The Design of the Central Bank
The banking system is an integral part of the financial system of many countries. In fact, as we have discussed in the previous articles, many countries base their entire financial system on the banking system. The central bank plays a very important role in the financial system of any country. This is the reason why […]
Digital Cash: Advantages and Disadvantages
There is a proliferation of electronic payment systems in the 21st century. Debit and credit cards have become the norm, and cash has become obsolete. However, many people still prefer to use cash because of some benefits that it offers. Up until now, people have been facing a choice between using the electronic medium and […]
What is Learning Curve ? – Meaning and Concept
Introduction In any environment if a person is assigned to do the same task, then after a period of time, there is an improvement in his performance. If data points are collected over a period of time, the curve constructed on the graph will show a decrease in effort per unit for repetitive operations. This […]
Lowering the Education Costs in America
The cost of education in America is skyrocketing. It is for this reason that more American policymakers are looking at various options to reduce the costs. They are looking at different models which are being followed in other countries in the world. It is important to note that America is not the first country in […]
Marxian Traditions and their Approach to Public Administration
Karl Marx has often been cited as the most powerful personality in the history of human civilization. He was a philosopher while being an economist, a socialist who was also a journalist and a historian who proposed the materialist conception of history. His views regarding his areas of work and interests are collectively termed as […]
Any public limited or private company needs to have a board of directors constituted for the purpose of oversight and accountability to the company. The concept of the board of directors is that it provides an umbrella for the company to operate in and ensures that the decisions and actions taken by its management are reviewed and held to the mirror.
The reason for the existence of the board of directors is that there needs to be a body that is above the management and which can be accountable to the regulators and shareholders for the decisions taken by the management of the company.
Hence, it is common to find many members of the management sitting on the board as executive directors. Again, it is for this very purpose that the regulators deem the company to have a certain percentage of directors in the non-executive capacity and those who are independent.
In recent years, the concept of the board has become crucial for corporate governance because of the incidence of several corporate scandals involving unethical conduct by the management.
In some of these cases like the Enron scandal and the Satyam scandal in India, the board was found to have played a major role in facilitating the scandal. This has led to the regulators asking for greater oversight from the board and to make the board accountable to its shareholders.
Of course, there are many instances that prove the contrary where the board has stepped in to stem the rot that the management has through its actions engendered. Prominent among these are the actions of Reebok in recent months where the board asked the top leadership to resign in the wake of corporate scandals involving them.
The concept of the board has been introduced explicitly to ensure that ethical and normative rules of conduct of corporate governance are followed.
The point here is that since the buck stops with the board of directors, shareholders and regulators know who to turn to in case they have queries or doubts about the decisions taken by the company. In many cases, the board of directors acts as the ombudsman as well for shareholder complaints and grievance redressal.
Further, the board of directors is comprised of individuals with exemplary records of managing companies and hence it is expected that the board of directors would provide technical and managerial guidance to the way in which the company is run.
Finally, the concept of the board of directors is also important for the way in which it is deemed to play a pivotal role in providing good corporate governance. In most cases, the way in which the company is governed depends on the way in which the board directs the management in its operation of the company. This is relevant to the contemporary times where the managerial class has been found to enrich itself at the expense of the company and its shareholders.
It is for this reason that the board of directors is expected to steer the company away from agency problems, conflicts of interest and asymmetries of information in the way shareholders are briefed about the decisions taken by the company.
Your email address will not be published. Required fields are marked *
