The shareholders appoint directors with an aim of exercising control over the assets of the shareholders. Directors have the power to control major decisions concerning the operations of the business. The board of directors holds meeting with the management of companies with an aim of ensuring that the administration of the companies is geared towards maximizing the wealth of the shareholders. The main purpose of shareholders to appoint the directors is to ensure that their interests are given priority in making decisions affecting the operations of the organization (Anderson, 2008). The board of director is then in a position to realize the areas that the management is failing to maximize the wealth of the shareholders hence taking the necessary action. There might be conflicts in the process of managing the organization where the managers might opt to manage the organization with their interests hence leading to conflict of interests with the shareholders.
Therefore, the directors cannot be held responsible for the performance of the company as they do not participate in the operation of the firm. The managers are the ones responsible as they are mandated to manage the operations of the companies (Cai, 2009). The management might operate the company with their special interests hence resulting in poor financial performance hence they are responsible for the performance of the organization but not directors.
The role of the directors is to work towards ensuring prosperity of the company by playing a directing role in the management of the corporation. The directors have the duty to organize a meeting with the management to ensure that they can legitimate the shareholders’ interests. The meeting help in ensuring that the managers operate the company according to the interests of the shareholders (Craig, 2010). The directors need to assess the operations of the company to ensure that the operations of the company can result in increased performance.
The directors assist in ensuring that the policies of the company are adjusted to be in line with the interests of the shareholders. The actions of the directors are entirely geared towards ensuring that the operations of the company are geared towards maximizing the wealth of the shareholders. This can involve assessing the risks being taken by the managers through the decisions and strategies employed in the process of managing the company. However, the directors are accountable to the shareholders for failing to discover risks that can result in poor performance of an organization (Anderson, 2008). The directors need to assess the ethical aspects of the company to ensure the operations are aligned with the objectives and mission of the company. Besides, the directors need to assess the ethics in the management of the company to ensure that they are in a position to uncover any misconduct in the administration of the company. An effective board of directors needs to assess the potential risks that are facing the company and take the necessary actions that can mitigate the risk hence guaranteeing the success of the company.
Anderson, Raymond; Sawyer, Hugh, 2008. «The Board of Directors as an Agent of Change in Turnarounds». Transaction Advisors.
Cai, J., J. L. Garner, and R. A. Walkling, 2009. Electing Directors. Journal of Finance 64 (5), 2387–2419.
Craig S, Lattman P. 2010. Companies May Fail, but Directors Are in Demand. New York Times.