Need for Executive Directors

Why is the need for independent directors emphasized for good corporate governance?

Submitted by: Nardeosingh Adarsh (140146)

Date of submission: 16th December 2014

Introduction

The domains of interest for this coursework are Limited Liability Companies and the role of Independent Directors in their good corporate governance.

Businesses exist in various structures, ranging from sole proprietorship to partnership to cooperative societies to Limited Liability Company and others. In most countries, the world of business is dominated by Limited Liability Companies, In fact, what differentiate a Limited Liability Company from other business structures is the separation of ownership and management. The fact that management is separated from ownership has given rise and has encouraged people to lay much emphasis upon corporate governance.

There is no universal definition for corporate governance. Milton Friedman, economist and Nobel Prize winner defines corporate governance as follows: "It is to conduct a business in accordance with the owners’ or shareholders’ desires which generally will be to make as much money as possible while conforming to the basic rules of the society embodied in law and local customs” For the Organization of Economic Cooperation and Development corporate governance is "the system by which business corporation are directed and controlled."

Good Corporate Governance may thus be understood as the framework of rules, relationships, systems and processes in companies through which authority is exercised and controlled to enable the optimization of setting up and achievement of goals.

For good corporate governance, obviously various factors should be considered. Firstly, there should be clearly defined role and powers of the board of directors. Absence of which can have pernicious impact upon accountability mechanism and threatens the achievement of goals and objectives. Furthermore there should be unambiguous legislations and...