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- Assume you have been employed as a corporate governance consultant by the Association of Institutional Investors (AII). The AII is concerned with the risks associated with investments in corporations sponsoring FIFA. In order to minimise this risk the AII wants to know how the corporate governance of FIFA should be reformed to meet contemporary standards of best practice in corporate governance. Your assignment is to prepare a report to be published on the AII web site recommending the corporate governance changes required to be made by FIFA so that AII members can continue to invest in FIFAs' corporate sponsors without exposure to investment risk associated with FIFA's current alleged corporate governance deficiencies.
- Assume you have been employed as a corporate governance consultant by the Chairman of BHP Billiton Ltd. Your assignment is to prepare a report for the Chairman recommending best practice corporate governance guidelines for the company to adopt so that it can manage and prevent any future issues of alleged corporate malpractice or other actions that could be classified as corrupt practices by executives or directors of the company.
Corporate governance can be defined as a team in an organization responsible for directing the organization towards growth and profitability. In very simple words, it is a body of highly eligible and visionary individuals with the responsibility of controlling and directing an organization (Siladi, 2007). An organization survives with a unique balance between the process of corporate governance and activities related to value creation. Both are equally essential for the success of an organization. The value addition process generates revenue and builds a business whereas the corporate governance process ensures that the direction of the business is correct. The direction of any business is equally important as value addition without a proper direction will result in short-term success, while hampering the long-term survival. The corporate governance process involves the management, the board comprising of the executive & non-executive directors, shareholders and other stakeholders like suppliers, etc.
EXECUTIVE DIRECTORS- ROLES AND RESPONSIBILITIES
Executive Directors of an organization are usually those individuals who usually hold very high designation in an organization such as managing director, chief executive officer, etc. Their own income is highly dependent on the success of the organization. The sole purpose of an executive director is to ensure that efficient, profitable and feasible strategic plans are devised, developed and implemented in an organization They are also involved in the core activities of the organization such management of operations, finance, human resources, marketing and strategy formulation. They also are responsible for interacting with the employees as well as the other board members. The executive directors are usually answerable and accountable to the Chairman of the board and ensure meeting with him or her in a timely fashion. The executive directors also take the final call on the implementation of the suggestions given by the board for the organization. The executive directors also act as a 'Leadership' for the organization (Bernhut, 2005). They are the source of motivation and inspiration to the thousands of employees working under them. The importance of the executive directors towards the company both as a board member as well as their role of a very senior manager in day to day activities; make them indispensable for any organization.
NON-EXECUTIVE DIRECTORS (NED)
Non-executive directors are usually those directors of the organization who are not a part of the particular organizations' management team. They usually do not have any other kind of associations with the organization other than their directorship (Bosch, 1995). At times non-executive directors are also the independent directors of the company. The sole motive of non-executive directors is to utilize their vast knowledge and experience in directing the organization towards a much brighter and stable future.
Roles and Responsibilities
The main roles and responsibilities of individuals acting as a non-executive director are discussed below and shown in the figure.
Fig 1: Roles and Responsibilities of Non-Executive Directors (IOD, 2012)
- Strategic Alignment:
Relationship of NED with Executive Directors
Both executive and the non-executive directors together have a crucial role to play. They define the success story of an organization. Since the non-executive directors are not directly related to the organization, they can act unbiased for the welfare of the organization. The non-executive directors thus help and guide executive directors in taking strategic decisions for the organization (Clarke, 2003). They should behave as a constructive critic for the organization and should recommend the board and executive directors accordingly. Non-executive directors shall also compare the success of the board members with respect to pre-decided goals and objectives. They are also accountable for monitoring the effectiveness and appropriateness of remuneration of the executive directors.