Chapter 2 DQs and Responses 480

Chapter 2 DQs and Responses 480 - Chapter 2 DQs and...

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Chapter 2 DQs and Responses 1. When does a corporation need a board of directors? A board of directors is needed to protect the interests of the corporation’s owners, its shareholders. By law, when a company incorporates, it must have a board of directors - even if the stock is only held by the founder and his/her spouse. A good case can be made that a small, closely-held corporation has no need of a board. Since the owners are likely to compose both top management and board membership, the board becomes superfluous at best and may even create more problems that it solves by getting in the way of management's quick response to opportunities and threats. The board meets only to satisfy legal requirements. Even when stock is more widely owned in a publicly-held corporation, the board may be composed of nothing but a few insiders who occupy key executive positions and few friendly outsiders who go along with the CEO on all major issues. Nevertheless, the rationale for the board of directors seems to be changing from simply one of safeguarding stockholder investments to a broader role of buffering the corporation from its task environment and forcing management to manage strategically. If nothing else, the board can do the corporation a great service by simply offering to top management a different point of view. The board's connections to key stakeholders in the corporation's task environment can also provide invaluable information for strategic decision-making. This is the main reason why advisory boards are often used by companies that are not incorporated and thus have no shareholders. 2. Who should and should not serve on a board of directors? What about environmentalists or union leaders? This is a wide-open question with no simple answer.
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Chapter 2 DQs and Responses 480 - Chapter 2 DQs and...

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