Accounting论文模板 – Accounting Report

Companies’ success depends so much on the effectiveness and competency of its board members. The board’s method of governing the company will determine the relationship among the stakeholders (Tricker, 2015). A board of directors (BOD) refers to a collection of individuals attempting to work as a group. BOD is the highest policy-making body in a company. This body discharges and exercises its roles of high-level policy formulation, evaluation and monitoring, and control through corporate governance system (Tricker, 2015). Understanding the responsibilities and roles of BOD is very essential. BOD is initially appointed to perform on behalf of the shareholders of the company, to run the daily activities of the company. Normally, the BOD is directly answerable to the shareholders of the company (Boland and Hofstrand, 2009). Every year, the corporation arranges for ayearly general meeting where the board is expected to provide to shareholders a report regarding the company’s performance. It is from this report that the board presents the future strategies and plans to shareholders and other stakeholders and also present themselves for the re-election (Spedding, 2004). The board is expected to ensure the prosperity of the company by collectively directing the affairs of the company, while striving to meet the suitable interests of its stakeholders and shareholders. The BOD must also deal with issues and challenges relating to corporate ethics, corporate governance and corporate social responsibility (Tricker, 2015).

Individuals frequently question the importance of the boards because it is hard to realize and observe their day-to-day impact to the organization. However, when things go south, they are the ones who become the center of it all (Tricker, 2015). BOD plays a vital role in corporate governance in a company. Corporate governance can be explained as the system of guidelines, procedures, and practices by which a corporation iscontrolled. It basically entails the balancing the company’s shareholders, customers, suppliers, management, government, financiers, and the community interests (Spedding, 2004). Corporate governance is essential because it provides a basis for attaining the objectives of the company. Corporate governance includes practically every scope of management, extending from in-house controls and action policies to company disclosure and measurement of performance. Bad corporate governance casts doubt regarding reliability, obligation or integrity of the company to its shareholders (Tricker, 2015). The 2008 financial crisis and the previous crises in corporate governance were mainly caused by bad governance. Regulatory failure, conflicts of interests by investment banks, high-risk lending and inflated credit rating, was a result of the BOD’s tolerance and carelessness (Spedding, 2004). On the other hand, good governance forms a transparent set of controls and rules in which boards, stockholders and other officers have aligned inducements. All businesses strive for high-level corporate governance (Tricker, 2015).  For a company to achieve its objectives and enjoy a positive reputation, sound corporate governance practices are prerequisites.

Role of board in corporate governance

As established in this study, corporate governance is a combination of best practices and corporate policies adopted by a company in order to attain its goals in relation to its stakeholders (Adams, Hermalin and Weisbach, 2008). Good governance enhances transparency, and the resulting transparency enhances accountability and trust. The importance of corporate governance in an organization cannot be overlooked. BOD plays a key role in corporate governance (Spedding, 2004). Recently, the board’s role in corporate governance has been a topic of much attention.  BOD’s role is lately becoming more involved in shaping and assessing the practices and policies of the company on a broad range of corporate world. The board is responsible for ensuring that the corporation maintains good corporate governance practices. If the board succeeds in ensuring good corporate governance practices, the overall contribution of the company to the general economy will be maximized. The relationship between the company’s stakeholders will also be enhanced (Spedding, 2004).

BOD is the formal link between managers entrusted with the daily functioning of the company and the shareholders of the organization. The actions of the BOD are determined by the responsibilities, duties and powers given to them by the authority outside itself. BOD comprises of two kinds of directors-non-executive and the executive (Spedding, 2004). The role of the executive director concerning corporate governance includes setting the strategic objectives of the company. These directors provide leadership to the strategic objectives they set to put effect into it, supervising the businesses’ management and reporting to the shareholders on their stewardship (Adams, Hermalin and Weisbach, 2008). On the other hand, non-executive boards are normally hired on basis of part-time and are responsible for sitting on numerouscrucial committees such as Audit and Remuneration Committee and acting as the company’s chairperson. The key responsibility of the individual director pertaining corporate governance is to represent the shareholders’ interests as a group.

Board members should act with care while undertaking their responsibilities, remain loyal to the corporation and avoid personal interest to come before the shareholders’ interests (Karmacharya, 2013). The board ensures the prosperity of the company by directing its affairs collectively and meeting the stakeholders and shareholders’ interests. By law, the BOD has the responsibility and duty to for governing the company (Adams, Hermalin and Weisbach, 2008). The interests of the company must be the guide to the BOD’s decisions. The board must direct the company’s business with fairness with due regard to the stake and value of the shareholders in the enterprise. The board plays an important role in governance by ensuring timely, complete and accurate reports on every organization’s relevant aspect are issued to its shareholders. The board places the reporting system with the standards of disclosure that are completely in line with international accounting standards (Ganac, 2014). The board enhances corporate governance by creating an enabling environment thereby building a very united, coordinated and cohesive team working in the direction of attaining a common goal.

To sum up on the role of boards in the corporate governance, we can say that the board is responsible for establishing the values, mission, and vision of the company (Ganac, 2014). It is accountable for determining the mission and vision of the corporation so as to set and guide the present operations and future developments (Karmacharya, 2013). The board determines the values to be promoted within the company. The board determines the policies of the company and reviewing the goals regularly. Policies are put in place to ensure order within the company. Reviewing goals regularly aimed at detecting deviations so that early corrective measures can be employed (Ganac, 2014). The board is responsible for coming up with the business best strategy. The board evaluates and reviews the current and future threats, risks and opportunities in the external environment as well as the future and current weaknesses and strengths related to the company (Karmacharya, 2013).

Role of board diversity in enhancing corporate governance

The recent global financial crisis has resulted in increased demand for greater transparency regarding the corporate practices. Across the entire world, corporate bonds are dominated by male directors (Valsan, 2013). According to various researches, lack of diversity is a major challenge in corporate governance. It is desirable to change the composition of the board. Lack of diversity regarding race/ethnicity, international expertise and gender are affecting the corporate’s business world (Acca, 2015). Research shows that there is a positive correlation between the women’s presence in board positions and the senior management positions and improved financial performance. One way to enhance the corporate governance is through diversifying the board. When the diversity is managed well, it can lead to improved decision making and improve the company’s public image by conveying the commitment to inclusion and equal opportunities (Valsan, 2013). It is regularly argued that diversity in boardroom improves the performance of the board because diversity improves group decision making. Diverse individuals bring a variety of strengths, capabilities, and experiences to the boardroom. Diversity improves corporate governance because it brings a greater diversity of thoughts and a wider range of views, insights, and perspectives in relation to issues affecting the company. 

Diversity enhances corporate governance because it encourages open-mindedness in the boardroom which in turn generates reasoning conflict and facilitates problem-solving which fosters greater innovation and creativity (GES Brief, 2012). Board’s composition influences the rest of the company positively. A BOD made of diverse individuals reduces the impact of homogenizing in-group bias or favoritism on talent election (Valsan, 2013).  This means there will be ripple effects because a diverse board is likely to draw on a more and broader diverse pool of potential candidates when selecting a CEO or board itself. This indirectly encourages greater diversity regarding the selection of talent across the organization. Diversifying the board will enhance corporate governance because it leads to effectiveness in making decision, better utilization of the pool of talents and improves the reputation of the company and investor relations because it establishes the company as a very responsible citizen (Acca, 2015).

Relationship between diversity, accountability, and performance of the company

The board’s diversity issue is linked to the more general issue of independent outside directors. Performances and accountability improve when outsiders are included in the board (Russell Reynolds Associates, 2013).  For greater corporate governance and accountability, there is need to introduce a high degree of diversity on BOD. In the recent past, board diversity has become an emerging issue in the corporate governance research and practice (Pocock, 2016). There is an increasing attention on studies regarding the composition of the board since the 2008 financial crisis in terms of board diversity, board size, and the board independence. Gender and ethnic diversity in BOD could lead to accountability, better corporate governance and improve the performance of the company (Russell Reynolds Associates, 2013). Board diversification encourages the expertise and competency. Outside directors are usually individuals with wide academic background knowledge. They understand very clearly the way to efficiently monitor the activities of the managers. Insiders are more interested in their own personal gains, unlike outsiders. Since outsiders are keen on achieving the objectives of the company, insiders will be challenged to improve on their responsibilities because failure to that, their colleagues will question them. This, in turn, will positively influence accountability, transparency, and performance of the business.

Diversity is essential because it brings on board people with different cognitive pattern (Pocock, 2016). This will enable the company to make better decisions in terms of developing the operations of the company. Board diversity means that members will mostly differ in behaviors, norms, and beliefs (Pocock, 2016). This will, in turn, create a wider view regarding different options and solutions which will better the company’s decision making. It is also true that diversifying the board enhances the company’s reputation as the people view it as an equal opportunity organization (Russell Reynolds Associates, 2013). This will result in better performance of the company. Having multiple views improves the outcomes of all actions. When diversity is enhanced in the board, management will be able to make better and informed decisions due to the introduced competency and pool of talents. The BOD will be able to exercise reasonable decisions and reasonable supervision for the business. BOD will be compelled to act in good faith and in whatever they believe is good for the company’s interests. This way, accountability is enhanced, and the resultant effect is the improved performance of the company (Rhee, 2015).

As we have found in the above literature, board composition introduces new perspectives and skills and also encourages the introduction of external individuals who are competent and possesses good education background (Rhee, 2015). We have also established that external individuals are more concerned with the interests of the company, unlike internal directors who are majorly interested in their personal gains. Problems relating to board effectiveness stems from the governance competence of the people consisting of the board. The introduction of competent members allows productive debates, self-awareness, and individual facilitation skills. Board diversity will challenge and optimize individuals influence and contributions thereby enhancing accountability within the company. Diversity in the board is likely to foster a culture of mutual accountability and spirit of affecting positive change (Brefi Group, 2015).

Board’s diversity enhances the board’s capacity to deliver value to the company, and there is a link between improved performance and the greater diversity within the board (Rhee, 2015). Performance is improved because diversity encourages group decision making. This way, the company will enjoy the strengths, experiences, and capabilities which boost its performances. 

However, shareholders of the company should determine the form and level of board’s diversity appropriate at a given period having company’s circumstances in mind (Brefi Group, 2015). This means that diversity is not expected to come at the cost of cohesion of the board or idealistic approach to making decisions. The current boardroom behaviors, personalities, and attributes will be crucial elements to consider before structuring the board. Diversifying the board’s composition too quickly poses some level of risks if due considerations regarding fundamental qualities to ensure optimal board and company’s performances are not put in place. It is important that the shareholders ensure diversity of thought in the boardroom is considered because it is through this that the value will be delivered to the company.

References

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Adams, R., Hermalin, B. and Weisbach, M. (2008). The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey.

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Pocock, L. (2016). A broader perspective on board diversity. [online] Available at: http://aicd.companydirectors.com.au/advocacy/governance-leadership-centre/governance-driving-performance/a-broader-perspective-on-board-diversity [Accessed 8 Feb. 2017].

Rhee, J. (2015). Diversity on Corporate Boards: How Much Difference Does “Difference” Make?. [online] Available at: https://corpgov.law.harvard.edu/2015/01/05/diversity-on-corporate-boards-how-much-difference-does-difference-make/ [Accessed 8 Feb. 2017].

Russell Reynolds Associates, (2013). Different Is Better: Why Diversity Matters in the Boardroom. [online] Available at: http://www.russellreynolds.com/insights/thought-leadership/different-is-better-why-diversity-matters-in-the-boardroom [Accessed 8 Feb. 2017].

Sonnenfeld, J. (2002). What Makes Great Boards Great. [online] Available at: https://hbr.org/2002/09/what-makes-great-boards-great [Accessed 8 Feb. 2017].

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Valsan, R. (2013). Board diversity as a corporate governance tool. [online] Available at: http://www.ecclblog.law.ed.ac.uk/2013/12/02/141/ [Accessed 8 Feb. 2017].

Waldron, M. (2015). Board Performance: Evaluating Board Members to Drive Accountability, Leadership and Impact – See more at: http://boardmember.com/hot-topics/board-performance-evaluating-board-members-drive-accountability-leadership-impact.

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