Mitigating the Exposure of Corporate Boards to Risk and Unethical Conflicts
Loyola University Chicago Risk Management and Corporate Governance Monograph Series
25 Pages Posted: 25 Jun 2008
Date Written: April 27, 2008
Directors of corporations governed by a single board (i) Have excessive and unethical powers to become "Sources of risk" and (ii) Lack processes to systematically obtain information independently of management on the Strengths, Weaknesses, Opportunities and Threats (SWOT) of either their managers or the business to be "Managers of Risk". The removal and/or mediation of unethical conflicts can be achieved by amending corporate constitutions to separate governance powers from the power to manage business operations. Systematic independent information on the SWOT of managers and the business can be obtained by the corporate constitution introducing advisory councils appointed by those individuals on whom the business depends for its existence such as its customers, suppliers and other stakeholders. Besides mitigating the operating, reputational and financial risks of directors and the firm, evidence is provided how stakeholder councils have produced competitive advantages. The changes in corporate constitutions described in the paper protect the reputations and personal liabilities of directors by removing perceptions of unethical conduct and provides them with creditable evidence that they can carry out their fiduciary duties with due care and diligence to monitor managers and manage business risks.
Keywords: Competitiveness, Conflict management, Corporate Governance, Ethics, Operating efficiency, Requisite variety, Risk Management, Multiple boards
JEL Classification: G32, L15, L22, L25, M14
Suggested Citation: Suggested Citation