Case Study 2.

1: Corporate Governance
Case Solved

Questions # 1
What is the problem of the CEO being chairman of the board, as is common in the United States?

Answer
CEO, as the chairman of the board has to promise personally and answer for their companies financial statements. When in good business, this system generates a strong business leadership, which is appreciated as an efficient system, by the masses and shareholders. But during downtimes, they worry about the worrying lack of spine elsewhere around the boardroom table.

Question # 2
What is the role of non-executive or independent directors?

Answer
Board of directors, are the guardians and protectors of shareholders interests, therefore they are in the front line for accountability. Whereas, Non executive or independent directors, dont have any role of executioner or running the company directly. This is proposed and implemented to reduce the overbearing of CEO and make non executive directors effective and efficient, former role of CEO is split from that of chairman of the board, a post that can then be filled by a lead independent director. Independent Directors conduct executive sessions without CEOs.

Question # 3
What are the problems of having a more active board?

Answer
Having a more active board creates uneasiness for the Executives. They hate the idea of executive sessions with the board, as this might mean they could actually work. Some executives accept this as a part of a creeping professionalisation of the board. This is not about making the jobs, full-time. But it is about raising and standardizing the qualifications for joining a board.

Question # 4
What is the purpose of having executive sessions without the CEO being present?

Answer
The purpose of having Executive Sessions is to reduce the dangers of unawareness of the board with companys affairs. This helps board to get an insight of companys internal management affairs. It is also expected to help in exposing and reduce fraudulent threats.

Question # 5
What could be the role of the institutional investors in changing corporate governance?

Answer
The Institutional Investors are most powerful catalyst for changing corporate governance as its their duty to protect their investors. These institutions are busily blaming boards for recent wrongs. The big institutions knew who the cheats were. But life was good, and they nodded and winked and chose to go along with it. In many ways, they now have nobody to blame but themselves.

Question # 6
Why has corporate governance not become an issue in France and Italy?

Answer
In such countries as France and Italy, corporate governance has not yet become an issue, as many of the big public companies in these countries have large family shareholding and representation in their senior management and board. In France, only one director out of five on the boards of public companies is truly independent. Therefore this structure helps to resolve the conflict between owners and managers. But it limits the role of the board as a check on management.

Question # 7
Could the burning of an executives desk and chair in front of the factory be described as a spiteful act? What other motivation might there be for such an act?

Answer
It is an extremely malicious act. If an executive was underperforming, he should have forced to resign, with some settlements offered by the company. For underperforming, it is tyrannical. There can be personal or professional envy or any other reason which has nothing to do with underperforming.