Session 3 - Dalton & Dalton - Boards of directors Flashcards
Give an example on SOX (2002) requirements on internal governance structure and functions of public corporations
SOX guidelines say that the Board of directors (BoD) committee must be comprised of a minimum of 3 persons, all of whom must be independent
What issue can arise in the leadership structure ?
The manner the board arranges the leadership role of the firm’s CEO and the board chair. The question is what other capacity does the CEO simultaneously serve ? When a CEO simultaneously as board chair, directors are unable or unwilling to dispassionately evaluate the CEO’s performance, this would compromise the board to reasonably monitor the CEO
Give a definition of “unity of command”
An enduring concept that suggests that any person in an organisation should be accountable to one individual only. If CEO = the chairman of the board, the unity of command is compromised
Is there any evidence of substantive, systematic relationship between corporate financial performance and board leadership structure ?
NO
Explain how the notion of independence is misspecified
The independence problem is actually exacerbated with a separate CEO and board chair - this is because in many case (84%) the board chair is the former CEO. Only in 9% of the case boards have truly independent chair. Some argue that the former CEO should not serve on its board at all.
Unity of command - What are affiliate directors ?
This is a subset of director that are not independent. They have a close personal or professional relationship with the CEO.
Explain the “Ressource Dependence Theory”
Firms must manage the uncertainty in their environments. Members of the board have networking and coalition capabilities to secure ressources that would otherwise be unavailable. This provides the organisation with a sustainable competitive advantage.
Explain “board capital”
It is essentially a combination of human and relation capital - a director can yet not be independent
If a director is independent, there may be an issue. Explain
If the director is independent but without the benefit of firm- and industry-based information, he will rely/depend on the CEO for the information necessary to dispatch their stewardship responsibilities. This is a kind of dependence.
What is the conclusion about the independence of BoD ?
- Some believe that BoD are never independent
- Some believe that director isn’t independent anymore after he served 5 years or more.
