The board of directors stands at the top of the organizational hierarchy. The role and responsibility played by the board act in the best interest of all stakeholders. This means that the board is the highest body that represents the interests of all the stakeholders in an organization. In the banking sector, the board of directors plays more or less the same role and responsibility. Specifically, the board supervises, monitors, and controls corporate officers, and also handles major decisions that relate to organizational operations.
In the light of corporate governance, board effectiveness is critical both in the short run and long run. The subject of board effectiveness in corporate governance is provided for by the Combined Code on Corporate governance. Bank failure and the subsequent financial crisis in the UK can be explained through boards’ failure to be effective and efficient. Monitoring of executives in the banking sector was poor in the period preceding banking crisis in the UK. Many boards in the sector failed to discharge their duties and responsibilities accordingly. The implication was that banks were caught unaware of the underlying risks of poor board management.
The board of directors sets strategic aims, provides entrepreneurial leadership, ensure understanding and realization of organizational obligations to stakeholders, and reviews/manages organizational performance (Adams, 2003, p.723). These aspects of the board’s role were poorly discharged and managed, resulting in failed corporate governance practices. UK banks were adversely affected by this failure due to the fact that they failed to realize the underlying risks of poorly managed and governed corporates.