Controlling CEO’s Behavior – Why and How Fast Facts

• Date: March 11, 2010
• Source: admin

Management acts on behalf of stakeholders and bring forth success for the company. When management fails to comply with its stipulated responsibilities, importance of following strong corporate-governance practices surfaces in order to protect interests of the stakeholders and to keep management in line.

Strict corporate governance results into superlative investment gains. Therefore, to fetching continual gains for the company and to creating ally between management and shareholders, practices such as independent board control, separation of the chairman and chief executive officer positions and appropriate compensation packages can prove to be useful.

In a recently published article in the street By David MacDougall he has pointed out many facets of duties and its impact on corporate governance and how the ceo’s behavior is utmost important for a smooth function and less trouble in corporate governance.

How-

Making board as independent as possible - As it is a fact and also regulated by most regulatory bodies and stock exchanges that at least 70% of the directors including audit, compensation and nominating committees should comprise only independent members as these people and the committees monitor the financial performance of the company. Therefore, any misconduct or bias from them can lead to anarchy in corporate governance.

Keeping CEO’s Duty Separate from Board-

Sometime in several companies the CEO also plays the role of chairman of the board whereas duties of a CEO should always be separated from that of the board as it affects the decisions, duties and functions of the independent directors. Therefore, for company’s growth and better performance, board should be as much independent as possible and implement stronger corporate governance.

Creating Proper Framework for Electing Board -

For better governance the way directors get elected to board is very important as sometimes other company trying to take over the company puts board directors and gain control of the board, to evade this kind of problem some companies put a staging rule which lets the other company wait for years before totally controlling the board, but some time it becomes less advantageous as staggered board though resist from takeover but it may not be as efficient in quick and proper action for betterment of the company.

Compensation Structure –

To steer clear of management’s tendency of getting involved into excessive risk taking and accounting malfeasance, a strong corporate governance should be formulated which will stop compensating management on the basis of short term performance. Compensation should be tied with long-term performance and thus avoiding the chance of creating financial recession.

Solid Performance Framework -

Any company’s fate and performance depend on it management. Therefore, it is the responsibility of the management to construct a strict performance framework and govern the performance of the management so that the company can be saved from human flaws of self-interest, corruption, and fraud and poor management.

Source:http://www.thestreet.com/