would also increase the possibility of losing my research skills and self-dependence, and

How do the simple actions of individuals add up to the complex Essay

How do the simple actions of individuals add up to the complex behavior of a group - Essay Example In this view, the author introduces the concept of ‘Swarm Intelligence’ which is based on self-organization and decentralized control. With reference to colonies of termites and ants, flocks of birds, schools of fish, various land animal herds including elephants, and swarms of bees, it is evident that these swarms utilize collective intelligence to coordinate the various activities conducted by various subgroups to ensure the key objectives of the swarms such as collecting of food, protecting the habitat, and finding shorter paths to food sources are performed (Miller). This can be employed in the organizational setting with inclusion of mechanisms that would allow self-sufficiency of each of the members towards a collaborate approach towards the goals of the organization. For instance, a company referred to as American Air Liquede based in Houston employed the behavior of foraging Argentine ants in establishing a pheromone trail through which successive ants can follow in going to get more food for the colony. In this case, Air Liquede merged the ants’ approach with techniques of artificial intelligence to regard all permutation of weather, plant scheduling, and truck routing decisions. The model allows for inclusion of daily forecasts of manufacturing costs and customer demand (Miller). An important lesson that I learnt from the ants is decentralized control, through which my assignment group members can be allowed to make independent decisions without reliance on any form of supervision from a group leader, towards meeting the predetermined objectives of the

Report on Media Legal Issues (Digital Movie Revolution) Research Paper

Report on Media Legal Issues (Digital Movie Revolution) - Research Paper Example In fact, a good number could not make independent films until they attended a certain school to acquire the equipment or they grew up with the set. In the past, most people faced challenges until they went to Hollywood to land a job on a movie set of the needed equipment. Conversely, today in as much as there is a lot of networking and dues paying to venture in the movie business, the internet radically has altered what looks like and more especially change has been in the accessibility (Silver, 2003). It has simplified almost for everyone to do video project and have seen as wished. This is possible since the advent of less expensive digital technology. Websites like Vimeo and YouTube have played a role in allowing anyone with camera to post a video. The computers made it possible to edit enabling anyone tweak their projects or other peoples projects to make them even look much better. As a result, many aspiring filmmakers, who would otherwise have lacked the resources to be seen, can now go public on their own. The movie industry probably will soon take the lead from the independent colleagues that have made significant steps towards digital filmmaking (Prince, 2012). This facilitates the digital revolution found in every setting of the movie industry. Indeed, this is a landmark development concerning the evolution in the field of entertainment. Allowing customers to be able to access and even own movies digitally by downloading via broadband internet connections has allowed them more power to be entertained to their satisfaction. Unfortunately, in the period when the movie industry was in aid of embracing digital distribution onl y a handful of the companies already had started the trend which did not include the video clip download sites (Silver, 2003). Already video streaming and the download sites have been able to provide content including the

Monopoly Review Essay Example for Free

Monopoly Review Essay 1. What character did you choose from the available choices? Why? What are the pros and cons of choosing this character in the game? The character I pick was pat the plastic surgeon because she makes a lot of money the pros are that she makes a lot of money and the cons are that he life is work. 2. What housing and car option did you choose? Why? I pick the mansion because she makes a lot of money. 3. How much money did you allocate for the characters retirement and paying off debts? Were you successful in management the money so that the character has some disposable income? I allocated 2785 to pay off debts yes I was successful to management the money so that the character has some disposable income 4. How do the changes in the game from year to year reflect real-life economics? Changes in the game from year to year is reflect of real life economies by how money is spend from for thing here and there and you can get in debt 5. What was your ending net worth? How many years can you exist on your current salary with your current salary? My ending net worth was about 22456871135 I think it was that it was about 6 years with the salary of 75000 or something like that. 6. What do you think you did well in the game? What do you think you could improve in regards to managing the characters money? That the end I have no debt I think I did great it no being in debt I could improve is to save more money and not to spend money Play the game again, but using a different character. 7. What character did you choose for the second game? Compare and contrast the situations of the first and second characters. The first time I play tis game I got a debt free at the end of the game and I got to retire in 6 year if I save my money my hole life and the second time I played it 8. How did your strategy differ between the games? Did you change the way that you did anything? I didn’t really had a strategy thought out the game but I thought how it would change the way I look at thing thought out the game 9. Did the differing levels of income, debt, and lifestyle expenses influence the choices that you made? Why or why not? yes the differing levels of income and debt was a influence the choices that I made because of the spend of money and the people who are out there trying to get my money 10. What can you learn from this game about managing your own finances? I learn that everything you do like spending money is finances impact every on a pack of gum.