Essentials of Corporate Governance

Chapter 7. Signs of Trouble

After reading this chapter, you will be able to

• Understand the indicators of corporate troubles that relate to the board of directors

• Understand the danger signs that can be seen in the attitudes and activities of the corporation’s executive

• Understand the indicators of danger visible in the profiles and activities of the shareholders

• Understand the problem indicators shown by a corporation’s financial records

When a corporation falls to corruption or negligence, it is not usually an overnight event. Instead, the demise of the company generally is preceded by several years of poor governance on the part of the board and a failure to represent the needs of shareholders effectively.

This chapter is dedicated to explaining some identifiable signs that commonly precede major governance challenges for an organization. Each of these indicators is linked to negligence, incompetence, or poor judgment on the part of the board of directors.

These indicators are arranged in terms of those that relate to the board of directors themselves, the executive members, the shareholders, and the corporation’s overall well-being. The ability to identify these signs of potential trouble can be useful for those looking to invest in or otherwise involve themselves with a company. It can also help company members who are seeking to evaluate their corporation and its need for Corporate Governance policy reform.

Indicators Relating to the Board

In evaluating the strength of a company, one ...