Corporate Governance: Issues and Practices

Running head: MANAGERIAL ECONOMICS
MANAGERIAL ECONOMICS
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MANAGERIAL ECONOMICS
Answer 1
One of the corporate practices, which is also common in America, is the acting of a single
person as both the CEO and the Chairman. This has led to certain problems. Firstly, a single
person, having powers of both the positions becomes tyrannical towards all the other executives
and non-executives of the company (Wheelen et al., 2017). For example, the boss of NCR fired
an under-performing executive by throwing his chair and desk in front of the factory and burned
them in front of him. Secondly, this tyrannical attitude leads to the mocking of the board of
directors by such person, acting as both. Thirdly, giving responsibility of both the positions to the
same person leads to egomaniacal strategies and wasteful personal rewards. For example,
recently, IBM’s board gave a reward to their retiring chairman with $100 worth company stock
and not with a stereotypical gold watch and fourthly, the merger of the two roles also leads to
biased election of candidates for the board of directors as the CEO usually choose the candidates
for election.
Answer 2
The non- executive directors in the European concerns are equivalent to the independent
directors of the American concerns. Derek Higgs, in one of his consultative documents,
mentioned that the non-executive directors (independent American directors) play a very
important role and the best people must be recruited for such roles (Goh & Gupta, 2016). The
independent directors or the non-executive directors have the following roles to play in a
business organization:
 Providing entrepreneurial leadership to a company with effective and prudent
control for managing and assessing risks.

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MANAGERIAL ECONOMICS
 They ensure the company’s strategies and are responsible for management of
human and financial resources for meeting the company objectives and for
management and review of performance.
 Setting values and standards of the company and meeting its obligations to the
Association Members and others.
 Apart from these, they are responsible for promoting the all round success of a
company, collectively.
Hence, their role is vital in running an organization and for it all round success.
Answer 3
Although the independent and a more active board of directors plays an effective role in
playing an important role for effective and better functioning of a company, there are certain
problems as well, with a more active board of directors (Hambrick, Misangyi & Park, 2015). The
three most critical issues are:
 A more active board results in dysfunctional group dynamics, which creates rivalries,
domination of many by few, bad chemistry and bad communication.
 A more active board means too many board members and too many board members
result in their disengagement. They usually don’t have any idea of what is going on in an
organization and they also don’t show any desire to find it out.
 Most importantly, the board members are very often, uncertain about their roles and
responsibilities and that makes them unable to perform in the desired manner because
they don’t know what their job is.