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Scanning The Environment

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Corporate Governance:

Corporate governance is important for corporation's economic health and society. It is an economic field that investigates how to motivate efficient management by the use of incentive mechanisms, organizational designs, and legislation. The corporate governance structure specifies the distribution of rights and responsibilities among various participants. This structure also clearly explains the rules and procedures for making decisions on corporate affairs. It promotes corporate fairness, transparency and accountability.

Board of Directors:

This is a group of people that are legally appointed to be responsible for the governing of the corporation. The board of director's responsibilities is different in for-profit and non-profit organizations. They are responsible to everyone in a for-profit corporation and in a non-profit corporation they are responsible to local communities which they serve. They have major duties they have to achieve. One is to provide continuity for the organization. Another one is to select and appoint a chief executive. They also have to use policies and objectives to govern the organization. Some other duties are to acquire the sufficient resources the organizations need to operate and to make the public aware of the products and services that the organization provides along with their expenditures. The major responsibilities of the board of directors is to determine the mission and purpose of the organization, select, support, and review the executive, ensure that the organizational planning is effective, ensure resources are adequate and manage them effectively, determine and monitor programs and services the organization provides, enhance the public's image of the organization, and assess its own performance.

Real-world example:

Two major responsibilities of the board of directors are to protect shareholder capital and review his or her performance and its own performance. This is what went wrong in this example. In 2004 there was a big accounting scandal concerning the board of directors of Fannie Mae. Their internal report showed a positive portrait of the board which cleared them of the accounting troubles. The directors believed that they had been wronged by management. They also had high marks for corporate governance. Independent consultants say that they should have been more aggressive in their watchdog role.

I believe that they had to know something was up. A corporate governance research firm contends that they tolerated the corporate culture and organizational



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