Question

1. What are the responsibilities of top management and leaders in relation to corporate governance and strategic planning? What are the benefits of strategic management?

2. What are the roles and responsibilities of the board of directors? Please provide an example of a board of directors that did or did not meet its responsibilities to the company.

3. Explain the Sarbanes-Oxley Act and its impact on corporate governance. How has it changed the way leaders do business in the United States? Conclude with a discussion of the ways the strategic audit helps corporate governance.

Answer 1

1. The responsibilities of top management and leaders, in relation to corporate governance and strategic planning, are as follows:

• The strategic plan must be developed, in alignment to vision, mission and business objectives of the company
• The perspective of every stakeholder must be taken into consideration, before developing the strategic plan
• The top management and leaders are required to develop the rules and practices for corporate governance of the company
• They need to ensure that employees are aware of the norms followed under corporate governance and adhere to the same
• They need to lay internal controls to keep a check on overall business performance as well as corporate disclosure of company

The benefits of strategic management are as follows:

• Helps in identifying as well as capitalizing on opportunities for business
• Business decisions can be taken on priority basis
• Facilitates in giving a clear direction for propagating business
• The critical factors of the organization can be focused upon
• Helps in maintaining the competitive advantage of the company

2. The primary roles and responsibilities of the board of directors, are as follows:

• They have substantial duty of loyalty as well as duty of care for the company
• They need to identify business opportunities and direct the management of company, to capitalize on the same
• They advise and counsel the management for maintaining the competitive advantage of company
• They need to take lead in any kind of crisis situation, met by the company
• They need to act as watchdog for the adherence of corporate governance of the company

Well Fargo Bank was considered to be quite reputable bank across the world. The Bank was known for its fair and ethical practices. However in the year 2018, the famous fake consumer scandal involving the bank came into light. The bank admitted to creating fake accounts of customers as well as framing customers with invalid mortgage fees. The company was also abusing the customers by making them register for car insurance which they did not need. The board of directors had failed to execute their monitoring function of overall business. This is an example of a company where the board of directors did not meet their responsibilities effectively.

3. The SOX or Sarbanes-Oxley Act was drafted and passed in the year 2002, with the objective of protecting the shareholders of a company, against any type of accounting fraud. This act requires the businesses to have strict audit policies and procedures as well as stringent adherence to the audit schedule of the company. Also it gives the responsibility to directors of the company and make them liable for observing and maintaining accuracy as well as transparency in the financial and operational statements of the company.

Following are the major changes, which the SOX Act has brought on the corporate governance of any company in USA:

• This act has encouraged the philosophy of shareholder activism across the organization.
• This act has empowered the board of the company to be held accountable, for any kind of financial statements, released by the company.
• Transparent and accurate measures must be maintained in all business processes.
• The culture of the company gets aligned and integrated with the Corporate code of ethics and morality
• This act made it critical, to have a knowledgeable as well as experienced in-house counsel, in the organization, so as to monitor and control the overall legal adherence in all business processes of the company.

Strategic audit helps in monitoring the ways in which various rules, laws and regulations are being followed in the company. It helps in identify any kind of forgery or misrepresentation in business accounts of the company, thus aiding the overall corporate governance of the company.