Role Of Corporate Governance

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Corporate Governance is defined as a system of rules, practices and process by which a company is directed and controlled [1]. The importance of corporate boards is always debatable and questionable but after the scandal of Enron, Worldcom and Parmalat, more and more attention is being given to the corporate governance with the emphasis on the role of the board of directors including the structure and the composition of the board itself. In this article, the authors outlined the role of the directors and provide some empirical evidence on the role of the directors especially in the role of hiring, firing and assessment of management and also on the role of setting of strategy for the company. Some models of assessments were also being used…show more content…
All major decisions especially that involve the stakeholders will be sanctioned by the board of directors. In this article, the authors have outlined that the role of the board of directors is to serve as advisory or as a sounding board for the CEO and the top management and providing expertise when a firm faces an issue. Another role highlighted are to set the strategic planning for the company, the hiring, firing and assessment of management and also to serve as a watchdog for shareholders and dividends. The authors also emphasized and dwelt a lot on the assessment of the CEO, on the relationship between the CEO’s power and the board independence and setting of strategies. They have justified their findings with several type of assessment models and empirical evidence. Besides emphasizing on the assessment of the CEO and the relationship between CEO’s power and the board independence, the authors could also emphasize that the board of directors has a bigger role and responsibility and has fiduciary responsibility of putting the interest of the company first. They must always act to the best interest of the company and the stakeholders: the employees, the customers, the shareholders and the debtholders. The board must exercise accountability to shareholders and responsible to relevant stakeholders. They also must monitor the effectiveness of the company’s governance practice and making changes where…show more content…
They highlighted that having a banker, a venture capitalist, a politically connected directors and CEO of other company as advisory role might be valuable to the board and the company. From the authors’ findings, I could conclude that having a banker and venture capitalists as outside directors will be a boost to the reputation of the board of directors. Shareholders will want somebody with strong financial background and strong business acumen to be able to give sound advice based on their expertise to the company. Besides the arguments given by the authors, I can conclude that having a politically connected director in the board has both advantage and the disadvantages. Some political appointees have conflicting objectives which is not in line with company’s objectives of maximizing profit, for example, maximizing employment or minimizing social costs. However, a director who has knowledge and experience with government procedure, insights in government policy, and the ability to persuade the government favour to the company’s interest would be valuable to the company [9]. Nevertheless, I do not agree with having labor representative as outside directors and only 50% agreeable to other CEO as outside director. A labor representative generally will have conflict of interest with the board as they would normally put the employees’ interest first
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