BOARD TASKS: MONITORING TASKS

To better track executive activities, many boards rely on reports from a budgetary control system. Management control systems that use criteria beyond financial measures have problems with quantifying some of the criteria (employees attitude, customer satisfaction..)

BOARD ROLE: MONITORING TASKS

A control (or monitoring) role, whose objective is to safeguard the shareholders' or, in a broader view, the stakeholders', interests: e.g., supervising top management's behavior and internal control and risk management systems' effectiveness; guaranteeing the soundness of financial reporting; assessing corporate results on various dimensions; ensuring the accountability of top managers; fixing their remuneration and replacing them; and ensuring compliance with the laws and regulations in force;

BOARD ROLE: ADVISORY TASKS

A resource dependence (also called networking or institutional) role, whose objective consists in establishing and managing relations

with external stakeholders. This role becomes very important when the firm’s survival and success depends on external stakeholders’ contributions: e.g., companies highly leveraged, recently listed, operating in regulated industries.

• Managing relationship with the stakeholders;
• Essential stakeholders might be appointed in the board
• ESG
• Establish partnership with strategic suppliers
• Ensure legitimacy and reputation

ACCOUNTABILITY

Formally directors are accountable to “the members of corporate entities”. The level and detail of reporting required is given by the corporate by-laws and the regulation. Companies may provide more than this legal authorities require.

DESIGN OF BOARD OF DIRECTORS

Many boards play a purely formal role, simply ratifying decisions taken elsewhere by others. During the 1990s, after another wave of corporate scandals and bankruptcies, various actors (institutional investors, national stock exchanges and governments, top

managers’ and directors’ associations) initiated a debate that led to the development of best practices (e.g. Cadbury code in 1992) aimed at improving board accountability.

MODELS P. 17

THE FUNCTIONS OF THE BOARD

It is largely dependent on information provided by the management board. It has incentives in investigating management activities.

WITHIN THE BOARD ROOM

Board committees can provide independent and objective corporate governance supervision, avoiding executive domination in the board. Specifically:

• To enable independent directors to meet separately from the board in order to fulfill their oversight roles;
• To delegate board activities to reduce the burden on the board as a whole.

THE AUDIT COMMITTEE

It works with the external auditor, senior managers (CEO and CFO), and the finance division. It focuses on, for example, asset valuation, capitalization of expenditure, and financial control systems that can affect profit and loss. Most of its members are outside directors.

1. The Internal Audit and Risks

It deals with internal control systems. It ensures the effectiveness of the management control systems. It provides:

• Evaluation of the risk management and review systems
• Evaluation of the risk of all levels in the company
• Adhoc review of unacceptable level or risk
2. The Remuneration Committees

It's responsible for recommending to the board the remuneration packages of executive directors. It defines the appropriate incentives for management, and executive directors, in particular for the CEO and the chairman. Considering the CEO compensation, it decides the portion of salary that is fixed and that is variable (i.e. equity compensation, stock option). Most of its members are outside directors.

3. The Nomination Committees

It suggests names for board membership, in an attempt to introduce different experience, personalities and diversity in the board and to avoid domination of the

Il processo di nomina viene gestito dal presidente o dal CEO. Sono suggeriti nomi per la membership del consiglio, nel tentativo di introdurre diverse esperienze, personalità e diversità nel consiglio, al fine di evitare che il processo di nomina sia dominato dal presidente o dal CEO. ... per essere efficace, un presidente del consiglio deve conoscere, rispettare e essere in grado di lavorare con i membri del suo consiglio. ALTRI COMITATI - Comitato per la governance e la conformità - Comitato per la pianificazione strategica - Valutazione dei rischi aziendali e controllo o governance strategica dei rischi - Comitato ad hoc con responsabilità delegate per progetti specifici (ad esempio, organizzazione di un recente acquisizione) DIVERSITÀ NEL CONSIGLIO COMPOSIZIONE DEL CONSIGLIO La composizione del consiglio è caratterizzata da tre elementi principali: diversità nel consiglio (cioè la diversità demografica, del capitale umano e del capitale sociale del consiglio): amplia i punti di vista, le esperienze e le competenze dei membri del consiglio e rafforza quindi la capacità del consiglio di svolgere le sue tre funzioni.

1. roles.DIVERSITY

Diversity and pluralism will involve board members with varied backgrounds and competences (for example diversity with respect to educational and social background, business and professional experiences, age, gender).

2. surface-level diversity
3. deep-level diversity

HUMAN VS SOCIAL CAPITAL

• Human capital: values; experience
• Social capital: professional networks, personal network

3 levels:

• Individual: social networks and theirs characteristics
• group level: social norms and social structures such as roles and rules.
• societal level: trust, trustworthiness, civic norms, association membership, and voluntary activities.

Relational capital is a set of social capital

DIVERSITY

Benefits? Directors with varied backgrounds may:

• have alternative networks
• see the firm from complementary perspectives
• bring different competences to the board
• challenge the rules of the game on the board

Variety

Separation

Disparity (Harrison)

and Klein, 2007)
GENDER DIVERSITY: THEORIES
• Social identity (how similar people consider themselves to other group members)
• Social categorization (out-group/ingroup)
• Critical mass (Kanter, 1977)
GENDER DIVERSITY: RESEARCH STREAMS
1. Difference between women and men on boards
2. What factors shape board gender composition
3. Gender diversity and board outcome
4. Quota regulation
STREAM 1: DIFFERENCES
1. Women tend to be younger than the men
2. They have lower tenure and less board experience, measured as prior directorships, multiple directorships, executive positions
3. No differences in values at top level? (paper discussion)
STREAM 2: FACTORS
Formal institutions that explain higher number of women on boards:
• Higher female labour force participation rates
• A greater presence of women in senior management
• A lower gender pay gap
• Greater representation of women in parliament
• Greater participation of women in tertiary education
Informal

institutions: • feminine cultures, • less religiosity • less emphasis on nuclear family structures

STREAM 3: OUTCOMES• Financial performance • Social and ethical aspects of firm behaviour • Reputation (i.e shareholder dissent)

STREAM 4: QUOTA• Equality/Justice • Economic Business Case (Womenomics ). • Business Utility Case.

ESEMPI P. 14

WHY DO BOARDS FAIL?

Board members have several explicit or implicit incentives to support, or at least not to openly challenge, powerful CEOs or controlling shareholders.

They fail:

• while the board is a collegial body, the CEO or the controlling shareholder is perceived as a legitimate leader and is therefore treated with respect and deference;
• directors may have or develop a social relationship, or even a friendship, with CEOs or controlling shareholders;
• directors can easily develop a sense of obligation and loyalty to key decision-makers who favored (or didn't oppose) their election;

directors want to be re-elected because being a board member implies receiving a fee, gaining increased prestige, and expanding business and social connections; – many board members are CEOs or executives in other companies, and can be inclined to feel solidarity and sympathy for the executive directors.

BOARD DYSFUNCTIONAL SOCIAL PROCESSES

Unlike top management teams, boards are elite groups that: – include a large number of members (on average 11 directors); – have a majority of outside members (most directors have a primary affiliation with other companies); – meet only episodically (once a month or less).

Social and psychological group processes may undermine boards’ ability to effectively perform their roles: – groupthink – excessively conforming to group opinions; – conflict avoidance – the suppression of healthy cognitive conflicts; – dysfunctional factions – the emergence of subgroups or factions; – habitual routines

• the creation of excessively routinized processes;
• shared-information bias - the tendency to spend most of the time sharing and discussing information possessed by the majority of group members;
• pluralistic ignorance - the tendency to suppress minority opinions;
• social loafing - the tendency to devote a lower level of effort to group tasks;
• group polarization - the tendency to take extreme positions.

BOARD EFFECTIVE SOCIAL PROCESSES

Board best practices and an effective leadership may be helpful in suppressing dysfunctional group processes. It is particularly important to create a board atmosphere and culture favoring the emergence of efficient socio-cognitive processes which encourage:

• directors' commitment to board tasks (e.g., effort norms, individual accountability);
• discussion of different viewpoints and experiences (e.g., cognitive conflicts, a culture of open dissent, constructive conflicts);
• the

best use of directors’ competencies and skills (e.g., use of knowledge and skills, working together as a team).

CEO COMPENSATION: WHY IS IT SO IMPORTANT?

It is more likely that executive directors and top management affect more firm outcome. Their decisions and actions influence and create causes and consequences to reach long-term goals.

Managerial actions and investment opportunities are not perfectly observable by shareholders. Shareholders do not often know what actions the CEO can take or which of these actions will increase shareholder wealth. In these situations, agency theory predicts that compensation policy will be designed to give the manager incentives to select and implement actions that increase shareholder wealth.

• Different interests
• Asymmetry of information (moral hazard)