Professional Documents
Culture Documents
Corporate Governance Principles, Policies and Practices 2e Chapter 13 Board Leadership - the reality of the boardroom
- in which we consider:
- how people, power and politics affect practice - the chairmans leadership role - sources of governance power - games directors play - board styles and the culture of the board - the ethical dimension: corporate values and business ethics - corporate codes of ethics and their enforcement - implementing corporate governance below board level
Tricker: Corporate Governance 2e
In fact, corporate governance is more about human behaviour than structures and strictures, rules, and regulations. Corporate governance involves the use of power. It is a political process.
The significance of the chairman Chairman of the Board - not chairman of the company Subject to the constitution, chairman is chosen by directors from among the board members
few statutory demands or expectations role varies from the powerful chairman who:
acts as a leader of the company influences its strategic direction interacts strongly with the chief executive provides wide ranging leadership of the board
The formal power of the board is delegated from the shareholders, reinforced by the companys constitution and company law. However, a board can be influenced in a number of other ways: by a majority or dominant shareholder putting pressure on the board from the threat of a potential take-over by the prospect of litigation through the influence of the auditors from the effects of legislation and regulation from media pressure and other external exhortation by a dominant or charismatic leader and, obviously, through changing business circumstances
Source of directorspower
Individual directors derive power from:
Personality - the charismatic or a dominant individual Knowledge - access to information, skills or experiences not available to the other directors Sanction power Political power Power derived from position Networking power Power derived from contacts and acquaintances of use to the company and useful in board decisions. Power derived from a position of influence in the external society Ownership power Representative power Power delegated from an external power source
Tricker: Corporate Governance 2e
Board size Board composition - Balance of executive and outside directors Board membership Board culture
History, tradition, experience Cultural context Need to balance concern for relationships with concern for achieving board success (task)
The way the board behaves Inter-personal relations between directors Expectations of directors about board meetings Perceptions of directors about their roles Interactions during meetings Traditions, beliefs, corporate culture
High
Country club
Low
Low
Tricker: Corporate Governance 2e
High
Implementing corporate governance Successful corporate governance depends on: the regulations and law of the country concerned (the local culture) the companys traditions, board leadership, and style (the corporate culture) the leadership ability and competence of the chairman of the board
The issue concerns morality, the values and beliefs that individuals, companies, and communities have about good and bad, right and wrong; in other words, about acceptable behaviour
Some delegate responsibility for developing ethics policies and codes to their audit committee Other boards create a corporate governance, ethics or compliance committee of the board Whilst for some boards corporate culture, corporate values, and ethical issues are not considered in the board room
Ethics policies
A successful ethics policy reflects a companys core values, stems from its corporate mission, and is consistent with its corporate strategies Board and top management involvement and commitment are essential to successful ethics policies
Ethics policies
Companies develop ethics policies to:
set standards for employee behavior and require employee compliance with those norms seeking to enforce discipline to encourage commitment to good relations with all stakeholders..
Ethics policies
A sound ethics policy will: be orientated towards corporate values, rather than organizational discipline seek genuine commitment rather than being a cosmetic exercise recognize the cultural context avoid credibility gaps between ethical codes and actual behaviour link with corporate governance policies and practices have associated ethics management systems, including information and control systems, regular audit, policy review procedures, and social accounting systems demonstrate accountability with regular reports
Tricker: Corporate Governance 2e
Whistle blowing
Informing on situations thought wrong Dangers victimization labelled troublemaker loss of career prospects or dismissal claims for slander, defamation wrongful allegation, invasion of privacy Encouragement
Company policy to encourage and protect whistle blowers Law
UK, the Public Interest Disclosures at Work Act (1998)
Sarbanes Oxley Act US listed companies to provide systems for reporting unethical behaviour
We have considered: - how people, power and politics affect practice - the chairmans leadership role - sources of governance power - games directors play - board styles and the culture of the board - the ethical dimension: corporate values and business ethics - corporate codes of ethics and their enforcement - implementing corporate governance below board level