Since the Cadbury Report was published in 1992 in the UK, there has been increasing emphasis not just by UK regulators but also by regulators from other countries, including the USA and Continental Europe, of the role of boards of directors in corporate governance. However, 20 years down the line it is still uncertain whether boards of directors are able to fulfill the important role they have been assigned by regulators.
For example, the academic literature on the impact of board composition, in particular the proportion of outside, non-executive directors, is as yet inconclusive as very few studies have found a link between the two. In addition, the 2007/8 financial crisis as well as subsequent, related events suggest that boards of directors have failed in their role of monitoring the executives and managing risk across the organisation.
For example, when Barclays Bank was fined US$450m as a result of the LIBOR-fixing scandal the non-executive chairman of the board, Marcus Agius, decided to resign, willing to take all the blame while Bob Diamond refused to resign. At the time Agius resigned, some of Barclays’ shareholders were said to have stated that “[Agius] was not tough enough to stand up to the headstrong Mr Diamond”.
This example suggests that all too often relations between various members of the board of directors are too cosy. More generally, the recent events suggests that there is still a lot we do not know about board dynamics as well as other issues relating to the functioning, the effectiveness and efficiency of corporate boards.
Topics include, but are not limited to the following ones:
- Executive and non-executive directors’ networks, social and family ties. Do they impede board independence or do they generate shareholder value?
- Gender diversity and its impact on financial performance, risk taking and decision making.
- Behavioural and cultural issues such as excessive loyalty to the CEO and the effect of religion on risk taking.
- Conflicts of interests in the board room such as those that may underlie insider trading and the framing of information published by the company.
- Board room committees: useful or waste of time?
- CEO and board room succession decisions.
- The labour market for executive directors and/or non-executive directors. Are directors rewarded (punished) for good (bad) decisions? Do labour markets have a memory of directors’ past track record?
- Shareholder and bank representation on boards.
- Director versus shareholder primacy.
- The role of consultants to the board.
- Corporate decision making and board supervision.
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