Introduction

A bulk of current corporate governance literature revolves around the Board of Directors and its functioning. Two recurring themes on Board of Directors are – weak boards being responsible for corporate excesses and failures in the 1980s and 1990s, there is a wide divergence between the theory about board's work and its actual functioning.

As regards the first theme, lack of balance due to paucity of appropriate skills, lack of commitment, inadequate information, inadequate systems of financial control, over-dominance of CEOs, their short-term policies designed to increase profits rather than real earnings etc. have been identified as important problems in the working of boards. In theory, shareholders of a company elect the board which nominates managers to carry on work. In reality, top managers often select a team of directors which is approved by shareholders and which often works at the pleasure of managers. (This was truer of the USA than of the UK or India.) Therefore, it came to be strongly believed that the highest internal mechanism of corporate monitoring was not working as it should, principally because there was little distance between managers and directors. So all the working groups and committees on corporate governance have devoted maximum attention to the working of boards and to making suggestions for improvements in them. Every aspect of the board– its election, composition, size, working style and functioning, access to information, effectiveness etc. – has been scrutinized to find out ways for improvement.

In the USA, boards were under the control of powerful CEOs till the 1980s. Now many directors are willing to play a rather proactive role.