While the Board's role in the company is to represent the interests of the shareholders, there are some potentially serious problems with how the Board of Directors exercises its roles and responsibilities. Hence, the failure of Board roles arguably. has been at the heart of all the concerns about corporate governance.
Among the issues are directors who lack of independence from the CEO, directors who do not have the time or expertise to fulfil their roles adequately, and directors who do not have a vested interest in the firm (Kim and Nofsinger,
2003: 3 1 ).
The independence of directors is hard to maintainif
they have a close relationship with the company or with the management either because they are nominated by the CEO or their remuneration is dependent on the CEO's discretion.Some directors, especially those who are potentially good in that role, may serve on multiple Boards. According to a
1997
Business Week article,several people held directorships in ten or more firms. Coca-Cola has five directors (out of 1 3) who serve on at least five Boards (cited in Kim and Nofsinger, 2003: 37) . In addition, most directors also have their own highly demanding full-time jobs especially when they are company executives themselves.
With regard to the disinterest of Board members to company success,
Kim and Nofsinger (2003: 32) quoted one director, who boasted in 1 962: If you have five directorships, it is total heaven, like having a permanent hot bath. No effort of any kind is called for. You go to a meeting once a month in a car supplied by the company, you look grave and sage, and on two occasions say, 'r agree'.
Finally, some Boards are simply 'too big' (!bid : 38) . When there are many directors, it is more unlikely that all directors will be actively involved in Board activities. Anyone may conveniently believe that others are doing the monitoring job, and they, therefore, may feel they do not have to work as hard. In a small company, each director knows that he or
she must do more work.
Summary
This chapter addressed several aspects related to the roles of the Board of Directors. As the corporate governance theorists suggest, the Board of Directors is an important control mechanism to discipline managers because it links shareholders with management inside a company.
In general, there are two types of Board structure practised around the world: one-tier and two-tier. The one-tier Board structure is practiced in Anglo-American countries such as the US and the UK, characterised by having both inside directors and outside directors as members. The two tier Board structure is largely practiced in European countries such as Germany and the Netherlands. The structure of the latter has two layers. The first layer is called the Supervisory Board and the second layer is called the Management Board. Although the structure of the Boards is so
different across countries , the limited empirical evidence available suggests that they are equally effective or ineffective at disciplining management.
In a one-tier Board structure, where the Board comprises of both executive and non-executive members, board composition and board leadership are the central issues and are widely discussed and debated in the literature. Corporate governance theorists argue that non-executive directors are more independent than executive directors. Therefore, they suggest that the Board should have more outside directors. This argument is rejected by other scholars who believe that inside directors, although considered not so independent, can provide more skills and knowledge of business to the company.
The issue of board leadership addresses the dual roles of the CEO where the CEO also holds the chairmanship of the Board . The concern is centred on the independence and the objectivity of the CEO in maintaining shareholder interests. However, the proponents of CEO duality argues that the decision making process is more effective if it is performed by one person.
Board roles can be classified into three categories: the performance, conformance, and 'pantheonic' roles. The performance role of the Board is oriented towards improving company performance through better strategic thinking and policy making and Board members are expected to bring knowledge and experience into the company. The conformance role requires the Board members to supervise management using an independent assessment. In addition, the Board members should place themselves as the protector of the owners. The pantheonic role relies on the socio-political status of the Board members to represent the company to the external parties.
In performing their roles, the Board of Directors can ask for and establish Board Committees. There are different types of Board Committees depending upon the company's needs. The most common Board Committee found in practice is the Audit Committee. This Committee, in some countries, is mandatory 'and required by regulations. Other committees commonly established are the Nomination and Remuneration committees.
Some issues of the Board are that they are criticised for failing to protect shareholders interests. The reasons are vary from the size which is too big, being too busy, lack of independence, to not having enough interest in carrying out his or her duty.
The next chapter will discuss the theoretical background and empirical practices of SOEs. This includes a review of the definitions and roles of SOEs, privatisation and corporate governance.