Chapter 12

Importance of GRC Principles in the Board Room

The board of directors is the ultimate manager of all stockholders in investor-owned enterprises as well as for most large private enterprises. Directors may be either elected from the existing stockholders, known as outside or nonemployee directors, or may be directors who are also very senior members of an enterprise's management, called inside or employee directors. With their overall tenures in office and general responsibilities based on established corporate charter and by-law documents, boards of directors are charged with independently reviewing and approving all major decisions for the enterprises they manage and serve. They are the independent managing representatives for the stockholders, with a responsibility to make major decisions for the corporation based on their assessment of the risks and potential benefits presented to them. However, over the years and until the passage of the Sarbanes-Oxley Act (SOx) in the United States, the authority of the board of directors as an independent managing authority began to somewhat erode in some corporations. The problem was that until the passage of SOx, it was sometimes common for the majority of a board to consist of officers of the corporation itself, hardly independent managers. In addition, many of the independent or nonemployee directors were often friends of the chief executive officer (CEO). These friends-of-the-CEO directors were often very loyal and financially ...

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