Corporate Governance and Expectations from the Management

The field of corporate governance exists in a symbiotic relationship between the management and the board of directors. It is impossible to talk about corporate governance without taking into account the roles and duties of the board of directors and the expectations from the management. To explain this fully, it would be useful to consider the fact that unless the board of directors’ act as oversight authority effective corporate governance cannot be practiced.

In the same vein, unless the management sets their expectations from the board of directors, the latter would not be able to function. Hence, the expectations from the management ought to be articulated upfront for the board of directors to know and understand what they are supposed to do. This often manifests itself as a written or unwritten code of conduct for the board of directors to follow.

The expectations from the management can take many forms and they can be divided into oversight over their actions, guidance from professional directors on how to run the company and finally, a sharing of accountability and responsibility between the management and the board of directors.

If we take each of these by turn, we find that the board of directors is expected to perform the role of an oversight over the actions of the management and that the board should be accountable for its actions.

In recent months, in the AMR fire tragedy and the Satyam Scandal, the board was widely believed to have reneged on its oversight functions. Next, the board of directors is expected to provide professional advice and guidance to the management and the expectations of the management include sagacious and timely advice to the management from the professionals on the board on how to run the company.

The point here is that the expectations from the management cover these dimensions and a harmonious relationship between the board and the management can exist only when these dimensions are taken care of.

Further, the management cannot shirk its responsibility and hence apart from their expectations from the board, they are also deemed to behave in a manner that inspires confidence from the employees and other stakeholders.

In recent years, there has been much heartburn among investors and the stakeholders in the way in which the boards of several companies are acting as rubber stamps for the management. This trend is to be avoided and only when the board acts independently and as a custodian of shareholder and stakeholder interests can there be effective corporate governance.

Finally, the expectations from the management need to be reevaluated and reoriented periodically so that the management and the board of directors are on the same page and they have the employees and the stakeholders with them. The bottom line for effective corporate governance is a healthy balance between the expectations from the management and the functions of the board. They have to balance each others’ needs and responsibilities and have to coexist if meaningful corporate governance is desired.

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Corporate Governance