Improving the Effectiveness of Corporate Boards Essay example

1108 Words Feb 5th, 2016 5 Pages
The primary purpose of for-profit companies is to maximize the return on shareholder’s investment. In instances where ownership of a company and control of said company are separate, shareholders employ directors as the primary monitoring mechanism. In other words, the role of corporate boards is to monitor executive management to make sure that they manage the company in a way that maximizes shareholder value by managing the company with their best interests in mind. The scandals of Enron, Tyco International, WorldCom, and others cost investors billions of dollars and shook investor confidence in the nation’s stock markets. The global economy plunged into a recession in 2008 partly because
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As a result, SOX sought to adjust board compositions and structures which results in a more formalized structure. There is some agreement among experts who suggest these regulations result in “a diminution in the discretion directors can use when monitoring management.”(Minichilli, Zattoni, Nielsen, Huse, 2011) In many cases this means that boards serve a reactive role where they work to put out fires, rather than a proactive role, in which they help the firm avoid the fires in the first place.
A doctoral thesis could be written on the inadequacy of the multitudes of old approaches to board reform. These studies looked at everything from regular meeting attendance, board member skills, board member age, independence, and others. Jeffrey A. Sonnenfeld put it best in his HBR article What Makes Great Boards Great? when he said that these studies are missing the “human element.” In other words, they need to focus instead on the behaviors, interactions, and characteristics of the board both as an independent body and as it relates to the board’s relationship with the firm’s executive management. An organizational behavior framework can provide shareholders with greater insight into how boards should function. “Board process scholars, who contributed to the management literature on boards, argue that the board, which primarily performs conceptual tasks, should engage in particular

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