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Trouble

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  • 1. How Directors and Boards Get into Trouble Title
  • 2. 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.
  • 3. Ignorance
    • 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
  • 4. 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.
  • 5. Conflict of Interest
    • This arises when a director has the potential to profit from a decision at the expense of the shareholders.
  • 6. 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.
  • 7. Stock Trading Violations
    • Insider Trading problem could arise as Directors are privy to inside information.
    • Ignorance of law offers the Director no protection.
  • 8. Collective Board Problems
    • Poor Business Performance
    • This invites the wrath of the shareholders
    • Board decisions could affect performance
  • 9.
    • Lack of leadership in the Board Many mistakes are a result of ineffective Board leadership
  • 10.
    • Inadequate involvement in management
    • Board decisions to the management should be followed with effective oversight but without micromanagement.
  • 11. Entrenchment A high percentage of board members remain on the board for too long.
  • 12. Personal conflict Internal politics hampers the smooth functioning of the Board.

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