But then the question that arises is what are the agency problems solved by them and why are boards the solution to these problems? The agency problem in any corporation is between the management and the shareholders. And the problem arises because of lack of control of shareholders on the management and the possibility of the management cheating the shareholders. The possible solution to this problem is either providing the management with incentive or strengthening the position of shareholders to tackle the problem on their own. But then the question arises- who provides the management with the incentives and how the shareholders are strengthened. Thus the board can be seen as a bridge or a medium, as suggested by literature, between management and shareholders which maintains the trust between them by keeping a check on the management and taking actions, on behalf of the shareholders, to optimize the profit value of the firm.
How are Board of Directors Structured?
Generally the board of directors are divided into two groups: inside directors and outside directors. An inside director is a director who is a full-time employee of the firm, while a director who is employed outside the firm in question is called as an outside director. Outside directors are seen more independent as compared to the inside directors as inside directors are seen to have more links to the CEO. The independence of a board depends on the game between the CEO and the board: the CEO wants a less independent board and thus tries to lessen the number of outside directors and the board on the other hand tries to remain independent.
What do Directors do?
The principal conclusions of Mace were that “directors serve as a source of advice and counsel, serve as ...
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...st a legal requirement. Thus it is very important to understand the role of board of directors and their functions. Boards of directors are difficult institutions to study not only because of their endogenous nature but also due to lack of theoretical structure. Empirical study of boards is difficult because of the various variables involved in the study and ambiguity arising in cases of certain classifications like whom do we consider as an independent director? The important questions concerned with the board are what determines their makeup, and what determines their actions.
The independence of board might not be relevant on day-to-day basis but is very much important when certain actions are taken. Also it is important to take the board size into account in order to not only maintain board’s independence but also to avoid free riding problem among directors.
Ralph Nader, Mark Green and Joel Seligman, in an excerpt from Taming the Giant Corporation (1976, found in Honest Work by Ciulla, Martin and Solomon), take the current role of the company board of directors and suggest changes that should be made to make the board to be efficient. They claim the current makeup of the board does not necessarily do justice to the company because “in nearly every large American business…there exists a management autocracy” (Nader, Green and Seligman, 1976, p.570). The main resolution they present is to make the board more democratic with the betterment of the company as its first priority. Currently the board no longer oversees operations, or elects top company executives and they are no longer involved in the business operations to the extent they should be. Nadar, Green and Seligman argue that that all of these things need to be changed. For a corporation so large to be successful there must be separation of powers just as there is in any current government system ( p.571). They claim this is the only and best way to success (Nader, Green and Seligman, 1976, p.570-571).
The corporation’s business is carried out by its management, under the direction of the Board of Directors. The Board, and each committee of the Board, has complete access to management. Also, the Board and committee member’s has access to independent advisors as each considers necessary or appropriate. Mallor, Barnes, Bowers, & Langvardt (2010) state that the Board of Directors also, issues shares, Adopts articles of merger or sha...
Introductory, agency theory discusses the relationship in which one party, the principal, delegates work to another, the agent (Eisenhardt, 1989). The core idea behind agency theory is to through contracting align the interest of shareholders (principal) with that of the managers (agents) in order to maximize shareholders value. Thus, the decision-making is being separated from the party who bears the risk; therefore, problems can arise. Firstly, the principal cannot verify whether the agent has behaved appropriately (the agent and principal have partly di...
Foodies Forward’s Executive Director and the Board of Directors will create bylaws and board policies for the organization. These bylaws will state the rules and regulations of Foodies Forward. These rule and regulations will include but are not limited to: specifying the size and function of the board; dictating the roles and responsibilities of the Executive Director, the Board of Directors and additional staff; outlining meeting procedures and voting requirements, detailing conflicts of interests regulations, and defining how funding will be dispersed.
With good corporate governance, the costs of capital are lowered, transaction costs are reduced and firms are encouraged to use resources optimally (Balgobin 2008). The board comprises of 11 members, the chairperson, seven independent directors, two non-executive director, and one executive director (Chief Executive Officer). This is reflective of a unitary board with majority non-executive directors which is typical of significant listed companies in the United States of America and is in compliance with NYSE requirement for listing. In addition, the size of the board is similar to most publicly-traded companies in the US which was discovered to have between 8-11 members. By-law of the Company however, provides for a larger number at the discretion of the board.
Corporate gorverance as a system are directed and controlld by companies. Initially, their board of directors should take responsible for the gorverance of companies, which include setting strategic aims of companies , guarantee an effective leadership, supervising the proformance of business management and reporting on it to shareholders. The board's action should comply with the law, regulations and shareholders. In addition, the shareholders also play an important role in gorverance and they have right to decide who can be employed as the companies' directors and auditors to provide good governance structure for them. Therefore, corporate goverance can be regarded as what the board of a company does and how it sets the values of the company.
This master thesis investigate the influence of board monitoring on the market’s response to corporate antitakeover amendment proposals in particular to classified boards. Board monitoring is measured using board composition, board ownership structure, and leadership structure. The stock price reaction to antitakeover amendment proposals of classified boards is negatively related to the portion of inside and affiliated outside directors on the board. Moreover, for companies in which the CEO also is the chairman of the board, the response turn out to be more negative since inside and affiliated outside directors on the board increase their stake on the firm and their proportional number on the board makes them more entrench to the firm. On the
The Board of Directors is consisted of 11 members: James M. Elliot, the Chairman of the Board, 3 inside members and 7 outside members. The economy is stable and profitable, but that also means a lot of competition in the market. This poses a great opportunity for the company to grow and gain more of the market share. The only foreseeable real threat that the company will face is new competitors in the market.
Liddy is an external director because he is the “Former Chairman and Chief Executive Officer of Allstate” (Corporate Governance, n.d.). He is from the United States. He has been a director since 2010. “He is a member of the Finance Committee and the Chair of the Audit Committee” (Corporate Governance, n.d.). -Dennis A. Muilenburg is an internal director because he is the “Chairman, President, and Chief Executive Officer of Boeing” (Corporate Governance, n.d.).
As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose. The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board. The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company. It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves. The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position. Furthermore, there are specific provisions within the CA 2006 that empower third parties such as shareholders to influence directors’ remuneration.
The debate whether diversity is beneficial to corporate governance or not has persisted over the years. In this context, the concept of diversity relates to boardroom composition and the wide-ranging blend of characteristics, expertise, and attributes supplied by individual board members (Grosvold, Brammer and Rayton, 2007, p. 344). What is more, diversity in corporate boards of directors can assume a variety of forms, counting individual demographics such as, nationality, race, ethnicity, and gender (Singh, Terjesen, and Vinnicombe, 2008, p.48). Boardroom diversity in listed companies is dictated by an array of diverse factors, including profitability, company size, as well as the size of the board (the number of non-executive and executive directors) (Grosvold, Brammer and Rayton, 2007, p.346). In listed companies, the board of directors usually serves at least four significant roles i.e. controlling as well as monitoring managers, providing counsel and information to managers, ensuring conformity with relevant laws as well as regulations, plus connecting the corporation to the external business environment (Carter et al. 2010, p.398).
The problem to be investigated is the ethical dilemmas faced by Board members that impact their ability to be effective leaders. This problem relates to the ethical issues raised in the Hewlett- Packard (HP) and Pretexting: Spying on the Board case study which was an examination of leaking Board sensitive information and the investigation of board members. As such this essay explores key factors relating to: (a) the drivers for the investigation and the tacit approval of this conduct; (b) issues of legal versus ethical conduct; (c) issues missed when analyzing the pretext decision and; (d) the governance strengths and weaknesses of the HP board.
The XYZ Corporation was established in 2004 and their main office is located in Vancouver, BC. The company’s main objective is to create new innovating technology for media devices, computers, and digital music players. They deal with the design, manufacturing and marketing of the products. XYZ Corporation has been providing Canadians with groundbreaking technology throughout the years and continues to create new technology to provide others with top-level technology. Although, recently their success rate has appeared to drop rapidly due to a number of factors that will be explored throughout this case study. Their main objective is to target the problems so that they can work towards having the issues resolved as quickly as possible. If they do not take any course of action, the state of the company may be in extreme danger. This case study is designed to explore the areas of the company and discover the problems blocking the XYZ Corporation from success.
The role of the board: unlocking the potential. (n.d.). (DRAFT). Retrieved December 8, 2013, from http://www.ey.com/US/en/Services/Strategic-Growth-Markets/Strategic-Growth-Forum-Agenda-EVTD-USDD-97KR7Z?CMPNID=SGF2013_US_Insights_Audit_Committee_Track1_Board_Recap
In such cases there is no scope of Audit Committee independence as the Audit Committee requires that employers and other connected individuals can fraud and other abuse directly to the Committee without any reprisal. However if the Board is led by management employees may less likely to report such incidents and the Audit Committee may be less likely to act on these