Chapter 2

Corporate
Governance
What is Corporate
Governance?
Corporate governance is the
system of rules, practices,
and processes by which a
firm is directed and
controlled.
What is Board of
Director?
A board of directors is a group of
people who jointly supervise the
activities of an organization, which
can be either a for-profit business,
nonprofit organization, or a
government agency.
Role of the Board of Director
The roles of the board of directors include

 Establish vision, mission and values

 Set strategy and structure
 Delegate to management
 Exercise accountability to shareholders
and be responsible to relevant
stakeholders
Responsibilities of the Board
 The directors must always exercise their powers
for a 'proper purpose' – that is, in furtherance of
the reason for which they were given those
powers by the shareholders.
 Directors must act in good faith in what they
honestly believe to be the best interests of the
company, and not for any collateral purpose. This
means that, particularly in the event of a conflict of
interest between the company's interests and their
own, the directors must always favour the company.
 Directors must act with due skill and care.
 Directors must consider the interests of
employees of the company.
Board of Directors
Continuum
The board of directors' continuum reflects the
degree of involvement (from high to low) in the
strategic management process. Boards can range
from phantom boards with no real involvement to
catalyst boards with a very high degree of
involvement. Passive phantom or rubber stamp
boards typically never initiate or determine
strategy unless a crisis occurs.
Members of the Board of Directors

 Chief Executive Officer (CEO) or

President.
 Chief Operating Officer (COO)
 Chief Financial Officer (CFO) or
Treasurer.
 Secretary
Example of Board of Director
Organizational Structure