Section 5

GROUP WORK

QUESTION
In recent years, because of increased pressure from outside groups and stakeholders, boards of directors are assuming a more active role in strategy analysis and choice. This is a positive trend for organisations. a. In what ways can board of directors contribute effectively towards the achievement of organisational objectives? b. Why is corporate governance critically important to an organisation in creating and sustaining competitive advantage?

A. In what ways can board of directors contribute effectively towards the achievement of organisational objectives?

Board of directors: a group of individuals who are elected by the ownership of a corporation to have oversight and guidance over management and who look out for shareholders interests.

The roles and duties of a board of directors can be divided into 4 broad categories:
1- Control and oversight over management 2- Adherence to legal prescriptions 3- Consideration of stakeholders interests 4- Advancement of stockholders rights

1- Control and oversight over management

Select the CEO Sanction the CEOs team Provide the CEO with a forum Ensure managerial competency Evaluate managements performance Set managements salary levels, including fringe benefits Guarantee managerial integrity through continuous auditing Chart the corporate course Devise and revise policies to be implemented by management

2- Adherence to legal prescriptions

Keep abreast of new laws Ensure the entire organisation fulfills legal prescriptions Pass by laws and related resolutions Select new directors Approve capital budgets Authorise borrowing, new stock issues, bonds and so on

3- Consideration of stakeholders interests

Monitor product quality Facilitate upward progression in employee quality of work life Review labor policies and practices Improve the customer climate Keep community relations at the highest level Use influence to better governmental, professional association, and educational contacts Maintain good public image

4- Advancement of stockholders rights

Preserve stockholders equity Stimulate corporate growth so that the firm will survive and flourish Guard against equity dilution Ensure equitable stockholder representation Inform stockholders through letters, reports and meetings Declare proper dividends Guarantee corporate survival

B. Why is corporate governance critically important to an organisation in creating and sustaining competitive advantage?

Competitive advantage: superior performance relative to other competitors in the same industry average. Sustainable competitive advantage: outperforming competitors or the industry average over a prolonged period of time. Corporate governance is an issue of enormous importance to firms and governments dealing with sustainable competitive advantage.

 Good corporate governance system can create and sustain competitive advantages by ensuring: - Policies: such as specific guidelines, methods, procedures, rules, forms, and administrative practices. - Resource allocation: includes financial resources, physical resources, human resources and technological resource. - Conflict management: by avoidance, defusion and confrontation. - Matching structure with strategy - Roles and relationship of internal stakeholders (stockholders, employees and boards members) versus external stakeholders (customers, suppliers, alliance partners, creditors, unions, communities, and government at various levels)

 Unless there is good corporate governance, shareholders will earn less and raising equity capital will become very difficult. This will limit the firms potential for growth and kill its competitive advantage. Ultimately, the result would be slow economic growth, increased unemployment, and a rise in government deficit. Good corporate governance is unquestionably a public interest issue. Its absence would erode public confidence in national financial markets, and given the increased trend toward globalization, shareholders may go elsewhere.

 It is vital that effective corporate governance structures be identified and implemented as a means for sustained competitive advantage. In fact, the success of a firm depends critically both on the decisions and choices made by its top managers, and on the nature and quality of the corporate governance system.