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, although 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. Senior executives, particularly CEOs, are motivated to take over the board by influencing the election of directors and controlling their compensation, whereas directors have the fiduciary duty to maintain their independence, monitor the CEO, and discipline the CEO for poor performance. This chapter discusses the roles and responsibilities of the board of directors in advising management on its strategic decisions without micromanaging and overseeing its actions and performance.
The primary objectives of this chapter are to