Corporate Governance - Role of Board of Directors
CORPORATE GOVERNANCE - ROLE OF BOARD OF DIRECTORS
People often question whether corporate boards matter because their day-today impact is difficult to observe. But, when things go wrong, they can become the center of attention. Certainly this was true of the Enron, Worldcom, and Parmalat scandals. The directors of Enron and Worldcom, in particular, were held liable for the fraud that occurred: Enron directors had to pay $168 million to investor plaintiffs, of which $13 million was out of pocket (not covered by insurance); and Worldcom directors had to pay $36 million, of which $18 million was out of pocket. As a consequence of these scandals and ongoing concerns about corporate governance, boards have been at the center of the policy debate concerning governance reform and the focus of considerable academic research. Because of this renewed interest in boardsmuch of the research on boards ultimately touches on the question “what is the role of the board?” Possible answers range from boards’ being simply legal necessities, something akin to the wearing of wigs in English courts, to their playing an active part in the overall management and control of the corporation. No doubt the truth lies somewhere between these extremes; indeed, there are probably multiple truths when this question is asked of different firms, in different countries, or in different periods.
So what is a Board of Director (BoD) and what do Directors actually do?
“A Board of Directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors. It is often simply referred to as ‘the board’ ”.
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 country’s company law, organization's bylaws
People often question whether corporate boards matter because their day-today impact is difficult to observe. But, when things go wrong, they can become the center of attention. Certainly this was true of the Enron, Worldcom, and Parmalat scandals. The directors of Enron and Worldcom, in particular, were held liable for the fraud that occurred: Enron directors had to pay $168 million to investor plaintiffs, of which $13 million was out of pocket (not covered by insurance); and Worldcom directors had to pay $36 million, of which $18 million was out of pocket. As a consequence of these scandals and ongoing concerns about corporate governance, boards have been at the center of the policy debate concerning governance reform and the focus of considerable academic research. Because of this renewed interest in boardsmuch of the research on boards ultimately touches on the question “what is the role of the board?” Possible answers range from boards’ being simply legal necessities, something akin to the wearing of wigs in English courts, to their playing an active part in the overall management and control of the corporation. No doubt the truth lies somewhere between these extremes; indeed, there are probably multiple truths when this question is asked of different firms, in different countries, or in different periods.
So what is a Board of Director (BoD) and what do Directors actually do?
“A Board of Directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors. It is often simply referred to as ‘the board’ ”.
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 country’s company law, organization's bylaws