Question 1
One of the main roles of the board of directors is recruiting, retaining, supervising, and compensating the top management (Boland and Hofstrand, 2018). A responsible board of directors should aggressively hire the best CEO and top management because the top management has a significant impact on the short and long-term performance of an organization. Also, the board should provide direction by identifying the goals, vision, and mission of the organization. Furthermore, they play a key role in establishing a code of conduct or policy based managerial system. Such policies determine how an organization will function. Additionally, they govern the relationship with the CEO and organization through board meetings. The board of directors is also required to protect members' investment and organization's assets by ensuring the CEO properly manages the company.
An example of a board of directors that has failed is shown in Wells Fargo. The Wells Fargo Scandal was an example of a toxic corporate culture that originated from the board of directors. The board set unrealistic targets for the CEO who then exerted pressure on the entire company to achieve the goals. Therefore, employees opened millions of fake and unauthorized credit card and bank accounts so that it could cause a false sense of success (Huskins, 2018). Since the board did not properly supervise and evaluate their goals, thousands of employees lost their jobs, it ruined their image, and they received millions in settlements and fines.
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Question 2
Leaders and top management pay a critical role in strategic plans and corporate governance. Corporate governance has a primary role in improving performance by avoiding unpleasant surprises, developing stockholder confidence, and creating a positive brand image (Hyväri, 2016). On the other hand, strategic management involves the development and implementation of major initiatives and goals of the top management on behalf of the board of directors and owners of the company according to business environment and resources. Moreover, the top management utilizes project, portfolio, and program management to create a conducive environment while consistently implementing organizational strategy and achieving strategic goals.
There are various advantages of strategic management. First, it discharges board responsibility and fosters objective assessment of an organization's short and long-term plans. Moreover, it provides a framework for effective decision making. It allows employees to make and understand operational decisions toward a common goal. Moreover, strategic management allows employees and the board to engage in a strategic discussion so that they can align individual goals with the overall strategic objective (Hyväri, 2016). Additionally, it allows an organization to evaluate their progress according to their strategic goals. Finally, it fosters an organizational perspective by allowing all stakeholders to understand and support the interrelationship between different components and roles in the company.
Question 3
The Sarbanes Oxley Act (SOX) was enacted in 2002 due to prolonged corporate scandals in the US. Its primary goal was reestablishing investor confidence in the US financial markets while closing loopholes that allowed some public companies to defraud their investors (Cohen, Krishnamoorthy, & Wright, 2010). SOX had a significant impact on corporate governance because it requires all public companies to strengthen disclosure, audit committees, and conduct internal controls tests while making officers and directors directly responsible regarding the accuracy of financial statements. Additionally, it changed how public accounting is conducted and established strict penalties regarding securities fraud.
SOX has changed the way businesses carry out their activities. The first change is strengthening organizations' audit committees by giving them wide leverage in supervision the top management's accounting plans and decisions. Moreover, it requires the top management to certify the accuracy and authenticity of financial reports. Any manager who makes a false certification can face between 10 and 20 years in prison (Cohen, Krishnamoorthy, & Wright, 2010). Additionally, it has strengthened disclosure agreements by requiring organizations to disclose any form of off-balance sheet arrangements including special purpose entities and operating leases. Additionally, the act has imposed strict punishment for any employee who obstructs justice or is responsible for wire fraud, securities fraud, and mail fraud.
Internal audit has a significant role in strengthening corporate governance. It allows oversight of an organization’s practices, policies, and procedures (Cohen, Krishnamoorthy, & Wright, 2010). The oversights assist in ensuring that the business operates in the best interests of the business and stakeholders. Moreover, they asses a company's compliances with regulations and rules. It also evaluates whether the business adheres to internal procedures and policies. Also, it analyzes the progress of a company's strategic goals. After analyzing the findings, the company adjusts or improves its operations to optimize progress towards their strategic goals.
References
Boland, M., & Hofstrand, D. (2018). The Role of the Board of Directors | Ag Decision Maker. Retrieved from https://www.extension.iastate.edu/agdm/wholefarm/html/c5-71.html
Cohen, J., Krishnamoorthy, G., & Wright, A. (2010). Corporate governance in the post ‐ Sarbanes ‐ Oxley era: Auditors’ experiences. Contemporary Accounting Research , 27 (3), 751-786.
Huskins, P. (2018). Naming and Shaming: The Fed Publicly Admonishes Wells Fargo's Former Lead Director - Woodruff-Sawyer. Retrieved from https://woodruffsawyer.com/do-notebook/wells-fargo-director/
Hyväri, I. (2016). Roles of top management and organizational project management in the effective company strategy implementation. Procedia-Social and behavioral sciences , 226 , 108-115.
