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1. Do you consider that non-executive directors play a useful role in company
boards? To what extent do you think the academic research has clarified this?
Agency problem has been the most challenging problem, which most
corporations spend resources to solve. Executive managers have had a tendency of
influencing the operations of the company with a purpose of promote themselves
without taking care of shareholders interest. The problem is lack of proper supervision
from independent teams hence the need for non-executive directors in the corporation
boards. Corporation with non-executive have expertise, legal power, and independent
mechanism that improves corporate governance.
Non-executive directors (NED) have multiple roles that improve the performance
of an organization. Some of the roles played by non-executives include giving advice
and providing direction on how the company can manage and develop their strategy.
NED monitors implementation of the companys strategy, performance of legal and
ethical issues in the company, and the adequacy of the financial information given to
stakeholders. Skilled non-executive directors play the role of a monitor on how the
executive managers run the corporation. Corporations without monitoring functions
have cases of directors manipulating their positions by having full control on their
remuneration and their job security. The influence of independent non-executive
directors contributes to the firing nonperforming chief executives. A number of academic
studies support that chief executives turnover directly relate to performance of the
companies with non-executive directors. Another important role played by the nonexecutive director is facilitating control activity of the company. NED are outsiders, and

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they have the potential to facilitate a takeover, the company management will be
disciplined when NED activate the takeover constraint.
There are those who criticize the role of non-executive directors in a corporation
claiming that the role of NED can be naturally provided by the market. Those who
supporters this idea believe that market forces can discipline corrupt managers naturally
through the threat of takeover. This claim is not justifiable because the market forces
cannot fully satisfy shareholders needs together with other stakeholders. Non-executive
directors ensure quality governance in major corporations by challenging executives in
a supportive manner. In the academic literature, the independence of non-executive
directors is put into question with the claims raised pointing some degree in lack of
independence in the non-executive. Even though there can be incidences where the
independence of non-executive directors can be compromised, such incidences are
normally when the appointment of NED is unduly done. However, when appointments
are done in a more transparent manner and compensation improved, the independence
of non-executive directors cannot be in question. They will concentrate on their role as a
monitor in the corporations.
2. From the literature, do you agree with the Recipe for a good board proposed in
this chapter? Would you prefer a different set of ingredient? Compile your own
list, explaining which ingredient you consider to be the most important?
Having looked into a number of ways that can enhance directors performance
from the literatures and the recipe on a good board, a more comprehensive list can be
drawn. Board of directors is the most vital organ in any corporation and any slight
mistake may lead to massive losses to the company. According to the literature, so
many recommendations on the boards cord of conduct or their practices are provided,

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and from these recommendations, an exhaustive recipe can be compiled.
Comprehensive and all-inclusive recipe of board members include:
a) The first component of recipe of a good board is that board with a clearly spelt
out duties and responsibility of each director.
b) Directors need be composed of staffs that are willing to learn, attend seminars
and trainings sessions to keep on improving their skills.
c) Members composing the board should be those who understand the needs of
stakeholders and work hard to achieve them.
d) A good board is that, with highly diversified members, a diverse boardroom
brings together variety of skills and different risk levels, which enhances the
effectiveness within the board.
e) A board should be composed of those directors that are more willing to take
calculated risk since there is no return that can come to the business without any
risk involved. Normally high risky ventures are associated with a high return,
which will improve the level of shareholders wealth.
f) Another important recipe for a good board is when the board members are
dynamic. Highly dynamic board of directors will be able to manage the dynamics
in the market.
g) Board should be composed of non-executive members that are independent and
those that make decisions on key issues without any influence from any member
within the board or outside.
h) Level of integrity among the members of the board should be very high;
members should remain ethical in their official duties.
i) A board must not have one person dominating the in decision making during the
meetings as that will deny other members a chance, to take part the companys
development.
j) The board should have a correctly balanced power where the role of chairperson
and the executive director are spelt out.
3. How important do you feel it is for boards to become more diverse?

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Among many suggestions given on how to improve efficiency of the board, is
through diversifying boardroom. A number of recommendations are there pushing for a
board that are composed of different people. Diversity of the board improves corporate
performance as well as effectiveness of corporation. A board with a large number of
women performs much better those boards that do not have a large number of women.
Many companies have shown good financial performance when greater proportion of
the board is composed of women. There are advantages of diversifying the composition
of the board and the first advantages include improved performance in the corporation.
The performance of any corporation that practices gender diversity tends to have higher
financial performance compared to those corporations that do not. Another advantage is
the ability of a corporation to access a wide pool of talents. With a diversified board,
different talents are brought on board giving the company variety of skills. So many
skills and experience from the diversified members improve efficiency of the
corporation. Third advantage is the company being highly responsive to the market. A
diversified board responds so well to the market demand as different talents provides
the market with quality services that are demanded by the customers. The other
advantage of having gender diversity in the board is to improve corporate governance.
Governance of the corporation increases; when the board has a number of women in
their board: women are associated with a high level of governance. Women, not like
men, are highly risk-averse, and this is very important to the corporation. The presence
of women in the board will help the corporation reduce high solvency risk. Diversified
board also has increased level of creativity as diverse minds are brought together and
so many solutions will be generated, which promotes creativity. With diverse board,

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synergy in the teams will be built, which will improve corporate performance by
enhancing communications. Most corporations with diversified board attract, and retain
more staffs that are skilled which boost competitive advantage to the corporation. A
sense of belonging and appreciation to the staff enhances loyalty to the members. With
several advantages cited in the academic literatures, diversity in the board is a good
move to enhance corporate governance. Diversity in the board requires appropriate
attention as it can break or make the business if not properly monitored.
4. Discuss the importance to shareholders of the conceptual framework for
corporate risk disclosure that is mere explicit in the Turnbull Report.
Most of the corporation that have failed and those that perform poorly normally
suffer from the problem of lack of adequate information that is necessary for important
decision-making. Full disclosure of corporate risk is very beneficial to shareholders in
many ways: the decisions made will always be effective reducing the chances of
corporate failure. According to Turnbulls report, the steps used to disclose the corporate
risk start with identification of the risk and the risk is not specified as corporate are
exposed to different types of risks. It is then followed by evaluation stage, which depicts
the level of assessment on the potential effect of the risk already identified. Evaluation
stage is then followed by the development stage, which requires the company to
develop a strategy that will work on companys risks; the strategy must be tailored to fit
the risks. The next stage is the implementation process, where the strategies that have
been identified are implemented followed by close monitoring of the outcome with an
intention to correct any deviations. The report on the disclosure stages should contain
information that relate to the risk management of the company, the effect and success
of the risk, and discussions that give predictions on the companys going concern. All

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these effort informs the decision of the shareholders they understand the level of risk
and effort that has been taken to neutralize or reduce the risk. When shareholders have
information on the level of the risk, they are able to recommend areas that can be used
to avert the impact of the potential risk. This will only be possible when: adequate
disclosure on the risk identification process, evaluation stage, and effort that has been
taken to manage the companys risk: is properly understood by the corporate managers.
Risk disclosure give details on what has been done to reduce the risk, and the
shareholders are made aware of the efforts that have been taken. Shareholders should
give a go ahead to the management to employ other measures in case the initial
strategy does not seem promising. This is more effective when the disclosed material is
properly interpreted to the shareholders with an intention of facilitating external
feedback as well as control. Shareholders become relieved when they are informed on
the measures put to counter the risk.

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