Nearly fifty years ago, in private enterprise boards of directors always leave a bad impression to public because they were passive and decorative. Some scholars in this area even called the board of directors were "ornaments on a corporate Christmas tree""â€¦an important ceremonial and legal fictionâ€¦"and "acted more like pawns of their CEO rather than the potentates the law intended them to be." Unfortunately, this kind of underperformance were not only found in US and UK, it also happened in many parts of East Asia, Russia, Japan which called the "crony capitalism", the "gangster capitalism" and the "political cronyism" respectively.
With the growing of the underperformance of boards, much attention has focus on how to improve the boards' effectiveness. For example, the Cadbury Report (1992), which is the first report attempt to formalize corporate governance best practice in a written document, focused attention on the board of directors as being the most important corporate governance mechanism, requiring constant monitoring and assessment. After that, Hampel Report (1998), Combined Code (1998) and Turnbull Report (1999) in UK were set up to response the concern on board of directors subsequently and also, these report having influenced the development of corporate governance codes in many others countries.
Get your grade
or your money back
using our Essay Writing Service!
Nevertheless, the problems of corporate governance are still exist. Recent years a number of notorious corporate collapses such as Enron, Royal Ahold, Parmalat and others have put the spotlight on the boards of directors again. In order to reaction to these scandals and rebuild public confidence and trust in the governance of public corporations, scores of recommendations including academic research and proposal of corporate governance reform have been made about how to improve the governance of companies, especially on the boards of directors. Because the common point of view was that the board is the major driving force of governance in a compay, if board of directors had taken a more active role rather than passive to scrutinize financial statement, some of corporate collapses would have been avoided or at least minimized.
Therefore, in this paper, with the reference of academic literature and proposal of corporate governance reform, many initiatives will be considered to discuses key criteria constitute a good and effective board. Before identify this, the role, duty and responsibility of board of directors are necessary to consider.
II. The Role, Duty and Responsibility of Board
According to the Combined Code (2008) "Every company should be headed by an effective board, which is collectively responsible for the success of the company". What the board does? In generally speaking, the task of board is to leads, controls and directs a company as well as the board acts as a bridge between the investors who provide capital and the directors who utilize that investment capital to create value and responsible for organization the enterprise. Consequently an effective board is the cornerstone to the success of the company. The board is not only the major driving force of governance in a company but also a crucial part of the corporate structure.
The responsibility of board can be seen to 'involve four basic elements- strategy formulation and policy making, supervision of executive management, and accountability to shareholders and others.'  In order to satisfied their res sponsibilities, directors have to looking inwards at the enterprise as well as outwards to the companies outside situation such as economic, political, and spcial context in which it operates and also consider the future of enterprise as well as its presnet situation.
III. Identifying Criteria for Good Boards of Directors
Over these years, with the increasing needs from investors for tools to help them to assess the level of one company, different countries and organizations around the world evaluate and score the level of corporate governance and hence this demand stimulated a system called corporate governance rating system. Remarkably, the current rating system take various approaches and weighting in evaluating the rank of corporate governance and they makes use of ranging of methodologies to achieve their final conclusions. In practice, almost all rating systems build up on the principles of corporate governance which are identified around the world and codes which are published by Organisation for Economic Co-operation and Development (OECD), International Corporate Governance Network (ICGN) and World Bank, besides that, due to the different culture, legal system, religious traditions, political stability economic events and board structure or some other elements, each country will completed rating system with their own specific requirements.
Always on Time
Marked to Standard
Based on numerous academic research focuses on the board effectiveness and introduced some criteria to examine whether they have associate with good board, Van den Berghe and Abigail Levrau summarize these criteria in three categories. Category (I) criteria used by almost rating systems, including independence of outsider directors, board committees and, director and executive compensation; Category (II) criteria found in some of the rating systems, including board size, board leadership structure, role of the board, frequency of board meetings; Category (III) criteria exceptionally included, including assess to information, age limitation, board review and education/ training.  Obvious, the effectiveness of the board depends on varying elements. Below, board independence, board committees, board size, board diversity, splitting the role of chairman and chief executive office, frequency of Board meetings, access to information, directors' training will be present in details that have been recommended in order to ensure board effectiveness.
Increase the representation of outside directors on company's boardrooms is always a top priority for corporate governance reformers.  Because non-executive directors are independent from management, they are regard as to be willing to stand up to the Chief Executive Officer to keep shareholder interests safe and thus it is widely recognized that independent directors play an significant role, particularly in those areas where there is a possible for conflicts of interest, such as financial control, nomination and remuneration. Besides that, the significant role of non-executive also recognized from the perspective of agency theory, the existence of independent non-executive directors in company boardroom should assist to decrease the notorious conflicts of interest between shareholders and the management of company, because if company's boardroom have independent directors they can bring in a independent view and introducing an independent voice to the board decision.
The recommended about non-executive directors initiate by the Cadbury Report (1992) , this report recommended that the board of directors should include a minimum of three non-executive directors who are able to influence the board's decisions.  The Cadbury Report also stressed that the process of appointment of non-executive directors was an important, that should be using a nomination committee to select non- executive directors in order to strengthening their independence.  Then in 1998 the Hampel Report readdressed the important role of non-executive directors and keeps the minimum number of non-executives on the board. 
Following the collapses of Enron, Parmalat most of rating systems again focused attention- explicitly or implicitly- on the board independence, in particular on the effectiveness of the independent director function. The US responded by producing the Sarbanes- Oxley Act of 2002 to the corporate mismanagement, managerial excesses, and misrepresentation by corporate executives while the UK produced the Higgs Report (2003) and Smith Report (2003) to the considerable impart of ineffective non-executive directors and in Higgs Report, it recommended that at least half of a company's board of directors should be independent non-executive directors. However, pension fund managers and pension fund trustees, who jointly represent the weight of the institutional investors community in the UK, expressed their adverse opinion about at least half the board of a company should comprise independent non-executive directors, as 40% of the conference delegates votes against it. 
Indeed, although the non-executive have play an essential role on board, it is needs to be conscious of that the balance between outside and inside directors in boardrooms is also important for an effective board, as:
"the executive directors also called inside directors who are owners or managers of a company provide useful information about the company's activities, while non-executive directors also called outside directors who are not owners or manager of a company and not participate in the day-to-day running of business but monitor the executive activity. As initiate stated in Cadbury Report (1992) non-executive directors should contribute or provide their expertise, skill, knowledge independent and unprejudiced views in assessing the managers' strategy, performance, resources, appointments , decisions and standards of conduct. The corporate board of directors, with its mix of experience, independence, and legal power, is a potentially powerful governance mechanism'' 
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
In recent years, a number of evidences could be raise to illustrate that set up board committees in fulfilling its primary functions to 'director, govern, monitor, oversee, supervise and comply'. The board may appoint diverse sub-committees. In general, audit, remuneration committee has been installed in most companies and the audit committee is arguably the most important of the board sub-committees. Besides audit committee, ethics committee also receives particularly high priority after a series of scandals. In this part these two committees will be present to consider as an important parts of a good corporate board.
As mentioned before, UK and US put forward some recommendations after such cases as Enron and Parmalat. In UK, Smith report emphasize audit committee plays an important role and defined the role of audit committee as 'oversight', 'assessment' and 'review'. The Cadbury Report suggested that an audit committee should be formed. In US, Sarbanes-Oxley stimulating companies must set up an audit committee, which is only composed of independent board members. In addition, the members of audit committee should be including at least one member who is financial expert.
After the collapse of Enron more and more companies established ethics committees as board sub-committee because they want ensure that there is a strong organizational ethic throughout the company, form director level to the employees. As Crane said: ' ethics programs may involve a smaller cost now and result in significant savings in the future in the united states, for example, corporations can significantly reduce their fine once they have been found guilty in criminal procedures by showing that an effective ethics program was in place '.  Therefore, ethics committee should be established for the good and effective board and thus contribute to a classic business.
In the academic research board size are one of the most frequently used factor to identify a good and effective board and it is also a significant criteria which is included in most corporate governance rating systems.
Yermack studied a sample of large US public enterprise to examine the board size and then conclude that there is a negative correlation between the size of board and company market value  . In the following years, similar statistical evidence were support Yermack's conclusion. The study by Eisenberg et al using small non-listed Finnish companies as a sample and showed a inverse relationship between board size and company's value  , and also, after studied five European countries Conyon and Peck found a negative correlation between ROE of shareholders and the size of board  .
Increasing number of directors offer a mix board because the larger board the more experience, skill, knowledge and academic area they are involved and larger boards "may reduce domination by the CEO"  . However, Expanding the board size could conduce lack communication and difficult to coordinate. In addition, larger boards could also result in efficient because of lack motivation and participation and liable to "develop factions and coalitions"  .
In sum, numerous academic researches evidence that a negative relationship between larger boards and corporate performance. However, a minimum number of directors should not ignore. A limitation of the maximum number of board members is advocated. The board of directors should be small enough to be effective, more cohesive and to enable more participation and discussion.
Emphasis is also placed on board diversity. According to the Higgs Report that in listed companies in UK, larger part of non-executive directors were male, white, middle-aged and British origin in the boardroom. Obviously, the emerging academic literature recommend that this is not a good situation for boards and hence for companies' performance  , because with the globalization and market variety, the need for more diversity in boardroom to deal with complexities business environment is also increasing.
Consequently scholars in corporate governance recommend that the corporate boards should more diversity in order to reach the requirements of business diversity in modern society. In the meantime, increasingly academic literatures based on research support this arguments and conclude that widening boardroom have positive impact on stakeholders, companies' reputation, and board performances.  For example, the Tyson report (2003) emphasis that the diverse composition of board could make company more confident when they running their business because they have more experts with specific background, skills and comprehension to deal with tough issues. Take a group as an example, if social and environment lobby groups have a non-executive director whose background was in environmental regulation or human resource management, it will increase company's competitive power relative to companies with less experts.
This kind of diversity could be evaluated on various dimensions: age, gender, ethnic group, educational background, working experience and others. In 2003, Carter et al. scrutinize the association between widening board and company value for Fortune 1000 firms. After controlling for firm size, leverage, industry, and other corporate governance criteria which are known to influence firm performance, the result shows that great positive links between participate of female and ethnic minorities on the boardroom and firm value.  Therefore, in this part, gender and nationality will be present in details to explain how board diversity could enhance board effectiveness.
Gender Diversity in the Boardroom
Greater female in boardroom is most arguable issue in board diversity. An emerging research has examined whether the gender diversity could contribute to an effective board. The empirical evidence is ambiguous, Sharder et al (1997), Farell and Hersch (2005) they are fail to find any significant association between the presence of women and firm financial preference while Crater et al. (2003), Erharde et al.(2003) Catalyst (2004) report that there is a positive link between financial performance and female board representation. 
Nevertheless, in recent years increasing evidences indicated that presence of female in company's boardroom is necessary based on several reasons. Firstly, as mentioned before, the need for market various require more diversity of a firm's directors to meet the requirements of diversity customers and employees, participate of women could increasing its capacity to occupy markets, especially in retailing, banking or public utilities which have close link with final consume.  Secondly, diversity of gender in boardroom could enhance problem-solving and decision making, because sometimes man and woman may consider and resolve issues form different perspective.  Thirdly, appointment of female outside directors to boards may increase the independence of the board, for the reason that compare to man, woman are more incline to ask questions and hence make the board-decision more transparence and independence.  Another argument for gender diversity is that if CEOs and nomination committees are selected directors without bias form both genders it will expand the sources of candidates and thus improve the quality of the board of directors.
However, despite a number of scholars recommended that the positive impacts of appoint female directors, the figure of female on boards is still low. Accord to the Catalyst's statistics, women held 14.7% of all Fortune 500 Board seat in 2005 and 14.6% in 2006, a decline of 0.1% compared to the last year.  In order to improve the performance of companies, the board could appoint mass three or more of female directors in boardroom. 
The proportion of ethnic minorities in UK and US are growing, in order to targeting ethnic groups in strategic marketing to meet their specific requirements, the companies should employ virtue employees from these groups because similarly individuals from different ethnic backgrounds will provide additional cultural insights to the boardroom in their decision-marking. Besides, appoint ethnic minorities is good for companies' reputation and form the long-term perspective, race diversity will enhance firms' financial performance. Indeed, the emerging view is that ethnic diversity actions could have a measurable effect on their board. 
Splitting the Role of Chairman and Chief Executive Office
The roles of chairman and chief executive officer (CEO) are still a one of the controversial and unsettle problem in corporate governance. CEO has the executive responsibility for day-to-day running of the company's business while the chairman is responsible for the leading the board of directors, not the company and setting the board agenda as well as for ensuring that the board meets frequently  .
A key question in contemporaneous corporate governance around the world is whether should be separate the role of chairman and CEO in boardroom in order to enhance its effective. In the perspective of codes of good practice in corporate governance, it all suggests that the roles should be separate.
This recommendation begin with the Cadbury Report (1992), in this report it suggest that power and authority between chairman and CEO should be balance. In the following years, various codes and proposal of governance reform still focus on this area. Influenced by series of scandal in 2003 the Higgs report re-emphasized the significant effect of separating the role of chairman and CEO, and then in 2008 Combine Code stated that 'the roles of chairman and chief executive should not be exercised by the same individual' in a written document.  If doing so, it will reduce the power of CEO otherwise there could be authorized too much power in one person.
As a result of corporate governance reform, especially influenced by the recommendations of Cadbury Report (1992), companies in UK have generally separation of the CEO and board chair roles, in 2003 only five FTSE 100 companies had a joint chairman/ chief executive officer in UK listed companies.  However the United States has been slower to initiate change in this area, the roles of chairman and CEO tend to be the same person. The argument for joint roles of CEO and chairman are companies with combined roles in American have been run successfully for generations, and firms only need one leader otherwise spreading leadership duties during two people will lead to conflict.
However, due to the abuse of power by the head of enterprise a series of collapses happened in the United States and thus there have been some calls for the splitting the roles of CEO and chairman. Nevertheless, some of them still resisted it because of separation would erode their power. 
Besides codes of good practice, a number of academic researchers also relating to the important of these initiatives and examined whether it is good for effective corporate board. However, according to the former academic literature, there is no explicit result on the relationship between leadership structure and firm performance. Some advocates of stewardship theory advice that if the roles of chairman and CEO exercised by the same individual, it could contribute unified board leadership and hence stimulates the dynamic to carry out  . Conversely, there is a strong impact between company bankruptcy and its board leadership structure. In other words, if one company not splitting the role of chairman and CEO are incline with bankruptcy  .
All in all, the roles of chairman and CEO should not be combined and lead by one person, as this would given an individual too much power. The roles of chairman and CEO should preferably be split to help ensure that no one individual is too powerful and abuse it.
Frequency and Quality of Board Meetings
A good and effective board should imply minimum number of board meetings to keep the companies running successful; therefore frequency of board meetings is used by some rating systems to assess the board effectiveness. After all, the board meeting is one of important ways for decision-making.
On the basis of in-depth interviews with 60 board members of Belgian list companies, Van den Berghe et al. asked directors to summarize what criteria constitutes good and effective board, most of the respondents pointed out that the quality and quantity of the board meetings is the most important factors. 
In order to have an best and effective board meeting, frequency of board meetings is undoubted and in the meantime quality of board meeting also cannot be ignore, based on these requirements several elements need to be considered. The first and most important issue should be concerns are access information. In the modern business, information could be considered as competitive weapon, 'the free and accurate flow of information in and out of the board is as vital to the healthy operating of the corporate body, it is just like the free and unhindered flow of blood is to the healthy functioning of the human body.'  If the directors receive accurate and reliable information in advance or on a timely, they could make response quicker than their competitors or have sufficient time to prepare which is viewed as crucial for the meeting. The second issue raised is about the quality of the discussions or debates during the board meetings. Real, open, in-depth discussions are crucial for an effective board meeting. In addition, such debates must take place inside the board room rather than behind the scenes. Individuals should have the opportunity to use their prepare information and then presented them in an analytic and inclusive way, and each directors' recommendations should be objective and neutrality. In the meantime based on comfortable and constructive climate, the board of directors must be critical rather than complimentary all the time. The third point is the way the decisions are taken by the board of directors. The decision-marking should be independent, without the shareholder involved.
There is few researches focus on the directors' training associate with the corporate financial performance. However, as well known education and qualifications are playing an increase important role in the modern society, in order to create and running an efficiently board, individual's specific knowledge, skills abilities, experience are essential as well as relevant new laws, regulations and evolving business risks.
Indeed, training of directors was initiated recommend by the Cadbury Report (1992)  and reaffirmed by the Hampel Report (1998), Higgs Report (2003). In order to response the recommendation of Derek Higgs for training of non-executive directors, some universities in UK provided training courses for non-executive directors but they found it is difficult to carry out and then cancel it. One reason is that most board members think they are not necessarily to receive training because they already have the adequate experience before they take this job, this kind of training programmes may simply be a time-wasting exercise.
However, could anyone claim they are familiar with everything about what they do? Obviously this attitude seems to be arrogance, there is more to learn especially under the complexity business environment.
With the growing important role of directors, they should following the recommendation by these report 'directors should receive appropriate training' in order to meet the growing demand of professionalism and the increasing complication of task and hence improve the effectiveness of board and firm values.
Aftermath of Enron and other corporate collapses, the role of board are becoming increasingly important and becoming more carefully to examine, this paper form board independence, board committees, board size, board diversity, splitting the role of chairman and chief executive office, frequency of Board meetings, directors' training to discuss how to enhance the board effectiveness. However, gap will always exists between theory and practice, just like the principle of OECD 'One Size Does Not Fit All' each company would have its own specific, except some general factors each companies' size, age of directors, customers, employees, international involvement and strategies also should be consider to establish a good and effective board.