A more objective board of directors, or one that is separate from the management, is more likely to promote or protect the interests of the shareholders.
The average shareholder, who is typically not involved in the day-to-day operations of the company, relies on several parties to protect and further his or her interests.
These parties include the employees, its executives and its board of directors. However, each one of these parties has its own interests, which may conflict with those of the shareholder.
The board of directors is elected by the shareholders to oversee and govern the management and to make decisions on their behalf. As a result, the board is directly responsible for protecting and managing shareholders’ interests in the company.
For a board of directors to be truly effective, it needs to be objective and proactive in its policies and dealings with management. This helps to ensure that management is generating shareholder value.
A more objective board of directors, or one that is separate from the management, is more likely to promote or protect the interests of the shareholders.
For example, a board of directors made up entirely or primarily of management would clearly be hampered by conflicts of interest, and the preservation of shareholder value might not be a priority. When management and employees are also shareholders, they will be motivated to protect shareholder interests as their own.
From the Book – ‘ Know Everything about Corporate Social Responsibility ‘
Available on Amazon.in
Also Read:
- What is Humanistic Management?
- What is the Public Enterprise?
- What is a Private Firm?
- What is Family Owned Business?
- What is Corporate Financial Performance?
- What is Profit?
- What is Bottom of the Pyramid?
- What are the Basics of Corporate Structure?
- What is Corporate Governance?
- What is E-Governance?
- What is Status of E-Governance in India?
- Corporate Governance and the Board of Directors
- Who is an Independent Director?
- Understanding Independent Directors
- Independent Vs. Insider Director
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