The Man Inside “The Board”

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boardroom

Recent news about Jamie Diamon, CEO of JPMorgan Chase & Company has stepped down as the Chairman of the Board. What does that mean? This article will explain what a Chairman of the Board does, and how being a CEO and Chairman of a company effects decisions and increases bureaucracy.

Earlier this week, Bloomberg News stated that JPMorgan has sought to bolster corporate governance and rebuild its relationship with “watchdogs” after probes by regulators and a Senate panel faulted the firm for withholding information from U.S. overseers during trading losses last year. It is believed that Diamon handed off the chairman title at the unit after company attorneys recommended it for technical reasons, rather than because of pressure from regulators or investors.

Let’s explain what it all means:

The Board of Directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The board’s activities are determined by the powers, duties, and responsibilities detailed in the organization’s bylaws. These bylaws also include in specific detail the number of members of the board, how they are to be chosen, and when they are to meet.

In a stock corporation, the board is elected by the shareholders and is the highest authority in the management of the corporation. For companies with publicly trading stock, these responsibilities are typically much more complex than for those of other types. Below are some of the duties which a board of directors have are:

  • Establishing policies and objectives
  • Reviewing the performance of the chief executives
  • Approving annual budgets
  • Accounting to the stakeholders for the organization’s performance
  • Setting the salaries and compensation of company management

Being an executive officer (ex. CEO) and on the board causes friction. It’s like having an “inside man” to help steer the directors towards certain decisions. CEOs may have so much to gain from how they steer their boards that they may not try and ensure their boards can fulfill their duties. Another issue is that too much power will be concentrated in one place, and  the boards would be less able to fulfill their duties as a result. The other issue is that if non-CEOs are selected to be board chairs, they do not have the core experiences and skills necessary to effectively manage a board of directors.

 

Why do you think, the board of directors should (or should not) include a CEO?

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