The Role of Board of Directors in Corporate Governance

1. Corporate Governance

2. Corporate Governance The relationship among the board of directors, top management, and shareholders – determining the direction and performance of the corporation

3. Corporate Governance • Board of Directors • A body of appointed persons who jointly oversee the activities of a company or organization • 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 organization's bylaws. • Bylaws commonly specify the number of members of the board, how they are to be chosen, and when they are to meet.

4. Corporate Governance • Role of Board • Monitor • Evaluate and influence • Initiate and determine

5. Board of Directors Continuum

6. Board of Directors • Members -- • Inside directors • “Management directors” • Officers or executives employed by the firm • Outside directors • “Non-management directors” • Executives of other firms not employed by the board’s corporation

7. Agency Theory • Agency Problem – • Objectives of owners & agents in conflict • Difficult for owners to verify agent performance • Risk Sharing Problem – • Owners & agents risk assessment in conflict

8. Stewardship Theory Executives more motivated to act in best interest of the corporation than their own self-interests. Theory that over time, senior executives tend to view corporation as extension of selves.

9. Board of Directors • When Outsiders can be considered Insiders • Affiliated Directors • Retired Directors • Family Directors

10. Board of Directors • Codetermination • The inclusion of a corporation’s employees on its board of directors

11. Board of Directors • Nominations & Elections • Traditional Approach • CEO invitation to membership • Shareholders approval in annual proxy statement • All nominees usually elected

12. Board of Directors • Corporate Governance • Review & shaping of strategy • Pressure for corporate performance • Demand for executive stock ownership • Outside directors increasing

13. Board of Directors • Transformational leaders • Change agents through vision for change

14. Board of Directors • Successful CEO’s • Strategic vision • Passion for the company • Strong communication • Charisma

15. Board of Directors • Executive Leadership • Strategic vision • Role model

16. Board of Directors • Executive Leadership • Communication of performance standards • Demonstrates confidence in abilities of followers