Board of Directors

INVESTORS DEPEND on the board of directors to govern a firm, to set its strategic quality and direction, and to improve their shareholder value. Banks and stock exchanges around the world have started to assess the effectiveness of boards of directors regarding their role and composition, and have a main focus on developing good corporate governance practices. The trust that investors have placed in boards of directors has, in the late 1990s and early 2000s, been damaged by several abuses and business scandals.

Research into boards of directors reveals they are dominated by a tradition in which board composition is related to firm performance, and this has galvanized the efforts of large-scale investor groups to initiate boardroom changes.

Researchers Shaker A. Zahra and John A Pearce (1989) ...