Ethics Coursework

Order Description

Discuss the role of a board within an organization and include within that discussion:
(a)The challenges faced of achieving an effective board
(b)The professional behavior required of board members

Answer

Title: ETHICS AND CORPORATE GOVERNANCE ISSUES

Contents

Introduction. 2

The role of a board within an organization. 3

The challenges faced in the process of achieving an effective board. 6

The professional behaviour required of board members. 9

Conclusion. 10

References. 12

 

Introduction

A board of directors plays a critical role in an organization. Board members have a collective responsibility of ensuring that the programs and assets of an organization are managed in the right manner. They are expected to undertake their managerial duties in an honest manner and in accordance with the objectives of the organization. In performing this role, the board members have to manage the financial resources of the organization. Failure to manage these resources in a prudent and honest manner may raise serious ethical and corporate governance issues. To prevent such issues from arising, the board members must exercise judgment in a prudent manner and at the same time put in place adequate financial controls with a view to limit liabilities and protect assets.

It is not easy for an organization to assemble an effective board. A number of challenges tend to emerge in the pursuit of this objective. It is extremely difficult to assemble a board of directors that works collectively for the betterment of a business organization. Care should be taken in this process given that the board is the legal protectorate for the specific interests of all employees, customers, shareholders, creditors, and suppliers of a company. It may be difficult to determine the board composition at the outset. At the same time, one has to take time to ensure that members of the board are capable of projecting the professional behaviour required of them. The aim of this paper is to discuss the role of a board with an organization. In this discussion, the challenges encountered in the process of achieving an effective board are explored. Moreover, the paper examines literature on the professional behaviour required of board members.

The role of a board within an organization

Throughout the world, one of the ways of addressing corporate governance shortcomings is by assembling a board of directors. This board performs the task of advising the chief executive officer and other senior managers about different aspects of strategic management and problem-solving. A number of issues have been raised in regards to how the board should operate for it to operate effectively. For instance, Van den Berghe & Baelden (2005) argue that for a board to be effective, it should be allowed to work in an environment of independence. Dawson (1994) highlights the need for a board to embrace professional codes of conduct, which should entail ethical conduct. Brien (1998) observes that professional ethics should entail the pursuit of a culture of trust. All these issues ought to be highlighted in creating an in-depth understanding of the role of a board of directors.

The board has a critical role to play in the actualization of the reform initiatives of an organization. For the board to be able to steer an organization towards the right direction, the CEO must be ready to be challenged and even to be told what to do by board members. However, this should not be a reason for the CEO to shy away from assembling a board of directors. By embracing the ideas presented by the board, the CEO is able to get an opportunity to look at things from a new perspective. These benefits by far outweigh the discomfort of discussing issues with visionary board members.

Board members are responsible for monitoring all projects being implemented by the organization. They also perform the role of determining the strategic direction of the organization. Business leaders may not agree on the level of independence that should be accorded to the board. However, it is possible to assess the extent to which board independence can contribute to the realization of the objectives of an organization. From a formal point of view, independence should be pursued as a means to an end and not as an end in itself. In fact, Van den Berghe & Baelden (2005) argue that the need for independence should not be emphasized; rather, most of the attention should be on ways of ensuring board effectiveness. Effectiveness is said to have been achieved when the organization is being objectively monitored and that the decision-making process is being pursued in an objective manner.

For directors to be able to arrive at decisions objectively, they must develop the right attitude towards an organization. Ideally, board members are critical thinkers who are able to think about all possible scenarios in an objective manner, undertake a cost-benefit analysis, and make the most appropriate decisions under the circumstances. Such members bring about an environment of ability and willingness to drive the organization towards the right direction.

The role of the board may be summarized into four main points: trusteeship, project planning, financial management, and communication. The board is the primary trustee of an organization. They must exercise due diligence at all times in all matters relating to the management of assets, programs, and the image of the organization. Whenever things go wrong in an organization, the board is highly likely to take the blame. To avoid this, it must come up with effective strategies of ensuring that the goals of an organization are being pursued in a manner that ensures the protection of the interests of all stakeholders.

In financial management the board oversees spending on a wide range of programs that essential for the survival of the organization. Members of the board must be aware of all the funds that are raised, accepted, and dispersed by an organization. In simple terms, a board member has an obligation to exercise prudential judgment similar to the one exercised by individuals in the management of their own personal funds. To be prudent, board members must be guided by professionalism and values (Brakel, 2000). According to Brakel (2000), professionalism is a normative value because it entails dialogue, updating, and regular reflection. Although one should maintain a high level of professionalism, he should also simultaneously be sensitive to basic human needs at all times (Van der Walt & Ingley, 2003). The same thing should be said about members of a board; they should maintain professionalism while at the same time demonstrating sensitivity and empathy for the changing needs of all stakeholders.

The role of program planning and implementation is also important for an organization. The board must oversee not only the planning and implementation but also the evaluation of programs. This involves setting goals, defining obligations, and developing plans that will lead to the achievement of these goals. Members of the board must ensure that goals are defined in such a way that they reflect organizational needs and that they can be translated into effective utilization of the resources set aside for various programs. Through evaluation, board members are able to determine whether the activities being undertaken by an organization can contribute to the attainment of the established goals. At the same time, evaluation is essential in the process of ensuring that the goal of accountability is achieved. All employees should account for the utilization of all resources allocated to them.

The board also acts as a nerve centre of all communications within an organization. It is not possible for an organization to succeed without putting in place a definite structure through which different issues should be communicated to various departments. Many organizations seek to enhance communication by assigning different areas of responsibility to board members. In most cases, these areas of responsibility are assigned in accordance to the members’ areas of professional specialization. This division of labour creates a two-way street where both employees and board members understand each other’s concerns. Through such interactions, employees, shareholders, suppliers, distributors, and other stakeholders are likely to support the actions of the board. Moreover, assigning board members tasks that they are professionally qualified to handle increases the chances of successful implementation of projects. It also enables an organization to project the right image to the local community, customers, and the world at large.

In recent years, efforts have been made to promote gender equality in the way boards are constituted. Traditionally, directors of most boards have tended to be males. By bringing in more women on board, organizations can easily achieve the objective of gender balance. According to Burke (2003), organizations that embrace gender equality tend to establish a positive image in society. This puts them in a situation where they can easily achieve the much sought-after legitimacy. In literature, the increased attention to the role of women in corporate bards has brought into perspective new challenges affecting governance research (Nielsen & Huse, 2010). Nielsen & Huse (2010) argue that to deal with these challenges, it is imperative for theories of group effectiveness and gender differences to be re-examined. In study of 201 Norwegian by Nielsen & Huse (2010), the proportion of women directors was found to be positively associated with a board’s ability to exercise strategic control. This ability was enhanced mainly through increased participation in development activities by a board as well as a decrease in the level of conflict (Nielsen & Huse, 2010).

The challenges faced in the process of achieving an effective board
Every organization must be ready to encounter some challenges in the process of achieving an effective board of directors. Today, governments are extremely strict on how companies constitute their board of directors as a way of preventing fraud and unethical conduct. For example, in the US, the Sarbanes-Oxley Act was enacted in 2002 with a view to promote corporate governance (Olson & Adams, 2004). Moreover, major securities markets in the country have adopted new listing standards. The objective of these changes is to ensure that everyone in the contemporary business organization behaves in a professional and ethical manner. These new laws and regulations influence the way directors who sit in various boards of public companies in the country are selected. Companies that are not aware of these new laws are likely to encounter numerous challenges in their attempts to get listed in the securities market.

The changing rules of constituting a board sometimes tend to be inconsistent with the agency role that has traditionally been assigned to the board. In this role, boards are expected to play a critical role in the operations of an organization. This creates a situation where boards comply with all rules but fail to function optimally in their mandate within the organization. Therefore, organizations must be ready to deal with board dynamics and the constraints that they impose on the qualification and selection of directors. Governance and nominating committees of all public liability companies must be ready to put into consideration these factors in order to fit into the changing regulatory environment.

At the same time, companies keep changing as they move from one level of growth to the other. In this process, they are expected to build innovative capabilities, stimulate growth, and achieve profitability (Zahra, Filatotchev & Wright, 2009). As these changes unfold, companies are compelled to rethink their strategies as far as the process of constituting a board is concerned. The board of directors is responsible for enhancing the absorptive capacity for new knowledge that can enrich corporate entrepreneurship. According to Zahra, Filatotchev & Wright (2009), the task of substituting for poor absorptive capacity through directors can be challenging for an organization. This is simply because it entails the ability to manage complementarities and substitutes with a view to sustain corporate entrepreneurship activities and create value from them (Zahra, Filatotchev & Wright, 2009).

Furthermore, companies must look for outside directors for them to be in a position to embrace new ideas and bring about change. Looking for outside directors is a challenging task because these directors may lack sufficient knowledge about the activities of the organization and the objectives it seeks to achieve by engaging in these activities (Kor & Sundaramurthy, 2009). Many CEOs feel uncomfortable with situations where they have to take instructions from directors who lack industry-specific experience.

In literature, directorial competencies have not been adequately explained (Guyatt, 2005; Higgs-Kleyn & Kapelianis, 1999). Many companies are compelled to make do with inefficient boards constituted by inexperienced directors who are selected for these positions simply because of the crucial contacts that they are likely to bring to the company. The absence of a criterion for selection is likely to yield an incoherent board that is full of unproductive individuals. To deal with this challenge, some companies have devised a new method (Fich & White, 2005). Unfortunately, this practice is sometimes perceived as an attempt by CEOs to further their private interests at the expense of those of the shareholders (Fich & White, 2005). This perception arises because of the assumption that the reciprocal arrangement may have been motivated by the existing friendships or personal ties between the CEOs.

The issue of corporate board size also remains problematic for most companies (Boone & Field, 2007; Gabrielsson & Huse, 2004). As firms grow, there is always a proportionate increase in the need make the board larger in terms of size and composition. It may sometimes be difficult for a company to make the right decision on the extent to which the board should be enlarged. At the same time, organizations have to address issues of board independence, individual characteristics of individual boards, and competitiveness of the business environment. All these factors have to be put into consideration in the process of assembling a new board of enlarging an existing one.

Furthermore, organizations of today are confronted with changing roles of directors, far-reaching societal changes at the international level, and radical changes in public opinion (Boone & Field, 2007; Ingley & Van der Walt, 2001). Moreover, new types of business structures continue to emerge in a context of globalization, new technologies, and new frontiers of competition. According to Ingley & Van der Walt (2001), these changes are the main causes of the crisis affecting boardrooms today. Corporate governance structures that are based on traditional organizational practices are increasingly being challenged (Schmidt & Brauer, 2006). This phenomenon puts board members under intense pressure to cultivate a broader mindset as well as acquire new skills to be able to deal with the high-level pressures that characterized the globalized business environment.

The professional behaviour required of board members

            The expectation for all members with an organization is for board members to behave in a professional and ethical manner (Hall, 1968; Brakel, 2000). Professional values are always held in high regard because they are assumed to promote effectiveness in the realization of organizational objectives (Brakel, 2000). Traditionally, academic research has tended to focus on a limited set of characteristics that define acceptable board practices (Van den Berghe & Levrau, 2004; Guyatt, 2005; Dawson, 1994; Brien, 1998). At the same time, numerous concerns have been raised regarding the decisions of the board of directors in the emergence of mega scandals in the corporate world. These concerns have led to growing interest in discourse on the relationship between the board and professionalism, ethical conduct, and bureaucratization (Brakel, 2000; Hall, 1968; Higgs-Kleyn & Kapelianis, 1999). In this discourse, focus is on three core areas: academic literature, field research focusing on board practices, and analysis of rating systems used for investigating corporate governance issues in business organizations (Guyatt, 2005).

In determining whether board members’ behaviour is professional and ethical, one may need to focus on three things (Van Ees, Gabrielsson & Huse, 2009). The first one is interactions that occur both inside and outside the contemporary boardroom. The second one is the fact that coalitions of factors come into focus in decision-making and that objectives are defined through a process of political bargaining. The third factor is the notion that both conflicting and cooperating interests are an integral part of decision-making and control over the resources of a firm by the board. Based on this conception, it is correct to infer that the professional codes of practice that applies to other professional bodies in the business world should also apply to the board of directors. If anything, the bar should even be higher for boards of directors because of the critical role that they play in the strategic management of business organizations and institutions.

Conclusion

This paper has examined a number of corporate governance issues relating to the role of boards of directors, challenges faced in achieving effective boards, and the need for professional behaviour among board members. In every large public organization, a board of directors is the nerve centre of all communications undertaken at all levels. The rationale for the organization’s actions can best be explained at the level of the board. The directors who sit in that board are the most qualified people to address issues such as organizational objectives, existing strategies, emerging opportunities, new threats, and ongoing programs. Other than communication, other crucial roles of the board include trusteeship, project planning, and financial management.

In recent years, governments have tightened the rules and statutory requirements governing the process of constituting boards of directors as a way of dealing with unprofessional and unethical behaviour. This move has made the work of constituting an effective board rather complex. Top company leaders sometimes realize that it is extremely difficult to constitute a board that is both compliant with the law and is effective for the purposes of promoting organizational objectives. Nevertheless, companies, particularly public liability companies, have to raise the bar for the ethical and professional behaviour of all the directors who sit in their boards as a way of dealing with unethical and unprofessional behaviour. Whenever unprofessional and unethical conduct occurs at the board level, a bad precedent is likely to be set for the rest of the organization, thereby creating an organizational culture of unacceptable practices such as fraud and corruption.

References

Boone, A & Field, L (2007), ‘The determinants of corporate board size and composition: An empirical analysis’, Journal of Financial Economics, vol. 85, no. 1, pp. 66–101.

Brakel, A. (2000), ‘Professionalism and values’, Business Ethics: A European Review, vol. 9, no. 2, pp. 99-108.

Brien, A (1998), ‘Professional Ethics and The Culture of Trust’, Journal of Business Ethics, vol. 17, pp. 391–409.

Burke, R (2003), ‘Women on corporate boards of directors: The timing is right’, Women In Management Review, vol. 18, No. 7, pp. 346 – 348.

Dawson, A (1994), ‘Professional Codes of Practice and Ethical Conduct’, Journal of Applied Philosophy, vol. 11, no. 2, pp. 145-153.

Fich, E & White, L (2005), ‘Why do CEOs reciprocally sit on each other’s boards?’ Journal of Corporate Finance, vol. 11, no. 1, pp. 175–195.

Gabrielsson, J & Huse, M (2004), ‘Context, Behaviour, and Evolution: Challenges in Research on Boards and Governance’, International Studies of Management and Organization, vol. 34, no. 2, pp. 11 – 36.

Guyatt, D (2005), Finance and accounting – Meeting objectives and resisting conventions: A focus on institutional investors and long-term responsible investing’, Corporate Governance, vol. 5, no. 3, pp. 139-150.

Hall, R (1968), ‘Professionalization and Bureaucratization’, American Sociological Review, vol. 33, no. 1, pp. 92-104.

Higgs-Kleyn, N & Kapelianis, D (1999), ‘The Role of Professional Codes in Regulating Ethical Conduct’, Journal of Business Ethics, vol. 19, pp. 363–374.

Ingley, C & Van der Walt, N (2001), ‘The Strategic Board: the changing role of directors in developing and maintaining corporate capability’, Corporate Governance: An International Review, vol. 9, no. 3, 174–185.

Kor, Y & Sundaramurthy, C (2009), ‘Experience-Based Human Capital and Social Capital of Outside Directors’, Journal of Management, vol. 35, no. 4, pp. 981-1006.

Nielsen, S & Huse, M (2010), ‘The Contribution of Women on Boards of Directors: Going beyond the Surface’, Corporate Governance: An International Review, vol. 18, no. 2, pp. 136–148.

Olson, J & Adams, M (2004), ‘Composing a Balanced and Effective Board to Meet New Governance Mandates’, The Business Lawyer, vol. 59, no. 2, pp. 421-452.

Schmidt, S & Brauer, M (2006), ‘Strategic Governance: How to assess board effectiveness in guiding strategy execution’, Corporate Governance: An International Review, vol. 14, no. 1, pp. 13–22.

Van den Berghe, L & Baelden, T (2005), ‘The complex relation between director independence and board effectiveness’, Corporate Governance, vol. 5, no.  5, pp. 58-83.

Van den Berghe, L & Levrau, A (2004), ‘Evaluating Boards of Directors: what constitutes a good corporate board?’ Corporate Governance: An International Review, vol. 12, no. 4, pp. 461–478.

Van der Walt, N & Ingley, C (2003), ‘Board Dynamics and the Influence of Professional Background, Gender and Ethnic Diversity of Directors’, Corporate Governance: An International Review, vol. 11, no. 3, pp. 218–234.

Van Ees, H, Gabrielsson, J & Huse, M (2009), ‘Toward a Behavioral Theory of Boards and Corporate Governance’, Corporate Governance: An International Review, vol. 17, No. 3, pp. 307–319.

Zahra, S, Filatotchev, I & Wright, M (2009), ‘How do threshold firms sustain corporate entrepreneurship? The role of boards and absorptive capacity’, Journal of Business Venturing, vol. 24, no. 3, pp. 248–260.

Get a 15 % discount on an order above $ 30
Use the following coupon code :
tpc15
Our Services:
  • Essay
  • Custom Essays
  • Homework Help
  • Research Papers
  • Argumentative Essay
  • Assignment
  • College Papers
  • Powerpoint Presentation
  • Dissertation
  • Thesis Paper
  • Dissertation
  • Editing Services
  • Review Writing
  • Lab Report
  • Book Report
  • Article Critique
  • Case Study
  • Coursework
  • Term Paper
  • Personal Statement
Order a customized paper today!