trouble
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How Directors and Boards Get into Trouble
Title
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Directors
Join the Board for variety of reasons like friendship, economic gain, networking, prestige and power. This can lead to a bad situation.
Therefore it is esssential for the Director to know the company and to be certain that they have the time and competency for this role.
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Ignorance
Lack of understanding of the responsibilities of being a directorLack of at least a working understanding of the business in which the company operates.Lack of the knowledge of applicable rules/laws to the industry in which the company operates
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Lack of Independence
This renders the director ineffective in rendering objective judgments about important issues.Similarly directors are less likely to act independently if they receive substantial financial compensation.
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Conflict of Interest
This arises when a director has the potential to profit from a decision at the expense of the shareholders.
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Failure to care
Busy directors may not be able to have latest knowledge about the business in general and the company in particular. This affects informed decision making.
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Stock Trading Violations
Insider Trading problem could arise as Directors are privy to inside information.Ignorance of law offers the Director no protection.
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Collective Board Problems
Poor Business PerformanceThis invites the wrath of the shareholdersBoard decisions could affect performance
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Lack of leadership in the Board
Many mistakes are a result of ineffective Board
leadership
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Inadequate involvement in management
Board decisions to the management should
be followed with effective oversight but
without micromanagement.
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Entrenchment
A high percentage of board members remain on the board for too long.
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Personal conflict
Internal politics hampers the smooth functioning of the Board.