Corporate Governance are the rules, or laws of howbusinesses are operated, regulated, and controlled.This is why companies need to have aneffective corporate governance policy.Corporate governance also includes the relationships between the boardof directors, management and the shareholders.The stockholders provide funding for the corporation.The management runs the company on a day today basis.The Board of Directors is beelected by stockholders to represent them and protect their interests in thecorporation (Hunger & Wheelen, 2007).
Corporate Governance are the rules, or laws of how businesses are operated, regulated, and controlled. This is why companies need to have an effective corporate governance policy. Corporate governance also includes the relationships between the board of directors, management and the shareholders. The stockholders provide funding for the corporation. The management runs the company on a day to day basis. The Board of Directors is be elected by stockholders to represent them and protect their interests in the corporation (Hunger & Wheelen, 2007).
Other participants of corporate governance are regulators, employees, suppliers, partners, customers, and the community. For example, employees receive pay for their work as well as benefits, customers receive goods or services from a company and suppliers receive money in exchange for goods or services. The community can benefit as well, they may receive support from our company either by offering jobs, or a reduction in property taxes. There are two sets of laws that are a part of corporate governance. The first is the corporate code of conduct or ethical rules. The second are laws that are made by the government such as the Sarbanes Oxley Act (Hunger & Wheelen, 2007).
The board of directors is the highest governing authority in a corporate structure. The role of the board of directors in a corporation is to approve all of the decisions that may affect the long term performance of the company. The board of directors is elected by the shareholders of a corporation. The board needs to make sure that the company is following the rules that are established in the state in which it is incorporated. The responsibilities of the board will vary from state to state and from country to country. However, in interviewing a large number of directors worldwide, below are five responsibilities that were strongly agreed upon.
1. Setting corporate strategy, overall direction, mission or vision
2. Succession: This is the hiring and firing the CEO and other top management
3. Controlling, monitoring, or the supervision of the top management
4. Review and approve the use of resources
5. Working in the best interest of the stockholders interests (Hunger & Wheelen, 2007)..
Some other responsibilities of the board of directors is to determine it dividends should be paid out, if there should be stock splits, and approve the financial statements of the company (Kennon, 2009).
A “real world” example of issues that face a board of directors is Steve Jobs medical condition at Apple Computers. Experts say that the board failed to disclose information about CEO Steve Jobs’ medical condition. This can cause legal implications for the board of directors. In January, 2009 Jobs issued a statement that was released through Apple’s press division, that the health issues that he was facing were worse than he thought. Back in 2008 rumors started about Jobs’ health where a “common bug” was blamed. In December of 2008 Jobs blamed a hormone imbalance for his absence at the Macworld conference. Jobs assured everyone though that he would be able to fulfill his duties as CEO. In January though, he stated “In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June.” (Poor, 2009). Trading of Apple stock (AAPL) came to a halt after the announcement, but in after hours trading it opened up again and plunged. On January 14th the stock closed at 85.33. This was a loss of over 5 %.
Legal experts say that the Board of Directors at Apple can face legal issues because of the impact that Jobs’ health has on the stock price. These experts feel that the board of directors should have done a better job at letting the public know about Jobs’ health and that they failed to meet their fiduciary duties to a corporation and that they may be sued. Joan MacLeod Heminway, who is an Associate Professor at the University of Tennessee College of Law, stated that shareholders could pursue legal actions on two plausible grounds: 1) Breach of the fiduciary duty of loyalty for failure to oversee adequately the affairs of the corporation or 2) Securities fraud for failing to disclose accurately or completely the material facts relating to Jobs’ health (Poor, 2009). This is just one high profile example of issues that face a board of directors. By not disclosing Jobs’ health issues many feel that the BOD of Apple has done a bad job of working in the best interest of the shareholders.
Hunger, J. D. & Wheelen, T. L. (2007) Essentials of strategic management (4th ed.)
Upper Saddle River, NJ: Prentice Hall
Kennon, J. (n.d.). The Board of Directors Responsibility, Role, and Structure. About.com.
Retrieved June 19, 2009, from http://beginnersinvest.about.com/cs/a/aa2203a.htm
Poor, J. (2009, January 17). Gore, Other Apple Directors Face Possible Suit over
CEO Jobs’ Health. Business and Media Institute. Retrieved June 19, 2009, from http://www.businessandmedia.org/ printer/2009/20090117125945.aspx