Corporate Governance
Categories: Board of Directors, Company Management, Ethics/Morals
When a company grows out of a garage and becomes a more mature entity, the executives will need to explore the process of establishing its corporate governance.
In other words...the rules of the game. Which processes the company follows. Which best practices are adopted to ensure that both shareholders and stakeholders’ interest are balanced properly. The company’s Board of Directors is tasked with managing the corporate governance practices.
The company has an obligation to maximize profitability for shareholders. But stakeholders include direct and indirect participants in the company's business. This list of stakeholders includes residents who may be affected by the environmental practices of the company. It includes banks that provided loans, customers who buy products, suppliers who are part of their supply chain, and local, state, and Federal government officials.
While the Board of Directors manages these practices, the firm's Investor Relations and Public Relations arms are responsible for projecting the firm's corporate governance message. So whenever a company like Wells Fargo rips the face off its clients, be sure that you'll hear lots of messages about what an important member of the community this bank is.
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Finance: How does a board of directors f...27 Views
Finance a la Shmoop! How does a board of directors function?
All right, well structurally, the Board of Directors has really one function, after
it is elected by a vote, of the common shareholders, of the company. The board of
recruits, then hires the CEO and that's not necessarily easy. Because, most
of the good CEOs, you actually want, are already ensconced in high-paying jobs, [man being offered money]
from which they have to be bought away. Picking the right CEO, is the big
roulette wheel bet, the board makes. Is the CEO good, or bad, or ugly and yeah the
CEO can be all three. After being hired the CEO then hires everyone else, more or
less. In a public company, the board divides into committees, to advise and
oversee many of the little processes. There's audit committee people and
nomination and government committee people and Compensation Committee people.
In large companies there are also, often subcommittees, that focus on narrow
things, like technology, or politics and lobbying and, or the environment. You know, if [oil drill with man and duck]
you work for a big polluter. Well another big element of board value-add, revolves
around, strategy. Are we the high cost, high value company, or are we the low cost,
Walmart desk provider? That is, are we Pirates of the Caribbean, or are we La La
Land? What other strategic issues are we fighting? How do we get into China and [world map]
Russia and get out of Somalia? So yeah, that's strategy. How does the
board cover its primary obligations, in providing a fiduciary duty, to the
shareholders, who elected them? Is the board governing fairly and equitably?
Yeah, how do they do that? Well they just basically pay attention, right? Are
company policies racist, or gender biased, or ageist?
Which is illegal everywhere, except Silicon Valley in Hollywood. Are all the [director and actress]
right controls inspected, like audit, hiring, firing, policies and our
companies casual Fridays, have they gotten to just to casual? Is that a board item?
Yah, alright, next meeting. So yeah, that's the gist, hire the CEO, form
committees and of course they're also in charge of bagel Thursdays. [man in panda suit, bagels falling from sky]