Читать книгу Understanding and Managing Strategic Governance - Wei Shi - Страница 14

A board of directors is a group of individuals elected by shareholders whose primary responsibility is to act in the best interests of stakeholders, particularly owners, by formally monitoring and controlling the firm's top-level managers. Board members reach their expected objectives by using their powers to set strategies and policies for the organization and reward and discipline top managers. The work of boards, though important to all shareholders, becomes especially important to a firm's individual shareholders with small ownership percentages since they depend heavily on the directors to represent their interests.

Unfortunately, evidence suggests that boards have not been highly effective in monitoring and controlling top-level managers' decisions and subsequent actions.¹⁶ This problematic conclusion may be even more prevalent in emerging-market countries. However, large differences exist in the arrangement of governance systems between developed and emerging markets around the world. The Strategic Governance Highlight (Box 1.2) provides an illustration of how boards conduct strategic governance in Europe, Japan, and China. Although insider-dominated boards still prevail in much of the world, the trend is changing, especially in developed countries like Germany and Japan, but also in emerging market countries like China.

As noted earlier, among emerging countries and historically in the United States, inside managers dominate boards of directors. Yet, we concur with the widely accepted view that a board with a significant percentage of its membership composed of the firm's top-level managers provides relatively weak monitoring and control of managerial decisions. Under such a board, managers sometimes use their power to select and compensate directors and exploit their personal ties to implement strategies that favor executive interests. In 1984, in response to this concern, the New York Stock Exchange (NYSE) implemented a rule requiring outside directors to head the audit committee. Subsequently, after the SOX Act was passed in 2002, other new rules required that independent outside directors lead important committees, such as the audit, compensation, and nominating and governance committees. Policies of the NYSE now require companies to maintain boards of directors that are composed of a majority of outside independent directors, as well as to maintain fully independent audit committees.

But while the additional scrutiny of corporate governance practices has led boards to devote significant attention to recruiting quality independent directors,¹⁷ the emphasis on outside directors has led to 40 percent of boards having only one inside manager on the board: the CEO. This scenario produces another less-than-ideal dynamic that leads to less monitoring of executive decisions by the board,¹⁸ since monitoring becomes more focused on financial control rather than strategic control, especially without sufficient insider managers to properly inform the outside members about the intricacies of long-term strategic decisions and how they are implemented.¹⁹ In fact, such boards (with the CEO as the only insider) pay the chief executive excessively, have more instances of financial misconduct, and have lower performance than boards with more than one insider.²⁰ Boards should seek balance to be sufficiently knowledgeable and achieve the most effective approach to fulfilling their purpose over time in representing stakeholder interests. Next, we take a closer look at board characteristics, monitoring, and setting executive compensation to further understand strategic governance.