Business Ethics – Role of the Board

 

The Role of the Board

The directors are individuals who represent the interest of the shareholders in the overall running of the company. Once the shareholders money is taken, the directors receive high level information relating to the running of the company at board meetings which occur periodically-at this meeting, the CEO reports to the board indicating what the status us. Directors are appointed on a number of platforms. The board approve stock grants, they might approve/disapprove acquisitions etc.-high end decisions relating to strategic direction rather than operational matters.

Some are independent subject matter experts bought in to advise. It is the CEOs decision how this is acted upon. Holstein (2006) described an event at a Tiffany board meeting during which a special interest group had been instigated with a view to examination of conflict diamonds. The findings were brought to the board meeting and the CEO instantly took action ceasing all transactions concerning conflict diamonds in order to prevent an ethical debate that could ultimately affect sales of a firm wiling to deal in such a commodity.

If the board disapprove of actions, the board has one key ability namely the removal of the CEO. On this basis it is often prudent to follow the advice of the board. The board can be an asset in that they can support the CEO and assist in the running and strategic direction however conversely they can equally make poor decisions and therefore be a hindrance to the company and lead to its destruction.

In order to form and manage a board of directors, there are a number of protocols/recommendations designed to increase the rate of success. Allio (2004) wrote that root cause analysis of corporate oversight is commonly attributed to a lack of attention to the methods by which the board is intended to deal with its responsibilities. Forming and managing a board of directors requires consideration -one thing that people need to be aware of is when seeking venture capital and doing due diligence on the plan and individuals, Due diligence should be done on the venture capitalist as a prospective board member.

Kelly and Gennard (1996) discussed the merits of appointing personnel directors as members of board of directors highlighting a number of firms in which this was found to be beneficial in shaping the formation and implementation of business strategy.

Cantor (2003) wrote describing how contemporary directors are frequently chosen for such skills as judgement, leadership and business integrity however more significantly is not how to act as opposed to when to act and this can only be gained with a comprehensive understanding of the risks of the company. Cantor stressed that a more suitable process regarding the selection involved questioning relative to the extant risks, whether there was a knowledge gap in the existing board membership and if the candidate could plug that knowledge gap.

This was echoed by Hutcheson (2002) who wrote that a board of directors can be an asset if shareholders are clear as to the purpose of the board explaining that board membership should be designed to fill the knowledge and skills gaps in the extant management. Ideally, board member selection must be objective, honest and isolated from the CEO on non-business and financial platforms, facilitating transparency.

Davies et al, (2002) described board debates focussing on their presumed responsibilities highlighting that there appeared to be little forethought as to the importance and significance of the contents of these responsibilities. This suggested that boards tended to have a passive stance in which decisions were pushed through by dominant CEOs or managers and that the existence of the board was merely lip-service rather than a pro-active asset. Furthermore, boards needed to develop greater leadership and decision-making skills. Heffes (2009) wrote that boards should cease the opportunity to scrutinise the business plan of the company for the following year, and additionally called for greater more effective communication in order to relay their findings on the current state of the business and optimum strategic direction and its repercussions on the status quo. Consideration needed to be given as to what needs to be relayed to all stakeholders.

References:

Allio, R., (2004), What’s the board’s role in strategy development?: Why you need to redesign your board of directors – an interview with Jay Lorsch. Strategy & Leadership; Chicago32.5 (2004): 34-37.

Cantor, P., (2003). Getting the board of directors on board.  Ivey Business Journal Online; London (Jan/Feb 2003): 1.

Davies, A., Joyce, P., Beaver, G., Woods, A., (2002).  Leadership boards of directors. Strategic Change; Chichester11.4(Jun/Jul 2002): 225.

Heffes, E. (2009). Boards of directors: directors’ roles in assessing strategy. Financial Executive; Morristown25.2 (Mar 2009): 10.

Holstein, W., (2006). CEOs Under Fire. Chief Executive; New York 215 (Jan/Feb 2006): 50-52.

Hutcheson, J., (2002). Board Silly: A bad board of directors can be worse than no board at all. Here’s how to make sure your small-business clients get the help they need. Financial Planning; New York (Apr 1, 2002): 81-82.

Kelly, J., Gennard, J. (1996). The role of personnel directors on the board of directors. Personnel Review; Farnborough25.1 (1996): 7-24.