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Individual Assignment Ceo Duality

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CEO DUALITY

CEO duality refers to the situation when the CEO also holds the position of the chairman of the board. The board of directors is set up to monitor managers such as the CEO on the behalf of the shareholders. They design compensation contracts and hire and fire CEOs. A dual CEO benefits the firm if he or she works closely with the board to create value.

Establishing a unity of command at the head of the firm allows the firm to send a reassuring message to shareholders. However, it is also easier for the CEO to assert control of the board and consequently make it more difficult for shareholders to monitor and discipline the management.

(ft.com/lexicon, Definition of CEO duality. Retrieve from

http://lexicon.ft.com/term?term=CEO-duality)

CEO duality, the practice of one person serving as both the CEO and chairperson of the board of directors, has been at the center of great interest to both academic researchers and practitioners for the last two decades. CEO duality refers to the situation when the CEO also holds the position of the chairman of the board. The board of directors is set up to monitor managers such as the CEO on the behalf of the shareholders. They design compensation contracts and hire and fire CEOs. A dual CEO benefits the firm if he or she works closely with the board to create value.

Corporate governance refers to the set of systems, principles and processes by which a company is governed. They provide the guidelines as to how the company can be directed or controlled such that it can fulfil its goals and objectives in a manner that adds to the value of the company and is also beneficial for all

(Prof. Georgeta VINTILǍ, Study on CEO Duality and Corporate Governance of Companies Listed in Bucharest Stock Exchange. Retrieve from:

http://www.revistadestatistica.ro/suplimente/2013/2_2013/srrs2_2013a12.pdf 


In The Malaysia Code on Corporate Governance 2017, highlight that there were the separation of the position of the Chairman and the Chief Executive Officer encourages accountability and facilitates the division of responsibilities between them. In the case study of Sulaiman Alnassir stated that the leadership structure of a firm can be divide into a combined leadership structure and a separated structure.

 In this regard, no one can influence discussions and make board decisions same with the case of Sulaiman Alnassir which relation to MCCG (2002), there is requirement for the balance of power and authority between the chairman and chief executive officer so that no one individual has unfettered power of decision. Responsibilities of the Chairman shall include the lead of the board in the management of its collective supervision, while the CEO focuses on the business and day-to-day management of the company. This section should be clearly defined in the board charter. The position of Chairman and Chief Executive Officer are held by different individuals.


BOARD SIZE

Board size refers to the total number of directors on the board of each sample firm which is inclusive of the CEO and Chairman for each accounting year. This will include outside directors, executive directors and non-executive directors. This classification is similar to the categorisation of board directors used by Hermalin and Weisbach(1991) and Bhagat and Black (2002) with the exception of a category of directors named as "grey" directors. These grey directors are directors whose status is questionable, such as family members of employees, lawyers, investment bankers and former company officers.

(By Dr. Roselina Shakir, board size, board composition and property firm performance. Retrive from) http://www.prres.net/papers/Roselina_Board_Size_Board_Composition_And_Property_Firm.pdf 

The board size is an important aspect in agency theory. A large number of directors will lead to difficulty in coordination, communication and decision to control the management (Jensen, 1993; Yermack, 1996). In additional, the importance of board independence is illustrated through that boards with significant outside directors will make better decisions than those dominated by the board insiders. The Malaysian Code on Corporate Governance (2000) states that there must be at least one third of the board members to be independent directors. This is to ensure that the objectivity in board decisions will be effectively implemented. The independent non-executive directors are needed in order to monitor and control the management's opportunistic behaviour to pursue their own goals in expense of the shareholders (Jensen& Meckling, 1976). Beside that, independent non-executive director is also important to assist III evaluating the management more objectively and to reduce the consumption of prerequisites by management.

The board monitoring intensity is significant as it can improve firms' value. Conger, Finegold & Lawler III (1998) suggest that the number of board meeting is an important resource in a company to improve the effectiveness of a company.

(Lee Wen Chiat, Corporate Master in Business Administration L477 2011. Retrieve from

https://ir.unimas.my/9045/1/Board%20Structures,%20Ownership%20Structure%20and%20Firm%20Value%20In%20Malaysian%20Public%20Listed%20Manufacturing%20Companies%20(24pgs).pdf 


As stated in The Malaysia Code on Corporate governance 2017, the board shall carry out a formal and objective annual assessment to determine the effectiveness of the board, its committees and each individual director. The Board shall disclose how the evaluation is conducted and the outcome. For Large Companies, the board involves independent members on a regular basis to facilitate objective and institutional evaluation. In the case study of Sulaiman Alnassir A board of directors is constructed for the purpose of ensuring the proper utilization of a firm’s process and its specified objectives (Coles et al., 2001). The board has the responsibility of making sure that the high level managers are meeting the shareholders’ best interest.

Institutional assessments periodically facilitated by professional, experienced and independent parties will give greater confidence to the assessment by providing unbiased perspective on the performance of directors and their ability to effectively contribute to the board. Where an independent third party is used to conduct a rating of the board, the Board must disclose the identity of a third party.

         An annual review on individual directors should include an assessment of their desires and the ability to challenge critically and to ask the right questions. The next character and integrity in handling the potential conflict of interest situations. Then, commitment to serve the company, due diligence and integrity and confidence to stand for a point of view.

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