Essay on Corporate Governance - Role of Board of Directors

Words: 1603
Pages: 7

People often question whether corporate boards matter because their day-today impact is difficult to observe. But, when things go wrong, they can become the center of attention. Certainly this was true of the Enron, Worldcom, and Parmalat scandals. The directors of Enron and Worldcom, in particular, were held liable for the fraud that occurred: Enron directors had to pay $168 million to investor plaintiffs, of which $13 million was out of pocket (not covered by insurance); and Worldcom directors had to pay $36 million, of which $18 million was out of pocket. As a consequence of these scandals and ongoing concerns about corporate governance, boards have been at the center of the policy
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But that does not quite answer our cardinal question as to ‘how the role the board plays is related to the overall corporate governance of the organization’. Nevertheless one thing is certain thus far is that the BoD lead and control a company and hence an effective board is fundamental to the success of the company. The board is the link between managers and the investors, and is essential to good corporate governance and investor relations. Since corporate governance represents the value framework, the ethical framework and the moral framework under which business decisions are taken; it therefore calls for three factors:

1. Transparency in decision-making;

2. Accountability which follows from transparency because responsibilities could be fixed easily for actions taken or not taken, and;

3. The accountability is for the safeguarding the interests of the stakeholders and the investors in the organization.

Decisions relating to board composition and structure will be of fundamental