Board

Board of Directors: Duties & Liabilities

Professor David F. Larcker Corporate Governance Research Program Stanford Graduate School of Business

Copyright © 2011 by David F. Larcker and Brian Tayan. All rights reserved. For permissions, contact: corpgovernance@gsb.stanford.edu

Responsibilities

The board of directors has a dual mandate:

1. 2.

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Advisory: consult with management regarding strategic and operational direction of the company. Oversight: monitor company performance and reduce agency costs.

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Effective boards satisfy both functions. The responsibilities of the board are separate and distinct from those of management. The board does not manage the company.

OECD Principles of Corporate Governance: “The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.”

OECD (2004)

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Stanford Graduate School of Business, Corporate Governance Research Program, http://www.gsb.stanford.edu/cgrp

Responsibilities

Selected advisory and oversight responsibilities:

         

Approve the corporate strategy Test business model and identify key performance measures Identify risk areas and oversee risk management Plan for and select new executives Design executive compensation packages Ensure the integrity of published financial statements Approve major asset purchases Protect company assets and reputation Represent the interest of shareholders Ensure the company complies with laws and codes

Stanford Graduate School of Business, Corporate Governance Research Program, http://www.gsb.stanford.edu/cgrp

Independence

Boards are expected to be independent: - Act solely in the interest of the firm. - Free from conflicts that compromise judgment. - Able to take positions in opposition to management.

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“Independence” is defined according to regulatory standards. However,...