But then the question that arises is what are the agency...

But then the question that arises is what are the agency problems solved by them and why are boards the solution to these problems? The agency problem in any corporation is between the management and the shareholders. And the problem arises because of lack of control of shareholders on the management and the possibility of the management cheating the shareholders. The possible solution to this problem is either providing the management with incentive or strengthening the position of shareholders to tackle the problem on their own. But then the question arises- who provides the management with the incentives and how the shareholders are strengthened. Thus the board can be seen as a bridge or a medium, as suggested by literature, between†¦show more content†¦Another evidence that the board has become stricter is increase in the probabilities of CEO dismissal. The board not only controls what the management does but also the process of hiring and compensating the top executives . The question that arises here is whether the board steps forward and acquires the costly signal about competency of the CEO or not? On the other hand, how does the CEO influences the board and gains control it, how well does the CEO market her capabilities in order to bargain for less independent board? The question that arises here is that if board controls the dismissal of CEO then why are directors reluctant to object to CEO’s decisions which are not in favor of the shareholders, why doesn’t the board remove the CEO when her performance is poor? Why do the board directors are happy to always act as â€Å"yes man† instead of acting as a â€Å"troublemaker† or a â€Å"strict monitor†. Mace (1986) shows that directors remain steadfastly loyal to misguided CEOs. Jensen (1993, pp. 862-3) observes in his Presidential Address to the American Finance Association: â€Å"The problems with corporate internal control systems start with the board of directors. The board, at the apex of the internal control system, has the final responsibility for the functioning of the firm. Most importantly, it sets the rules of the game for the CEO. The job of the board is to hire, fire,Show MoreRelatedDeveloping A Specialized Not For Profit Advocacy Group1528 Words   |  7 PagesFurthermore, we will fill the void within these entities with additional resources. Our group will be composed of a full-time paid staff, a board of specialized individuals (ex. Lawyers, professors, government officials), and a network of community volunteers. Our staff will handle the day-to-day operations necessary for an efficiently run business, while our board of specialized individuals will donate their time/services for tasks outside the capabilities of staff members (on an as ne eded basis). TheRead MoreFinancial Management2360 Words   |  10 Pagesfinancial management has relation with the other aspects of management. 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