Empowering the Board

by Jay W. Lorsh

Group Details: A-03

Anuj Agarwal 17PGP024

Deepanshu Mewati 17PGP047
Akshay Kale 17PGP062
Kunal Rawat 17PGP071
Shishir Singh 17PGP133
Atul Panthi 17PGP173
Indian Institute of Management Raipur
 Empowering the Board
•1980s •1990s
Empowerment of US Factory & Empowerment of Corporate
Office Workers Boardrooms

Traditional Redefine
Thought the
Empowerment Process Relationship
Means
Empowerment
Attitude Synergize &
Outside Directors have the capability Change Define
and independence to monitor the is required Boundaries
performance of Top Management &
Company
 Pressures for Empowerment

First Driving Second Driving Third Driving Final Driving

force Force Force Force
 Most institutional  The recent  Government  The move to
investors do not performance competitiveness empower directors
want to sit on boards difficulties of many councils have has been fueled by
and play a direct role major companies stressed the link the controversy
in governing and the removal of between corporate about CEO
companies, but they their CEO’s have governance and compensation- or,
have become more generated more competitive success more precisely, by
willing to pressure public interest in the perception that
boards to challenge active boards. CEO’s are
management and substantially
have been effective overpaid relative to
in getting the media their companies’
to do the same. performance.
Invalid Assumptions About Empowering Directors
Example : Dayton Hudson
Corporation and Medtronic.
In companies where directors are Board empowerment enables
empowered, CEOs do not find their directors to prevent crises.
power diminished.
In fact, the organization whose
There is a misconception
boards removed CEOs because of
about empowering outside
poor performance, the board
directors
themselves are responsible for
failing to monitor the crises the
years before.
.

Factors which influences the processes to act as advisor & to monitor

Second factor is the Another factor is the rate
First factor is the confidence in of market and
the decision making of CEO. performance of the company
. for the past few years. technological change in
. company’s Business
Sources and Limits of Directors’ Power
• The business and issues of the enterprise is manage by or under the
direction of a board of director

• Directors delegate the responsibility of operating the company to

management

• Directors solidarity as a group; source of power that they can use to

their advantage
• Directors are expected to demonstrate care and loyalty and to exercise
business judgments

• Audit committee composed the outside directors enhance the boards

ability to govern

• Directors may obtain any data they want

 Limitation 2
Limitation 1 Boards power depends on
its relationship with the
Directors have limited
CEO and with other top
knowledge about the
executives
company than CEO’s
.

Limitation 4
Limitation 3 CEO determines the
meeting agenda and leads
Directors are the part time
its meeting
employee of the company
.
 What Makes an Empowered Board

Directors are from If CEO is also chair of Board should ensure Board should form
outside of company the board ,the ethical and legal separate audit
directors should conduct by committees
The board should be select a leader from company’s employees comprising of outside
small enough to be a among themselves directors to ensure
cohesive group Board should have
Members should financial reports are
power to review and
.Members should receive information accurate and
approve company’s
represent a range of about company’s accounting rules are
strategy, evaluate its
business and performance in a followed. I
progress and
leadership format they can selecting, evaluating, Implementing a
experiences understand. rewarding and if schedule of planning
necessary removing and review for the
the CEO. board and
management.
 Effective Empowerment
Empowered Directors mainly focused on 2 aspects which leads to Success of Organization
CEO Performance Annual Evaluation
Corporate Strategy

CEO Performance Evaluation Clarifies the roles and

process assists Director as well as responsibilities of both CEO as well Criteria’s for Effective Evaluation of
CEO and benefit each of them as board of directors and helps in CEO’s
individually minimizing disputes moving ahead

A fine line which separates their

Boards is responsible for such lines
role should always be followed
which highlights each Interference across any ends leads
which details managers to manage
responsibilities but must be to problems
& Board to approve, except for few
approved overall.
high magnitude/grave situations
 Directors’ Knowledge
Knowledge is needed for evaluation
of CEO and company’s strategy

Limited time and huge information

to process

Data should be sent in advance Sources of information – financial

Directors’ reports, CEO’s reports Limits the
Directors should have meetings Knowledge knowledge to financial reports and
amongst themselves misses the dynamic environment

Past performance and future

prospects must be stressed

More efficient, organized and

comprehensive overview of the
company
 Self-Monitoring
• The board of the companies should monitor their own performance
Using surveys to find room for improvement

• Major concerns should be addressed to make boards effective

• Principles should be set which describe their function as a board

• AlliedSignal reviews directors individually before renomination

Committees like compensation committee, audit committee, nominating

committee can be very helpful in monitoring the board performance
• Empowering the directors will enable the companies to deal with
headwinds more successfully & meet future demand
Thank You !!