Importance of Corporate Governance: Roles, Responsibilities Report

This report examines the critical importance of corporate governance within organizations, emphasizing the roles and responsibilities of the board of directors and the Chief Executive Officer (CEO). It delves into the significance of establishing clear missions, visions, and values, along with defining organizational strategies and policies. The report underscores the fiduciary duties of board members, highlighting their accountability to shareholders and the importance of transparent communication. Two case studies illustrate these principles, exploring director responsibilities, shareholder value, and the need for ethical practices. The report concludes by stressing the collective responsibility of the CEO and board of directors in promoting organizational effectiveness, integrity, and good corporate governance to enhance shareholder value and maintain organizational stability. The report is a valuable resource for understanding the dynamics of corporate governance.

Running head: IMPORTANCE OF CORPORATE GOVERNANCE
IMPORTANCE OF CORPORATE GOVERNANCE
Name of the Student
Name of the University
Author Note

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Executive Summary
This report throws light on the important of corporate governance in an organization. The role,
responsibilities of board of directors and the CEO is well defined to maximize the organizational
growth. It is the duties of the board members of the organization to act honestly and exercise
reasonable skills and care to clearly understand the fiduciary duties required to perform the
required tasks of the organization. Moreover, the report elaborates on the importance of
shareholder among all the stakeholders present in an organization. Furthermore, it is the duty of
the board of directors to hold their shareholders interest in the organization. They are responsible
for providing relevant information to their stakeholders and avoiding any uncertainties present
within the organization.

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Table of Contents
Case Study 1:...................................................................................................................................3
Introduction:................................................................................................................................3
Appointment of the Board of Directors:......................................................................................3
Role of Board of Directors:.........................................................................................................4
Duties of the board of directors:..................................................................................................4
Responsibilities of the board of directors:...................................................................................5
Role of the Chief Executive officer:............................................................................................6
Recommendation:........................................................................................................................6
Conclusion:..................................................................................................................................7
Case study 2:....................................................................................................................................7
Introduction:................................................................................................................................7
Responsibilities of the director towards their shareholders:........................................................8
Analysis:......................................................................................................................................9
Recommendation:......................................................................................................................10
Conclusion.................................................................................................................................11
References:....................................................................................................................................12

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Case Study 1:
Introduction:
In the recent times, as an organization is expanding the business due to increase in
globalization and privatization. Understanding the roles and responsibilities should be the prior
step while appointing the board of directors for the organization (McCahery, Sautner and Starks
2016). the board of directors should be appointed on the behalf of the shareholders for
controlling the daily affairs of the businesses. The board members should be directly accountable
to the shareholders and as well as holding the company’s annual general meeting. It is important
for an organization to have periodicals board meetings so that the directors execute their
responsibilities carefully to control the organization’s overall situation, strategies and policies.
The board of director’s main purpose is to make sure that the organizations prosperity is
maintained by collectively controlling the organizations affairs for meeting the general interest of
their stakeholders and shareholders (Armstrong et al. 2015). While dealing with the issues and
challenges related to the financial responsibilities of the company, the directors should also deal
with their issues of corporate governance, social responsibilities and the organizational ethics.
Each and every board meeting, a chair person should be present to conduct the board meeting
efficiently.
Appointment of the Board of Directors:
The major control related to the composition for board of directors relies with the
shareholders as they have the power to appoint or dismiss a director. They have the control to
fix the minimum or maximum amount of directors in the organization. The directors can be

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dismissed through majority of votes from the shareholders. The procedure that is followed is
mostly complex and furthermore legal advice is also required for the same.
Role of Board of Directors:
The roles involving the board of directors mostly include:
 Establishing mission, vision and values:
 Determining the organization’s mission and vision to set the pace for the organization
future development and current operations (Fuente, García-Sánchez and Lozano 2017).
 Determining the values of the organization, this is required to promote in the company.
 Reviewing and determining the organizational goals.
 Determining the policies of the company.
Duties of the board of directors:
Setting strategy and structure: The current and future opportunities needs to be reviewed and
evaluated, moreover the threats and risks present in the external environment and the present and
future business risks related to the companies is evaluated. Deciding the strategic options for the
business and the various means to be implemented should be decided and supported. The
business plan and strategies underpinning the corporate strategy should further be determined. It
should be ensured that the organizational structure of the company should be appropriate while
applying the chosen strategies.
Delegate to management: The director is responsible for delegating authority in the
organization, monitoring, evaluating the strategies for business plan and implementing it. To
ensure that the internal control present in the organization is effective.

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Communicating with the Shareholders They provide the ultimate direction required by the
business by establishing a policy based government system. Recruiting, supervising, evaluating
and retaining are the most vital functions of the board of directors. (Fuente, García-Sánchez and
Lozano 2017).
Responsibilities of the board of directors:
The director’s position of the company is entirely based on the position of respect and
trust. The directors might can abuse or take advantage of their position to maximize their profit
rate at the expense of the shareholders and the company itself. Therefore the law enforces
various duties and responsibilities for the organization directors to avoid any kind of
uncertainties, fraud or abuse within the company (Elyasiani and Zhang 2015). The organization
uses various techniques for making their company law balance the directors controlling power to
manage the businesses and on the other hand preventing them for abusing their freedom. To
maintain the books of accounts properly is the duties of the existing directors.
Calling a Director meeting:
The director can call the meeting for the board meeting to make sure that the board runs
efficiently. Each director should be allowed a reasonable notice for the meeting and state the
date, place and scheduled time for the same.
The board of directors and the chief executive officer has separate and defined roles and
responsibilities in the organization. It is generally the responsibility of the board of directors to
hire CEO of the business and assessing the overall strategy and direction of the business (Li,
Bruton and Filatotchev 2016).

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The Chief Executive Officer (CEO) of the management should lead the day to day affair
of their business as per the budgets and business plan approved by the Board. They should
develop the organization strategies that should be implemented by the management. The policies
and strategies should be approved by the Board and the committees for obtaining the group
objectives (Palmberg 2015). The CEO should lead the organization to maintain the effective
work relationship with the Board and the Chairman.
Role of the Chief Executive officer:
 It should be the role of the chairman to acts as a guide and facilitator for managing the
business of the board.
 They help in determining the board organization and composition.
 They help in developing the board effectiveness.
Recommendation:
The CEO should communicate with the Chairman of the organization on a daily basis to
ascertain the opportunities, issues and review the key developments of the organization. The
CEO should maintain their regular dialogue with the Board and Chairman on strategic and vital
issues affecting the organization and ensure that they should bring the problem to the attention of
the Board’s. The CEO should lead the organizational communication programs with the
stakeholders including their shareholders. Moreover, the CEO should conduct the business affair
in accordance with the procedures and practices adopted by the BOD to promote the standard of
integrity and corporate governance. The members should coordinately as a board evaluates the
effectiveness of the organization.

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Conclusion:
Both the CEO and board of Directors are collectively responsible for the organizational
effectiveness and promoting integrity in the organization. The board should provide governance
and leadership and handle the issues in an efficient manner. Each director should develop
effective communication with their shareholders maintain clear understanding of the
stakeholders views. Both the role of CEO and directors are different that should help in
establishing better corporate governance practices for raising and promoting ethics in the
business environment. The board of directors should provide advice to the board of directors
whenever required.
Case study 2:
Introduction:
The company is not only a social construction but constitutes objectives and expectations
of the various stakeholders. Stakeholders besides involving managers and shareholders of the
organization also constitute customers, employees, suppliers and other individual or group. The
owners of an organization are their shareholders (Huang et al. 2014). The Australian Institute of
Company Director (AICD) held the interest of its shareholders above all the organization
stakeholders. Directors are appointed by their shareholders to manage their organization.
Shareholders invest capital in the organization and receive voting rights in the vital matters of the
organization. In small organization, shareholders generally serve as the organization officer and
director at a same time. As the shareholders are the real beneficial owner of the company, their
interests are the ultimate driver of the organization (Yoshikawa and Hu 2017). The organization
bears social responsibility for their shareholders.

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Responsibilities of the director towards their shareholders:
 The major goal of the board of directors is to increase and maximize the value of the
shareholders in the long-run.
 Shareholders values consists the considerations for minority shareholders in the
organization.
 Efficient communication with the shareholders
 Returning the shareholders profit.
 Exercise accountability to relevant shareholders
 To ensure that the communication passed both to and from the relevant stakeholders is
effective or not.
 Promoting goodwill for the organization while supporting the stakeholders.
 Monitor relations with the stakeholders by collecting and evaluating appropriate
information.
Strategies: The major strategy of the board of directors is basically based on the required
conditions needed for meeting the goal of shareholders value (Boubaker, Derouiche and Nguyen
2015).
Making an investment in the business of the company, the shareholders are responsible
for assessing their profit return from the investment. The decision made by the board helps in
determining their expectations in the terms of profits, dividends and capital growth, which is
ultimately reflected by their share price. The basic method of making judgments and evaluating
investments about the organization competence in which investment is done helps the
shareholders in making comparison with the similar companies.

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For example, Cadbury Schweppes has over two billion shares from their shareholders and
more than 85% are owned by the banks, insurance companies and UK & USA institutions
(Ciampi 2015). Therefore it is important for Cadbury Schweppes company shareholder’s trust
manager to make efficient decisions and manage the organization to create maximum value on
their behalf.
Analysis:
Benesee holdings proactively or entirely disclose the company information to their
shareholders and investors. They provide shareholders relations disclosure tools from the annual
report and company websites. The organization practices great relevance on mutual
communication with their relationship with their investors and shareholders by promoting
various Investor relation activities and maximizing the organization productivity.
It is important for the stability of the organization to hold shares. Investors are nowadays
having various different organization and options for investment to choose (Eccles and Youmans
2015). If the company in which the shareholders are investing is not producing return for them
then it is the right of the shareholders to sell their shares and invest it somewhere else. The sales
taking place through large institutional shareholders could further create uncertainty for the
company’s performance in the near future and can cause the share price to fall. This can limit the
organization ability to develop. Therefore retaining shareholders interest can increase their
confidence leading to the stability of the organization.
The value oriented organization religiously monitors the if the buyers of the company is
willing to pay valued premium beyond the company’s estimated cash flows for their business

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units, real estate, brands and various detachable assets (Fich, Harford and Tran 2015). This
analysis can fail to exploit the opportunity that can compromise the shareholders value.
Kmart is a recent example, an ESL investment, where hedge fund is operated by Edward
Lampert and gained the control of the company in less than $ 1 billion and later recoup his
overall investment by selling their stores to Home Depot and Sears. Later on, the shares were
traded at $30 and in the next year at $100 (Soltani and Maupetit 2015). This created chaos and
confusion among the shareholders of Kmart and had to liquidate their entire shares at a distress
price.
Providing accurate information in a comprehensible manner: It is the responsibility of the
directors to maintain the shareholders relations by communicating the business conditions, vision
and financial position in a comprehensive and timely basis. The directors should obtain
maximum feedback from their shareholders to improve the organization management and hence
achieve sustained increment in their corporate value.
Recommendation:
The board of directors should perform their duties honestly uninfluenced by any fear or
impartially. They should recognize the main responsibility to their member as a whole and
regard the shareholders interest in the organization. The board should not take inefficient or
improper advantages of their position. The directors should lay more emphasis on creating
opportunities for dialogues with the shareholders. Therefore, more efforts should be given on
vitalizing the shareholders general meeting. Increase the transparency of the shareholders in the
General meeting. The directors should avoid their scheduling the General meetings of the
stakeholders on all those days when other companies meeting is to be held. In the current times

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the shareholders should be allowed to exercise their voting rights through the internet. It is the
social responsibility of the directors to value their shareholders by focusing on their core
competencies to provide efficiency in their organization. For example, McKinsey & Co offers
free consulting to their shareholders.
Conclusion
Therefore, it can be concluded that shareholders are the major stakeholders of the
organization and the board of directors should lay more emphasis on the retaining the
shareholders interest. AICD should make a proper decision regarding the relevance of the
corporate stakeholders that includes both the financial stakeholders like bondholders and non-
financial stakeholders like the customers, NGOs, employees and suppliers. When shareholders
reviews the annual report provided by the company, in which they invested major concerns will
be given on the earnings per share, dividend yields, tangible and intangible assets and
price/earnings ratio. Hence, it is important for the organization to lay more emphasis on the
shareholders interest.