2. Governance structures Flashcards
Agency theory of governance link to board structures
Board is the instrument of control by which the owners can control management and the workforce - therefore, board must strictly ensure independence from management
2 Cs of board structures
Configuration and Compliance
Stewardship theory of governance link to board structures
Recognises that managers are also non-financially motivated (eg. recognition and progression) - therefore a more fluid non-exec to exec boundary may be preferred
Stakeholder theory of governance link to board structures
Each stakeholder interest is of intrinsic value such that no set of interests is assumed to dominate - therefore board structure needs to take this into account
Relevance of board structures to good governance
Important to have an appropriate structure, but on its own this is not enough to ensure good governance
4 types of board structures
All-executive board
Majority executive board
Majority independent non-executive board
Two-tier board structure
Which board structure do UK PLCs have?
Majority independent non-executive board
What has led to shift of power balance on board from internal to external?
Aspiration of ensuring organisational accountability and compliance
How does two tier board work?
One board made up of all external directors to govern
Another board comprised of all internal personnel to manage
Other than four board types, four aspects of board structures (as quadrant of 11 Cs)
- Basic set-up
- Chair considerations
- Director considerations
- Board tasks
Board structures - basic set-up - 3 considerations
Ratio of execs/NEDs
Board size
Committees structures (size, frequency of meeting and functioning)
Board structures - chair considerations - 3 considerations
Are chair and chief exec different?
Is chair a former chief exec?
Is chair exec or non-exec?
Board structures - director considerations - 3 considerations
Average tenure (less independence over time)
Board diversity (gender, ethnic, age)
Director compensation (salaries, incentive schemes)
Board structures - board tasks - 3 considerations
Meeting frequency
Board review
Board induction and development
6 key considerations when determining board size
- Size of company
- Type of industry or sector
- Current life stage of org
- Focus and requirements of strategy
- Time, skill and knowledge requirements of committees
- Practical factors such as ability to recruit and retain talent
One key benefit of smaller boards
Improved efficiency
One key benefit of larger boards
More effective in monitoring managers
Which of the ‘structural directives’ (being the considerations within the 4 aspects of board structures) predict boardroom functioning consistently?
None of them!
