Business Sustainability, Corporate Governance, and Organizational Ethics

CHAPTER 13Oversight Function

1. Introduction

The oversight function of corporate governance is vested in the company’s board of directors, which is elected by its shareholders to represent and protect their interests. A vigilant board of directors that proactively oversees strategic decisions, management’s plans, decisions, and actions as well as compliance with all applicable laws, rules, regulations, standards, and best practices can be very effective in achieving good governance and protecting stakeholders’ interests. Boards of directors are elected by shareholders to oversee the managerial function. Theoretically, boards of directors exist to resolve the agency problems associated with the separation of a company’s ownership controls from decision controls. Intuitively, while directors are elected to align management’s interests with those of shareholders, their close association with the company’s senior executives can create conflicts of interest within the boardroom. The primary responsibility of the oversight function is the appointment of the chief executive officer (CEO) and concurrence with the CEO’s selection of other senior executives (top management team) to run the company for the benefit of its shareholders.

Public companies are legally required to have a board of directors, and many private companies and not-for-profit organizations (e.g. hospitals, churches, universities) also have a similar governing board. In the aftermath of the global financial crisis ...