Separation Of Ownership And Control

• In publicly held corporations, ownership and control of the business are separate. Although they are elected and in some cases can be removed by shareholders, directors have exclusive authority to manage the affairs of the business. In theory this entails exercising oversight responsibility over management to ensure that it is acting in the bests interests of the corporation and its shareholders. A board of directors is responsible for insuring that the strategic objectives of a corporation are implemented and that procedures implemented by management preserve shareholder's investment in the enterprise.
  
  

Responsibilities Of Directors

• A board of directors helps ensure that the managers of a corporation are accountable to its shareholders. Effective corporate governance requires that the directors exercise due diligence in their oversight responsibilities and independently ascertain the prudence and effectiveness of senior management practices and policies to ensure that all stakeholders in the corporation are protected. A company's senior management report directly to the board of directors. As such, directors are charged with hiring and monitoring the performance of the corporation's key personnel.
  
  

Financial And Reporting Controls

• A crucial role of the board is to ensure that adequate internal auditing and control mechanisms are established so that the financial statements produced by senior management accurately reflect the financial performance of the enterprise. The board is responsible for insuring that the corporation complies with the federal securities laws by making timely and adequate public disclosure of material information concerning the operation of the business.
  
  

Executive Contracts

• Directors are responsible for establishing the compensation of senior executives and approving any bonuses for meeting established performance benchmarks. An effective board of directors can help preserve the assets of the corporation by scrutinizing carefully the terms of severance contracts with chief executive officers so as not to reward executive incompetence when shareholder value is eroded.
  
  

Independence Of Directors

• Ideally, in order to operate effectively in safeguarding the interests of shareholders, a board of directors should be truly independent and not merely captives of senior management. As the collapse of Enron and WorldCom in the 1990s revealed, in practice, directors are all too often ill equipped or lax in exercising their independent discretion and sometimes fail to perform due diligence on the policies and procedures implemented by senior management. In order to exercise their fiduciary duties effectively, directors must do more than rubber-stamp, or accept without reasonable inquiry, the reports and financial statements presented by senior management.