The scandals at Enron, WorldCom, Tyco and elsewhere over the past few years have focused a spotlight on corporate boards. Why did directors at so many companies fail to ask probing questions, uncover accounting malfeasance, or raise objections to the siphoning off of funds? Numerous explanations have been offered for these and other failures of board oversight, but critics have argued that they add up to one result: Too many boards do little more than rubber-stamp management analyses without providing independent protection for shareholders.
In response, various suggestions for reforming boards and redefining the role of directors have been put forward. Most are targeted at resolving “agency problems” — that is, making sure that the agents (the board members) are acting in the best interests of the principals that employ them (shareholders). For instance, the New York Stock Exchange Corporate Accountability and Listing Standards Committee has recommended these changes to the exchange’s listing standards: that a majority of the directors on boards be independent, that boards convene regular sessions without management in attendance, and that audit committees have sole responsibility for hiring and firing independent auditors and for approving their nonaudit work.
Such recommendations, while useful, do not deal with the fact that directors, no matter how dedicated and diligent, cannot serve as adequate monitors of management without sufficient information and the means to analyze it.... To read the complete article, login or sign-up using the form below.
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