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Companies and Securities Law

Introduction

As it is known, a correctly constructed organizational chart facilitates the workflow and allows achieving the best results during the shortest period of time. Therefore, studying the roles, duties, and functions of the board of directors and the management team is critical for obtaining necessary knowledge about the principles and mechanisms of an effective organizational chart. Moreover, endeavoring to comprehend what external factors affect business in the contemporary world, it is necessary to monitor the changes in leadership and managerial functions within a certain period of time. It will enhance one’s apprehension of the connection between an organizational chart and external adverse factors, public demands and stakeholders’ requirements. Therefore, this report will observe and analyze business cases and reports during a certain time frame (1992-2014) with the aim to identify the differences in the board and executives’ relations and responsibilities.

Part 1

II. AWA Ltd. vs. Daniels (1992).

This case proves that the core duty of the board of directors is to maintain the effectiveness of the workflow. In particular, it suggests governing and monitoring the work of the management team. In this regard, directors are expected to the voluntary extend the range of their responsibilities from those that belong to their direct duties. For instance, a director is supposed to acquire relevant knowledge about the business he/she governs. In addition, the board of directors must monitor the emerging economic, social and political tendencies with the aim to comprehend public demand and be capable to present adequate ways to satisfy it. It is a crucial aspect of a prosperous business, thus, succeeding with this task is positively related to the above-mentioned directors’ corporate responsibility of being involved in business as deeply as possible. This approach is expected to enable directors to anticipate plausible issues and mitigate the corresponding risks. On a daily basis, it means that the functions of directors include “an informed and independent judgment to bear on the various matters that come to the Board for decision” (Kinnear, 1992, pp. 864-865). In short, the board is supposed to set goals and appoint the proper executives, whose work is supposed to contribute to the fastest and fullest achievement of those goals. Moreover, directors must impose a relevant plan of actions on the management and monitor the excellence of the implemented strategy.

Simultaneously, this case demonstrates that there is no clear division between the roles of the board and the management. In general, their performance is subordinated to the same goals, which were discussed above. Nevertheless, since the management is subordinated to the board, the main function of the former is to be ready to adjust certain aspects of business performance in accordance with the boards’ requirements (Kinnear, 1992, p. 865). In practice, it presumes that the management team has considerable freedom to choose the proper strategies, mechanisms, human resources as well as take decisions on other matters that are associated with the business. Specifically, the management’s function is to govern daily business affairs by monitoring the workflow, training the staff, and providing appropriate records. Besides, it is supposed to collect and summarize information about different levels of the company’s excellence as well as to obtain and analyze information about rivals, business tendencies, and other aspects. In a word, the management team should acquire and systemize information about the external and internal variables that affect business performance. Thereafter, based on these finding, managers are expected “to prepare proposals and submissions for consideration by the board” as well as prepare the budget (Kinnear, 1992, p. 867).

In this regard, the CEO governs the work of the management team, aiming to assure the highest productiveness of the workflow. A managing director is hired to maintain the order of the business process. Unlike the CEO, the chairman is an elective position that presumes the highest level of responsibility for the proper organization of the board’s work. For instance, the chairman’s duties include “selecting and matters ad documents to be brought to the board’s attention, for formulating the policy of the board and promoting the position of the company” (Kinnear, 1992, p. 867). In a word, the CEO is an executive position, whereas the chairman is a non-executive person who sets the company’s course and priorities by organizing the legal framework for business performance.

Part 2

III. ASIC vs. Rich (2003).

This case points to the role, duties, and functions of the chairman. Thus, the chairman is expected to encourage other members of the board to monitor the work of the management team (Featherston, 2003, p. 344). Besides, this position supposes proper and prompt detection and assessment of actual and plausible adverse factors that may negatively affect the productivity of business performance and/or the interests of the stakeholders. In addition, the chairman of the board of directors must assure that all directors are familiar with all financial aspects as well as with other internal variables that are relevant for monitoring the management. Similarly, the chairman should ensure that every member of the board possesses enough knowledge for necessary discussions and decisions. Moreover, the chairman is expected to conduct a thorough survey on “?financial position and performance of the various segments of the business” (Featherston, 2003, p. 344). In these terms, he/she should inform the board of directors about the appropriate findings regarding cash reserves and financial operations. Apart from that, the chairman must assure that “the cash reserves within the Group were maintained at a level which ensured that the companies within the Group were able to pay their debts” (Featherston, 2003, p. 345). To prevent financial loses, the chairman should make public claims of a positive character. Besides, he/she is expected to anticipate the spread of a negative word of mouth that can significantly affect a company’s reputation and thus sustainability. Finally, this position presumes preparing recommendations to the board aimed at providing financial and administrative improvements.

IV. CAMAC, Guidance for directors. The report, April 2010.

This guidance accentuates that the major responsibility of the board of directors is to maintain the business performance that is favorable for investors by whom they were appointed. In this regard, striving to achieve and maintain sustainability and profitability, the board is obligated to set strategic business goals and promote and enhance the work of the management team. Besides, directors should supervise the chief executives of the company, indicate and report about the company’s performance to the shareholders (Corporations and Markets Advisory Committee [CAMAC], 2010, p.7). Consequently, it is appropriate to emphasize that the board of directors is accountable to investors. Thus, it is expected to provide reports regarding the company’s performance and profitability to the shareholders during regular meetings.

The best-practiced approach towards the organization of the directors’ performance is unitary. It is the concept “under which directors bring together their varying skills, knowledge, and experience and work together collectively as a board, in reaching decisions and in meeting their other obligations” (CAMAC, 2010, p. 7). Under these conditions, directors may be present part-time at their offices while the responsibilities are strictly assigned to their subordinates, who are either chief executives or the experts of a narrow focus.

In spite of the above-mentioned part-time presence that is combined with the limited managerial possibilities, directors are presumed to obtain and constantly renew deep knowledge about the conducted business, company’s excellence and its current and plausible issues. Undoubtedly, the board is supposed to be proficient in providing the needed improvements aimed at the soonest accomplishment of the company’s goals. To succeed with this task, directors should maintain constructive relations with the management team. In this regard, the nature of their interaction between executives and non-executives is supervision. To be more precise, directors’ duties include monitoring and assisting the work of the CEO and/or executive chefs.

The board’s effectiveness depends is the excellence of its supervision over the management team and the workflow, which is defined by the relevance and diversity of skills and abilities of each member. The efficiency of the board’s performance is supposed to be monitored, measured and improved by directors. It is considered to be the most effective approach to assure the proper governance by high-qualified experts.

While maintaining supervision and self-monitoring, directors are expected to remember that they are subordinate to the legal duties and obligations. The legal framework presumes that directors should conduct their performance “in the best interests of the corporation” (CAMAC, 2010, p. 11). This formulation implies that a director may face a conflict of interests, whereas the interests of his/her firm do not comply with personal interests. For example, the legal duties of the board discourage its members from using the corporate position, information or other means to take advantage for themselves or other people, as well as to deteriorate and/or compromise company’s sustainability.

V. Morison, G., and Ramsay, I. Responsibilities of the Board of Directors (2014).

This research reveals the core duties and responsibilities of the board. In particular, the board of directors is considered to be responsible for “overseeing the company, including its control and accountability systems” (Morison & Ramsay, 2014, p. 71). The monitoring of business performance includes corrections of the management team. For instance, directors should appoint or fire CEO, and, if needed, they may encourage the chief executive to appoint or dismiss certain senior executive(s). Furthermore, the board provides “final approval of management’s development of corporate strategy and performance objectives” (Morison & Ramsay, 2014, p. 71). Besides, the board can ratify, improve and monitor risk mitigation approaches, the level of internal control, the company’s legal compliance, and its code of conduct. Another important function of the board of directors is to ensure the availability of all needed resources to the management team. Apart from that, the board maintains the financial aspects of business performance. For instance, it monitors and approves the budget. Moreover, the board governs capital allocation and expenditure, acquisitions and desegregations, and assures timely and complete financial reports regarding all capital manipulations (Morison & Ramsay, 2014, p. 71). In general, the above-mentioned duties and responsibilities can be divided into four major groups of the board’s functions. Specifically, the chairman and directors are supposed to set the company’s goals, appoint a proper CEO and initiate the appointment of the senior executives. Secondly, the board assures that the management team is chosen in accordance with the set goals and possesses the necessary skills and qualities, which will enable their achievement. The third group of responsibilities presumes overseeing “the plans of managers for the acquisition and organization of financial and human resources towards the attainment of the corporation’s goals” (Morison & Ramsay, 2014, p. 69). Finally, the fourth direction of the board is to monitor the productivity of business performance in terms of approaching the set goals.

VI. Discussing the findings that were obtained by observing the functions, roles, and duties of the board of directors, one can rightfully deduce that over the short cross-century period (1992-2014) the role of the board has changed. This section is aimed at comparing the directors’ functions during several decades (1992, 2003, 2010, 2014) with the purpose to identify the differences and explain their causes and effects.

To begin with, comparing the board’s functions in 1992 and 2003, it is appropriate to state that at the beginning of the 20th century, the directors’ duties were broadened to include the responsibility to assure proper public claims. To be more precise, the board became obliged to monitor and guarantee that public statements do not affect the company’s reputation and that only the positive word of mouth are spread. This approach is positively related to the notion of corporate social responsibility. In particular, it corresponds with the financial responsibility towards investors; that is, to protect the financial interests of shareholders, directors should prevent the spread of improper public claims, which can establish negative company’s reputation.

Moreover, comparing the guidance for the board in 1992 and 2003, it is necessary to state that apart from watching the nature of public statements, directors were obliged to maintain other risk mitigation functions. Specifically, in 1992 the task to monitor the external variables on the subject of adverse factors was imposed on the CEO, whereas 10 years later this aspect became the chairman’s responsibility. This peculiarity indicates the tendency towards an increased range of responsibilities of the chairmen, which implies that more trust is granted to elective non-executive positions. Simultaneously, in terms of external monitoring, it means that the CEO’s responsibility was limited, which may be connected with the general trend towards consolidation of corporations. On the other hand, the expansion of business presumes more internal duties that should be performed by the management team. Therefore, it is appropriate to reattribute the monitoring of external aspects of the business to the board of directors. Besides, it promotes better division of management skills because in this case, CEOs can concentrate on governing the staff and workflow instead of putting their attention and energy to the monitoring and analyzing the external situation. Simultaneously, it is more appropriate for the board to maintain this duty because both directors and investors should learn and evaluate the important external variables in order to make the right strategic moves.

In addition, comparing the directors’ functions in 1992 and 2014, it is possible to state that the responsibility for financial operations was delegated from the CEO to the chairman. This peculiarity is probably connected with another change, that is, the board’s strict accountability to investors, which was revealed in the report for the year 2010. It indicates the concentration of responsibilities on fewer individuals, which facilitates the system of accountability and allows detecting those who are in charge if something goes wrong. Besides, this particularity points out the shareholders’ strengthening control over their assets.

Under such circumstances, the board of directors is totally subordinated to investors. It is appropriate to presume that this relationship between directors and shareholders encourages the board to concentrate on the financial interests of investors. It increases the likelihood that the interests of other stakeholders will be violated for the investors’ sake. Moreover, this distribution of forces may inhibit the creative development of a company because if shareholders have the final word in taking important decisions, certain new and creative approaches may be banned. It is a considerable negative aspect of the enhanced control over the board because, under the conditions of the fast development of an innovative economy in the modern world, the adoption of creativity is critically important.

In general, the detected differences in the boards’ roles and functions imply that the company’s structure and the division of responsibilities depending on the external tendencies of businesses consolidation and business ethics.

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