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.
Lack of understanding of the responsibilities of being a director
Lack 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
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.
Conflict of Interest
This arises when a director has the potential to profit from a decision at the expense of the shareholders.
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.
Stock Trading Violations
Insider Trading problem could arise as Directors are privy to inside information.
Ignorance of law offers the Director no protection.
Collective Board Problems
Poor Business Performance
This invites the wrath of the shareholders
Board decisions could affect performance
Lack of leadership in the Board Many mistakes are a result of ineffective Board leadership
Inadequate involvement in management
Board decisions to the management should be followed with effective oversight but without micromanagement.
Entrenchment A high percentage of board members remain on the board for too long.
Personal conflict Internal politics hampers the smooth functioning of the Board.