Current Board Regulations

There is really no explicit federal law that dictates that public corporations must have a board of directors. Instead, corporations must follow the state statute in which they are incorporated. This, in and of itself, may cause potential problems. For example, states may try to establish lax corporate laws to encourage incorporation in the state to receive more taxes. This explains why more than 300,000 firms are incorporated in the state of Delaware. Fortunately, every state requires a corporation to have a board of directors, voted on by shareholders. [5] Thus, every corporation has a board.

A type of guideline is set forth by the Model Business Corporation Act, which states, "All corporate powers shall be exercised by or under authority of, and the business affairs of a corporation shall be managed under the direction of, a board of directors." [6] Further, "the fundamental responsibility of the individual corporate director is to represent the interest of the shareholders as a group , as the owners of the enterprise, in dealing with the business and affairs of the corporation with the law" [italics is our emphasis]. As such, the board's fiduciary responsibility is clearly to the shareholders. This is pretty much the extent of the law governing boards . The SEC, for example, does not impose specific board regulations with regard to structure and composition, and to be able to list on the New York Stock Exchange (NYSE) and Nasdaq ”which, as self regulatory organizations (SROs), can impose their own set of regulations ”the only major additional board requirement is that the firm has to have an audit committee primarily consisting of independent directors, but even the definition of independence is quite general (however, dramatic proposals are on the table in this regard, which we will discuss in later chapters). As far as the rest goes, the regulations have generally been lax. For example, firms are not required to have specific director responsibility guidelines, they are not required to have a formal procedure to evaluate the CEO, they are not required to have independent board members , there is no director accountability requirement, and directors are not even required to own stock in the firm. Even rules regarding director elections are weak.

For a while, though, having relaxed and non-uniform regulations seemed optimal in our society. After all, we should let the firms operate in the manner that suits them best. Of course, shareholders didn't like the way a firm was being managed by its board, then they could simply sell their stocks (i.e., doing the "Wall Street walk"), which is as good a reason as any for why firms try to have acceptable boards. Following the recent scandals, there is a push to more strictly regulate boards of directors ”both composition and structure. We discuss some of these recommendations and offer our own thoughts and suggestions in Chapters 12 and 13. We next illustrate how modern boards work.

Infectious Greed. Restoring Confidence in Americas Companies
Infectious Greed: Restoring Confidence in Americas Companies
ISBN: 0131406442
EAN: 2147483647
Year: 2003
Pages: 118 © 2008-2017.
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