Reply to this discussion of at least 450 words and each reply must incorporate at least 2 scholarly citation(s) in APA format. Any sources cited must have been published within the last five years. Acceptable sources include the textbook, scholarly peer-reviewed articles, and the Bible.
Describe and discuss the role of the Board of Directors. What are some of the considerations that should be discussed prior to asking individuals to serve on the board of a company.
The board of directors of a publicly traded firm carries the weight of achieving the highest possible value to the shareholders. The creation of the board of directors derives from the corporations’ bylaws and organization agreements. The corporations’ bylaws act as a guideline and rulebook into how the board of directors should act, deliberate, and execute corporate actions. The board of directors typically include majority shareholders, advisors, and when appointed, the Chief Executive Officer (CEO). The board of directors of publicly traded companies are held to a fiduciary responsibility to both common and preferred shareholders. During certain corporate actions the fiduciary responsibility of the board of directors is highlighted. In mergers and acquisitions processes the board of directors of the target firm must take into consideration the fiduciary responsibility to the shareholders when evaluating a deal. These acquisition deals typically target shareholder profits in order to force the board of directors to agree to the deal or to be sued by the shareholders. Fiduciary responsibility is illustrated by A biblical example of this is shown Proverbs 16:11 “A just balance, and scales are the Lords”. This biblical passage highlights the importance of responsibility to shareholders. Due to electronic correspondence for shareholders, proxy voting has grown in popularity within publicly traded companies. Proxy voting pushes your voting power unto someone else typically a firm will manage proxy voting by hiring executives to settle large amounts of proxy votes (Ertimur, Y., Ferri, F., & Oesch, D.2013).
Before asking an individual to serve on the board of directors they should be evaluated by the tangible and intangible skillsets they bring. If a company is having financial or cashflow issues it may be wise to nominate an advisor that deals with increasing cashflow to the board and recommend shareholders to vote for this individual. If the corporation is publicly traded, regardless of skill of individual appointed to the board of directors it must pass a simple majority vote of shareholders. Another example of a individual being asked to serve on a board of directors is if it is required for preferred interest rates on corporate paper. Creditors may offer a reduced interest rate on loans if they have a representative on the board of directors. These board members are often designated as advisors although they have the interest of the creditors in mind. Creditor representatives on board of directors are a check and balance on the firm’s financial condition and leverage. In the modern board of director environment each member represents a function. It can be external functions to include creditor representatives and advisors or internal functions including majority shareholders and representatives.