Corporate Governance - Essay Example

?Summary of Opinions of experts Julie Daum Due to the increased involvement of regulatory bodies in the way corporations are governed from the boardroom there is more focus on the quality of the board than the last 20 years. As a result, the duties and responsibilities of the directors increased dramatically, and the demands for their independence have also increased. Julie Daum talked about the decreasing involvement of CEOs as members of the board to lessen their influence and increase the independence of the board to ensure a more balanced governance of corporate affairs. As a consequence, general management skills and expertise in the board are increasing. There is also a constant need for financial experts to sit on the board. Most boards try to diversify the composition of the board in terms of specialization and skills. Although the need for fresh blood or expertise has been recognized at the onset, an effective way of dealing with replacing board members remains a constant problem for most types of board of directors. Kelvin Westbrook According to Kelvin Westbrook, the role of the board has shifted from long term strategy development to governance and compliance. However, a complete departure of the board from long term strategy making will not likely to happen since both are not only essential functions of the board, but the two need to be balanced as well in every decision a board has to face. He said that boards as a matter of necessity must continue to evolve. Board of directors’ in order to mature needs to have a diversity of viewpoints. Kelvin Westbrook also spoke about how director candidates are screened, because it is important to understand the company’s strategy and direction. The challenges, issues and risks confronting the board should also be known. This will enable searches to be much more focused on the kind of skills, experience and background needed by the company in the boardroom to support the execution of the strategic plan and direction. To illustrate Kelvin Westbrook identified the need for directors with international background if the organization is heading towards expanding offshore. However, while international operation expertise is an invaluable requirement, the candidate’s knowledge of the US’ corporate law should not only be passable but a requirement. Stuart Scott Stuart Scott talked about the proper way of relieving directors of their posts without necessarily evoking hostility or discomfort to all involved. Directors are expected to have a modicum of awareness with regards to their duties and responsibilities when they attend board meetings. These expectations are borne from their responsibilities which they should be aware of. Even though directors are not bounded by the normal standards expected from ordinary employee, their actions and conduct inside the board room are expected to be beyond par. Thus, when directors display acts that are inimical to the overall mission of the board it is necessary to expect that the improper decorum will be met with enmity from the other board of directors. To maintain the integrity of the board including its effectiveness the offending directors must be relieved of their post. However, the process should be carried out with due respect to the position and to the person, no matter how undeserving he might have been. Mike Miles Mike Miles talked about the four qualities that every board of directors should be looking for, to replace or to populate their board rooms. First is a good grasp of the US business practices, laws, regulations, ethical standards principles of corporate governance: SOX, principles of accounting, ability to read a profit and loss balance sheet, familiarity with strategic planning and so on. Secondly, there must be a firm grasp of how the boardroom game is played. This would include his roles and responsibilities, the dynamics in the board room and the overall sensitivities of the board of directors in general. Third, the candidate should be able to detect BS when it is being presented to him. This is to make sure that he can spot what is being downplayed, what is being hidden, and what is being highlighted. Fourth, the candidate should have the courage to confront and defend when it is necessary to defend his position. Mike also talked about the six things that should be considered as red flags for director candidates. The first would be the lack of all the four qualities that should be in the director candidate. The second would be people with really big egos. Third, it is the international people, who are prone to comparing how it is done in their country. This also leads to operational problem when international people are needed to be part of the board room discussion. Fourth, there must be individuals with large shares in the company. Five, directors that are home grown or who have been risen from the ranks. Sixth, it is the former CEOs and chairperson of the company. Ideal Characteristics of Board of Directors Politically conscious or aware of the dynamics of the board he is sitting. The board of directors is a collegial body that governs and conducts itself through democratic processes. It is expected that the rule of the majority is always followed, however realistically every decision should be arrived at by consensus. Board of directors is normally representatives of stakeholders of organizations that are tasked to act and decide on behalf of the stakeholders. Thus, it is incumbent for the director to enjoy a level of confidence from the constituents he represents. The director would not serve the purpose of the people he represents if he is always outvoted to any decision. A Director, while displaying independence at all times, should also be a team player wherein he will abide by the policies and decisions of the board even if it was not his position during the deliberations or even if it will hurt his reputation. Aware of the Corporate Environment where the organization are operating: Given the existing corporate environment and the call by government regulators for company to be responsible corporate citizen, the duties of the board of directors have expanded over the years. Directors are now expected to ensure that the organization and its executive leadership are charged to execute the policies laid down by the board are strictly complying with the laws and its requirements in full. The Director should also be well grounded in so far as his political views are concerned and must be dwelling on the conservative centre. His knowledge about current events and the dynamics of the corporate environment prevailing at the locations where the organization is operating should be updated. Working knowledge of the socio-political and the role of the organization in the area where it is operating should also be a must for a director. Ethically and morally complying with the requirements of the organization Directors are likewise expected to uphold the highest standard of business conduct that is acceptable to all parties concerned that would include its vendors, competitors, employees and even its shareholders. Gone are the days whene the director’s primary duty was to ensure that the shareholders’ financial interest is protected at all times. The fiduciary nature of the relationship between the individual directors and the organization they serve for rests on the degree of trust and confidence given to the director. It is expected that the board of director acts in good faith that serves the interest of the organization. However, there should be symmetry between the interest of the organization and what is proper according to the law. The director acting in good faith is expected to weigh in more heavily in favour to what the law regards as proper, since the law is assumed to have been enacted for the benefit of all in service to the interest of all. Another aspect of an ideal director’s quality is that his character that defines his moral and ethical norm should be beyond reproach and must comply with the standard provided and upheld by the organization from its directors. Conflict of duty and interest: this does not limit itself to what must be done, but also to what appears to be done. To illustrate: Directors are expected not to enter any transactions with the organization they are serving for as their directors, such as prudence in the use of corporate property or judicious use of opportunity or information that has been made available to them while serving as the organization’s director. In general, due to the information available to the director in discharging his duties, competing against the interest of the organization is not only discouraged but strictly prohibited. Directors are likewise expected to ensure that the organization meets the minimum requirement of leading and recognized environmental organizations for a responsible and sustainable operating conduct for corporate citizens. Multi Skilled and Knowledgeable in how the organization functions On the practical side, directors are expected to be multi-skilled and should have multiple specializations that would make it practical for organization to limit the number of directors. Leading luminaries on the subject interjected that in order for the supervisory board of an organization to understand the actions and proposals of the executive leadership the board of director’s qualification should include the skills and knowledge of how the organizations work. The board in general should be composed of the people that specialize in various operations of the organization that would include Human Resource Management, Sales and Distribution, Manufacturing practices and Information Technology, aside from being adept in corporate finance. A background in law is also necessary to ensure that legal interpretations of regulations come from intimate knowledge of the law rather than the legal opinion of the legal department. Read More