Question

Boards of directors today are under pressure to become actively involved in planning and monitoring corporate activity. At WorldCom, Tyco, and other corporations, the boards were either unaware of the misdeeds taking place around them or, in some cases, actually were party to those activities. At Enron, for example, the board of directors several times voted to waive its policies regarding independence and arms-length transactions, allowing executives to continue their fraud unhampered. When the negligence of these boards was publicly exposed, investors cried out for reform. Investors want boards to take a more active role in decision-making and to provide more oversight. Most corporations, eager to distance themselves from scandal, are considering transformation of their boards of directors. The most effective boards are composed of more outsiders than insiders, who are corporate employees. This allows the directors to have

Answer 1

a) * The advantage of having board of directors composed of insiders is:

An insider would have more information about the company which becomes base for certain decisions as they are involved in day-to-day to-day operations of the company.

* The disadvantage of having board of directors composed of insider is:

The members of board of directors composed of insiders usually have no or little influence on the companies stratergies and performance oversight of management.

b) * The advantage of having board of directors composed of outsiders is:

A board of directors composed of outsiders have a variety of expertise collected together for making the business grow more and more.

* The disadvantage of having board of directors composed of ouysider is:

Outside directors are not involved in the day-to-day inner workings of the company and also the outsiders should consider their roles seriously because they have legal responsibilities and are responsible for any ideas they give.

c) For an individual business the association can have members who have genuine interest in the success of company with no legal responsibilities

Overall US economy may have a fully mandated board on the other hand and has ultimate power and legal responsibility.