7/18/2019 Order #184733-Corporate Governance

http://slidepdf.com/reader/full/order-184733-corporate-governance 1/6

Surname 1

First Name Surname

Instructor CourseDate

1. Do you consider that non-executive directors play a useful role in company

boards? o !hat extent do you thin" the academic research has clarified this? #$ency problem has been the most challen$in$ problem% !hich most

corporations spend resources to solve. &xecutive mana$ers have had a tendency of

influencin$ the operations of the company !ith a purpose of promote themselves

!ithout ta"in$ care of shareholders' interest. he problem is lac" of proper supervision

from independent teams hence the need for non-executive directors in the corporation

boards. Corporation !ith non-executive have expertise% le$al po!er% and independent

mechanism that improves corporate $overnance.Non-executive directors (N&D) have multiple roles that improve the performance

of an or$ani*ation. Some of the roles played by non-executives include $ivin$ advice

and providin$ direction on ho! the company can mana$e and develop their strate$y.

N&D monitors implementation of the company's strate$y% performance of le$al and

ethical issues in the company% and the ade+uacy of the financial information $iven to

sta"eholders. S"illed non-executive directors play the role of a monitor on ho! the

executive mana$ers run the corporation. Corporations !ithout monitorin$ functions

have cases of directors manipulatin$ their positions by havin$ full control on their

remuneration and their ,ob security. he influence of independent non-executive

directors contributes to the firin$ nonperformin$ chief executives. # number of academic

studies support that chief executives' turnover directly relate to performance of the

companies !ith non-executive directors. #nother important role played by the non-

executive director is facilitatin$ control activity of the company. N&D are outsiders% and

7/18/2019 Order #184733-Corporate Governance

http://slidepdf.com/reader/full/order-184733-corporate-governance 2/6

Surname

they have the potential to facilitate a ta"eover% the company mana$ement !ill be

disciplined !hen N&D activate the ta"eover constraint.here are those !ho critici*e the role of non-executive directors in a corporation

claimin$ that the role of N&D can be naturally provided by the mar"et. hose !ho

supporters this idea believe that mar"et forces can discipline corrupt mana$ers naturally

throu$h the threat of ta"eover. his claim is not ,ustifiable because the mar"et forces

cannot fully satisfy shareholders needs to$ether !ith other sta"eholders. Non-executive

directors ensure +uality $overnance in ma,or corporations by challen$in$ executives in

a supportive manner. In the academic literature% the independence of non-executive

directors is put into +uestion !ith the claims raised pointin$ some de$ree in lac" of

independence in the non-executive. &ven thou$h there can be incidences !here the

independence of non-executive directors can be compromised% such incidences are

normally !hen the appointment of N&D is unduly done. o!ever% !hen appointments

are done in a more transparent manner and compensation improved% the independence

of non-executive directors cannot be in +uestion. hey !ill concentrate on their role as a

monitor in the corporations.. From the literature% do you a$ree !ith the /0ecipe for a $ood board' proposed in

this chapter? ould you prefer a different set of /in$redient'? Compile your o!n

list% explainin$ !hich /in$redient' you consider to be the most important?avin$ loo"ed into a number of !ays that can enhance directors' performance

from the literatures and the recipe on a $ood board% a more comprehensive list can be

dra!n. 2oard of directors is the most vital or$an in any corporation and any sli$ht

mista"e may lead to massive losses to the company. #ccordin$ to the literature% so

many recommendations on the boards' cord of conduct or their practices are provided%

7/18/2019 Order #184733-Corporate Governance

http://slidepdf.com/reader/full/order-184733-corporate-governance 3/6

Surname 3

and from these recommendations% an exhaustive recipe can be compiled.

Comprehensive and all-inclusive recipe of board members include4a) he first component of recipe of a $ood board is that board !ith a clearly spelt

out duties and responsibility of each director.b) Directors need be composed of staffs that are !illin$ to learn% attend seminars

and trainin$s sessions to "eep on improvin$ their s"ills.c) 5embers composin$ the board should be those !ho understand the needs of

sta"eholders and !or" hard to achieve them.d) # $ood board is that% !ith hi$hly diversified members% a diverse boardroom

brin$s to$ether variety of s"ills and different ris" levels% !hich enhances the

effectiveness !ithin the board.e) # board should be composed of those directors that are more !illin$ to ta"e

calculated ris" since there is no return that can come to the business !ithout any

ris" involved. Normally hi$h ris"y ventures are associated !ith a hi$h return%

!hich !ill improve the level of shareholders' !ealth.f) #nother important recipe for a $ood board is !hen the board members are

dynamic. i$hly dynamic board of directors !ill be able to mana$e the dynamics

in the mar"et.$) 2oard should be composed of non-executive members that are independent and

those that ma"e decisions on "ey issues !ithout any influence from any member

!ithin the board or outside.h) 6evel of inte$rity amon$ the members of the board should be very hi$h7

members should remain ethical in their official duties.i) # board must not have one person dominatin$ the in decision ma"in$ durin$ the

meetin$s as that !ill deny other members a chance% to ta"e part the company's

development. ,) he board should have a correctly balanced po!er !here the role of chairperson

and the executive director are spelt out.3. o! important do you feel it is for boards to become more diverse?

7/18/2019 Order #184733-Corporate Governance

http://slidepdf.com/reader/full/order-184733-corporate-governance 4/6

7/18/2019 Order #184733-Corporate Governance

http://slidepdf.com/reader/full/order-184733-corporate-governance 5/6

Surname :

syner$y in the teams !ill be built% !hich !ill improve corporate performance by

enhancin$ communications. 5ost corporations !ith diversified board attract% and retain

more staffs that are s"illed !hich boost competitive advanta$e to the corporation. #

sense of belon$in$ and appreciation to the staff enhances loyalty to the members. ith

several advanta$es cited in the academic literatures% diversity in the board is a $ood

move to enhance corporate $overnance. Diversity in the board re+uires appropriate

attention as it can brea" or ma"e the business if not properly monitored.8. Discuss the importance to shareholders of the conceptual frame!or" for

corporate ris" disclosure that is mere explicit in the urnbull 0eport.

5ost of the corporation that have failed and those that perform poorly normally

suffer from the problem of lac" of ade+uate information that is necessary for important

decision-ma"in$. Full disclosure of corporate ris" is very beneficial to shareholders in

many !ays4 the decisions made !ill al!ays be effective reducin$ the chances of

corporate failure. #ccordin$ to urnbull's report% the steps used to disclose the corporate

ris" start !ith identification of the ris" and the ris" is not specified as corporate are

exposed to different types of ris"s. It is then follo!ed by evaluation sta$e% !hich depicts

the level of assessment on the potential effect of the ris" already identified. &valuation

sta$e is then follo!ed by the development sta$e% !hich re+uires the company to

develop a strate$y that !ill !or" on company's ris"s7 the strate$y must be tailored to fit

the ris"s. he next sta$e is the implementation process% !here the strate$ies that have

been identified are implemented follo!ed by close monitorin$ of the outcome !ith an

intention to correct any deviations. he report on the disclosure sta$es should contain

information that relate to the ris" mana$ement of the company% the effect and success

of the ris"% and discussions that $ive predictions on the company's $oin$ concern. #ll

7/18/2019 Order #184733-Corporate Governance

http://slidepdf.com/reader/full/order-184733-corporate-governance 6/6

Surname ;

these effort informs the decision of the shareholders they understand the level of ris"

and effort that has been ta"en to neutrali*e or reduce the ris". hen shareholders have

information on the level of the ris"% they are able to recommend areas that can be used

to avert the impact of the potential ris". his !ill only be possible !hen4 ade+uate

disclosure on the ris" identification process% evaluation sta$e% and effort that has been

ta"en to mana$e the company's ris"4 is properly understood by the corporate mana$ers.

0is" disclosure $ive details on !hat has been done to reduce the ris"% and the

shareholders are made a!are of the efforts that have been ta"en. Shareholders should

$ive a $o ahead to the mana$ement to employ other measures in case the initial

strate$y does not seem promisin$. his is more effective !hen the disclosed material is

properly interpreted to the shareholders !ith an intention of facilitatin$ external

feedbac" as !ell as control. Shareholders become relieved !hen they are informed on

the measures put to counter the ris".