Business

At the helm of affairs of any organization, corporate and otherwise, there needs to be a body of individuals who are ultimately responsible for the performance and well being of that organization. In the corporate world, such a body is often referred to as a board of directors.

The board of directors is at the top of the management hierarchy. Shareholders of the company are responsible for electing directors to the board. Hence, the ultimate responsibility of the board is to the shareholders and their primary objectives should be to ensure that the wealth and the interests of shareholders are being protected whenever a decision is being taken. Such is the importance of this responsibility that it is usually defined as a fiduciary relationship, emphasizing the obligation that a member of the board has to the shareholders. (McNamara, 2008)

While acting in the best interests of shareholders is the crux of a board of directors responsibilities, there are several important duties that a board is required to undertake. Important among them is the selection and appointment of the chief executive, to ensure that a management succession plan is in place to provide continuity, design and approve compensation packages for management in such a manner as to align their interests with that of the shareholders. (Charan, 2005)

The board of directors is responsible for the strategic management of an organization. As such, they are required to have a long term perspective and to outline the vision of the company and to communicate it effectively to management. The board is responsible to formulate policies and to ensure that they are implemented. To aid itself in fulfilling its responsibilities, the board is often divided into committees. Most common of these are the audit committee, the remuneration committee, the nomination committee and the risk committee. Depending on the needs of the organization and the legal requirements of the jurisdiction in which it operates, the number and natures of these committees can vary. (Stiles  Taylor, 2003)

The structure of the board differs significantly from region to region.  One tier boards, two tier board and even three tier boards can be found. In the United States, corporate governance is implemented through a rules based approach under the Sarbanes-Oxley Act of 2001. One of the most important characteristics of an effective board is its independence. Many of the financial scandals that took place in the late 80s and early 90s can be to an extent attributed to flaws in the corporate governance procedures. (Guerra, 2004)

SOX aim to rectify the problems by ensuring strict compliance with the provisions of the act. Most important is that the auditors and board of directors be independent. This includes restructuring the various committees in a manner that eliminates even the impression that the board is no independent. (Brown, 2007)

In its last survey conducted in 2007, the Security Industry and Financial Markets Association (SIFMA) reported on the diversity of US Workforce. At the board level females make up 20 while 80 of the directors are male. On the ethnic side 6.5 of the directors are non-white. Out of this 2.9 represent African-Americans, 0.2 represents individuals with a Latin background and 3.4 represent Asians. (SIFMA, 2007)

General Electric, one of the largest corporate entities in the United States has a twenty member board of directors. Out of these only five directors have a material relationship with the company, one of them being the Chairman and CEO Jeffery Immelt. To get an idea of what level of experience and qualification different directors bring to the table at GE, I shall now give brief overviews of some independent directors both from GE and other companies.

Mr. Geoffrey Beattie is an independent director who is also a member of the audit committee, is a lawyer by profession. A graduate from the University of Western Ontario he served as a partner of the Toronto based law firm Torys LLP. Mr. Beattie is also the President and CEO of the Woodbridge Company Limited. He is also the Deputy Chairman and a member of the board of directors of Thomson Reuters. He also serves as the Chairman of CTV Globemedia Inc. He is also a member of the board of directors of The Maple Leaf Foods Inc and the Royal Bank of Scotland.

Dr. James Cash Jr. is has MS and Ph.D from the Purdue University and has been on the GE board since 1997. He is also an independent director. Dr. Cash was a faculty member at Harvard Business School from 1976 to 2003. He is also a member of the board of directors of the Chubb Corporation and Wall Mart stores. Mr. Cash is also a member of the audit committee at GE and also serves on the Compensation and Public Responsibilities committees.

Ms. Andrea Jung is the Chairman of the Board and CEO of AVON Products Inc. She is an independent board member at GE and has served in this capacity since 1998. She is a graduate from Princeton University and also serves on the board of directors of Apple Inc. and Catalyst. Ms. Jung serves on the GE boards Nominating and Corporate Governance committee and Management Development and Compensation committee.

Ms. Ann Fudge is an MBA from Harvard University and was the former Chairman and CEO of Young  Rubicam Brands. She is an independent member of the board of directors at GE and has served in the capacity since 1999. She is a member of the GEs Public Responsibilites committee and also serves on the board of directors of Novartis AG, the Gates foundation and the Rockfeller foundation. She is also an overseer of Harvard University.

Ms. Angela Braly is the President and CEO of Wellpoint Inc. She has a Juris Doctor from the Southern Methodist University School of Law and has been an independent director on the board of PG since 2009 and serves as member of the Audit and Governance  Public Responsibility Committees. She also serves on the board of Americas Health Insurance Plans. (PG, 2010)

Mr. Kenneth Chenault is the Chairman and CEO of the American Express Company. He holds a Juris Doctor from Harvard Law School and has been an independent director on the board of PG since 2008. Mr. Chenault also serves on the Audit and Governance  Public Responsibility Committees at PG. His other appointments include service on the board of directors at IBM and Vice Chairman of the National Academy Foundation.

Mr. Rajat Gupta is a MBA from Harvard Business School and is the founding general partner and Chairman of New Silk Route. He has been an independent member of the board of directors at PG since 2007. He is also a member of the Audit and Innovation  Technology Committees at PG. He is also and independent director on the board of Goldman Sachs Group Inc where he serves on the Compensation, Corporate Governance and Nomination Committee. He is also a Member of the Foundation Board of the World Economic Forum and also serves on the board of various other social and charitable organizations including the Global Fund for AIDS, Malaria, and Tuberculosis.

Ms. Ruth Simmons is the President of Brown University since 2001. She has also been serving on the board of directors of Goldman Sachs Group as an independent member since 2000. She is also a member of the board of directors of Texas Instruments Inc. In addition Ms. Simmons is affiliated with several non-profit organizations such as the American Academy of Arts and Sciences and the Council on Foreign Relations. At Goldman Sachs she is also a member of the Compensation Committee and the Corporate Governance  Nomination Committee.

Mr. Lakshmi Mittal is the Chairman and CEO of ArcelorMittal. He has been an independent member of the board of directors of Goldman Sachs since 2008. Mr. Mittal heads one of the biggest business groups of India and is a graduate of the St .Xaivers college in Calcutta from where he received his Bachelors in Commerce degree. Mr. Mittal also serves as a member of the board of directors of ArcelorSA, European Aeronautic Defense and Space Company, ICICI Bank Ltd and others. He is also the Chairman of the World Steel Association and a member of the International Business Council of the World Economic Forum.

Mr. William George is an MBA from Harvard and is currently a Professor of Management Practice at Harvard Business School. He has been an independent member of the board of directors of Goldman Sachs since 2002. He is also a member of the boards Compensation Committee and Corporate Governance  Nomination Committee. His current appointments include an independent member of the board of directors of Exxon Mobil Corp., non-executive director of Novartis India Ltd. and Chairman of the Global Centre for Leadership and Business Ethics among others.

Ms. Lois Juliber is a MBA from Harvard and has served as the Chief Operating Officer of Colgate-Palmolive Company. She has been an independent member of the board of directors of Goldman Sachs since 2004 and is a member of the boards Audit Committee, Compensation Committee and Corporate Governance  Nomination Committee. She is also an independent director of Kraft Foods Inc. and serves on their boards Human Resource  Compensation Committee and Public Affairs Committee. Ms. Juliber has also served as the Chairman of the MasterCard Foundation and is involved with several non-profit organizations such as Womens World Banking and the Brookdale Foundation.

The board of directors of a major American company has members from a range of backgrounds. We have academics, bankers, lawyers and a host of other professionals whose job is to protect the interests of the American public to the best of their abilities. Each of these individuals brings to the board room a varied palette of skills and they are considered to be titans in their areas of expertise. Their independence from the company and its management ensure that the decisions taken by the board are in the best interests of shareholders and shareholders alone. How well these individuals have been doing their job is a separate debate but more stringent regulations by the SEC and the rules based approach to corporate governance laid out by the Sarbanes-Oxley Act have gone a long way to ensure that the shareholder comes first.