Board of directors

From ArticleWorld


Board of Directors is sometimes referred to as a board of managers, a board of governors, or even a board of curators in the case of museum/arts organizations. One of the directors is either elected or appointed as chairperson and is commonly known as the “chairman of the board.” Boards are often elected via a nomination process, while some directors may be appointed directly by virtue of a shareholder’s ratio of holding in the organization. The Sarbanes-Oxley Act (SOX) has introduced specific standards of accountability on governance bodies and members can face large fines and prison terms for illegal or fraudulent activities of an accounting nature. Suffice to say, directors are fully accountable for ensuring the integrity of internal controls systems.

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Obstacles

Many obstacles to efficient functioning of a Board of Directors are:

  • Most boards generally rely on the management team for reporting of information and provision of expert opinion to them. This potentially allows management to manipulate information, or maybe even conceal or be untruthful about the real state of a business.
  • Boards of directors usually operate in a part-time capacity, with members meeting infrequently. This leads to the possibility that their unfamiliarity with each other could prove a difficulty when there is a need to question management motives.
  • CEOs, as must be expected, require an outgoing personality. However, in some cases CEOs exert excessive influence over the board of an organization.
  • Directors may not be able to devote sufficient time or have adequate skills for corporate business, thus providing managers with ample opportunity to keep problems hidden.
  • The directors who were responsible for appointment of the present CEO also undertake the performance review. This can prove difficult for some directors to objectively evaluate the CEO's performance.
  • Directors often consider that in judging a manager, especially one whose past performance was always above reproach, regard should be taken of the respect held for the position. This is a legitimate observation, but becomes a problem if the manager's own judgment is lacking.
  • All of these factors can lead to an insecure culture of "safety before conflict" at board meetings.
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