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"The term corporate governance relates to how corporations, firms and organizations are owned, managed and controlled" (Kooskora, 2006, p.29). It is through managing and controlling that boards and management play a role in corporate governance. Although both the boards and management play a role in corporate governance through managing and controlling but the scope of their activities in relation to these two broad functions varies:- Selection and Removal: - The boards are responsible for selecting the CEO and his working associates (Jones, 1997). If they find the performance of these individuals unsatisfactory, they are also responsible for removing them. In contrast the Management, which comprises of the CEO and his working associates, is responsible for hiring and firing people who work under them in the organisational hierarchy (Matheson, 2009).
Mission, Vision and Strategic Goals: - Boards establish the mission, vision and strategic goals of an organisation where as the role of management is to support the board in development of these mission, vision and strategic goals and in interpretation of them by developing its own short term strategies goals and performance objectives (Matheson, 2009).
Succession Planning: - The board is responsible for its own and CEO's continuity and succession where as the management ensures succession planning for all positions that are under the CEO (Matheson, 2009).
Relationship Maintenance: - Public Confidence and effective relationships with the community are maintained through timely and effective communication by the board whereas the management does this by the supporting the chairman and the board in their external associations (Matheson, 2009).
Monitoring: - The Board oversees the activities of the company and the CEO. It also makes sure that these activities are in accordance with the strategies, goals, performance objectives and laws & regulations (Matheson, 2009). Whereas the management monitors the conduct of employees, itself and organisation and sees to it that it is ethical at all times. It also makes sure that sound financial management practices, compliance with accounting, legislative and regulatory requirements are observed at all times (Matheson, 2009).
Risk Management Responsibility: - Boards only provide guidance, authority and oversight to management in relation to risk management where as management has the prime responsibility of risk management and it does this by delegating authority, specifying threshold for risk tolerance and reporting risk management plans and their performance to the Board (Sobel & Reading, 2004).
These roles as per the case study
In relation to risk management role, the board of WBF did not provide any guidance or oversight to the management nor did the management have any plans in place to tackle the non-payment of debts.
Selection and removal of roles were also not performed effectively by the board or management. The board failed to remove the CEO and finance director. Management also did not perform its role properly as it failed to take action against employees who provided misleading documents, presentations in order to hide the true position of the company.
The role of relationship maintenance was also ignored by the board and management as some directors provided incomplete and misleading information to the public which in turn was provided to them by the unethical company executives.
The monitoring role was not satisfactorily performed by the board and management. The fraudulent activities of company and employees had been overlooked by both board and management. Management also failed in implementation of sound financial practices. According to FSA the company may not be compliant with the legislative and regulatory requirements.
The belief now days is that; good ethics mean good business for the organization and good ethics come from strong leadership that is also ethical (Banerjea, 2010). Benefits to the organization that follow ethical cultures and have ethical leadership are increased efficiency in decision making and operational issues, employee commitment, product quality improvements, customer loyalty and all this leads to increased financial performance which the boards are responsible for (Banerjea, 2010).
Ethical leaders establish shared values that influence the ethical conduct of the employees and improve relationships with all the stake holders. Ethical leadership comes from top managers, CEO's and the Board who hold position of power. Leaders have the power to influence and if the leadership at the top acts ethically the entire organization will act ethically.
The board of directors in the case of WBF have not acted ethically and responsibly towards their stake holders. They provided misleading information about its finances and were not transparent in reporting the financials which is a core responsibility of the board. Even the audit firm was a part of the fraud and were eventually suspended. This clearly shows that the board was not asking the right questions to the auditing firm.
The Board in WBF can improve its leadership performance by
Conducting Internal Evaluation - This usually involves structured discussions between the chairman and the board members. They also circulate a questionnaire which is completed confidentially and then discussed by the board members (Goffee & Jones, 2010).
Hiring external Consultants - Board evaluation is a developing and imprecise art. This basically involves conducting interviews and providing recommendations (Goffee & Jones, 2010)
Training of Board members - Making sure that everyone on the board in WBF is trained on code of ethics and is aware of responsibilities as directors in the board.
Though the new executive chairman is making the changes in the WBF Board by making sure information being reported is transparent and suspending directors who are pending investigation, a lot more needs to be done for the board to be ethical and checks need to be placed for control on unethical practices.
In Wizz Bang Finance, the directors have been accused of deliberately providing misleading information about its finances. This clearly indicates that directors were not acting in good faith and certainly not acting in the best interest of the company. It is also the responsibility of a director to ensure proper books of account are kept (The Board of Directors - roles and responsibilities, 2009). Mary Witherspoon, chairman was honest and fulfilled its duty by informing the shareholders of the wrong doings by the directors. Chairman sets the board's tone and direction as well as its performance culture. The chairman also has the responsibility to uphold the standards of integrity and also maintain sufficient and effective communication between the shareholders. (The Role of Chairman and CEO, 2010). The CEO David Johns is also the managing director of the company. The main responsibility of David is to direct the affairs of the company and to act as a bridge between the board and the corporate management (Rechner & Dalton, 1989)). There needs to be transparency between the decisions made by either CEO, chairman or the board. The chairman should ensure that a relationship of trust is established with the CEO and that directors should have a comprehensive induction as well as on-going opportunities to learn about all aspects of the institutions for which they are responsible (Ketley, 2009)). Chairman acts as a link between the board and the CEO or the managing Director. He ensures that board is fully informed on all issues of relevance at the same time CEO ensures that the chairman and the board are kept informed on all important matters (The Role of Chairman and CEO, 2010) . In order for a smooth functioning in an organization, it is important that the relationship between the CEO, Chairman and the board should be based on trust, integrity, confidence and transparency. This would prevent small issues to becoming big problems in the organization.
Maintaining effective governance in an organization is the key element in improving the economic efficiency and growth along with enhancing investor's confidence.
Disclosure & Transparency of information- Disclosure and Transparency are considered to be partners of a good governance. They demonstrate the quality and reliability of information- financial and non financial provided by management to lenders, shareholders and public. (Corporate Governance- A basic guide for business practiitioners everywhere- Disclosure and Transparency, 2010). Disclosure and Transparency serves as a watchdog and help in preventing fraud and unethical behaviour. It is also important that the board, CEO and the chairman should provide timely and reliable information to the internal as well as external decision makers. This helps in building confidence among the internal decision makers by helping them to make decisions affecting the growth and profitability. By disclosing and giving a true picture to the shareholders and investors, it helps them to make a decision regarding where and at what risk to place their money. (Corporate Governance- A basic guide for business practiitioners everywhere- Disclosure and Transparency, 2010)
Board's responsibility: Board is responsible for looking after day to day affairs of the company. One of the key responsibilities of the board is to ensure that proper books of account are kept. (The Board of Directors - roles and responsibilities, 2009) As seen in the case this was not the case. The six directors had failed to set aside sufficient capital to protect the company from non- payment of debts. As per the companies act 1993, it is required that the directors should act in good faith and in what director believes to be in the best interest of the company. They are prohibited from carrying on the business of a company in a manner that is likely to create a substantial risk of serious loss for the company and its creditors (Blackmore, 2006). Due to ignorance and irresponsibility of the directors the company had to apply for new loans in order to pay the old debts. (The Board of Directors - roles and responsibilities, 2009)
Ethical Behaviour: There should be a certain level of respect and understanding between the different members of the board and the management. The managing director should not be openly criticizing the chairman of the board (Guidance on good practices in Corporate Governance Disclosure, 2006). The board should take these matters seriously and conduct the appropriate protocol that should already be in place for matters concerning workplace bullying or staff disagreements. The board also needs to decide whether it considers relationships between member of board of management to be ethically or morally appropriate or not.
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