After the recent corporate scandals the relationship between management, shareholders and boards of directors have assumed importance. Some analysts feel that this relationship would result in effective governance and fulfillment of shareholders interests.
The
2000s have been tough for companies. After the roaring
1990s, many of them have been severely hit by the general
slowdown. Also, in recent times, the increasing cases
of bankruptcy, market losses or faltering performances
coupled with a series of corporate scandals involving
Enron, WorldCom among others have put corporate failures
under the microscope. Regulators and stakeholders have
sharpened their scrutiny of companies, especially their
management.
Consequently,
the CEOs, being the head of the management are also
gripped in shareholder ire. In such a scenario, corporate
governance has assumed a new significance. Today, as
Cynthia A Montgomery and Rhonda Kaufman, point out in
their article "The Board's Missing Link",1
it has more to do with the delicate balance between
management, shareholders and the board of directors.
And because both the managers and the board of directors
are responsible and accountable toward the shareholders,
their relationships would result in effective governance
and fulfillment of shareholders interests.
Amid
today's turbulent times, when company failures are on
a sharp rise and many turnaround attempts have failed,
the key to the success of the company is an active board.
True, that the probability of the success of a turnaround
attempt is heavily dependent on the timing and extent
of the response of the top management. True enough,
Kamala Arogyaswamy and Vincent Barker III2
say that their analysis has indicated clearly that turnarounds
for declining firms are more likely when management
responds quickly to declining performance.
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