Governed corporation is a model of successful corporate governance. Define and explain governed corporation. Distinguish between managed corporation and governed corporation in terms of board’s role, major characteristics and policies of a company.

The answer to the problems of corporate failure in the managed corporation lies in the governed corporation. In the governed corporation, the focus is not on power – not monitoring or controlling the managers – but, on improving decision making. The objective is to minimize the chances of mistakes; and, even if they occur, to mutually work out effective ways to rectify the mistake rather than fire the management. The result is a positive change in the way companies discuss, decide and review policy.

The Managed Corporation v/s the Governed Corporation: Board’s Role, Characteristics and Policies

The Managed Corporation

The Governed Corporation

Board’s Role ·      Board’s role is to hire, monitor and, when necessary, change failed management. Board Characteristics ·      Power sufficient to control the CEO and the performance-evaluation process. ·      Independence to ensure that the CEO is impartially evaluated and those directors are not compromised or co-opted by management. ·      Board methods and procedures to allow outside directors to evaluate managers independently and effectively. Policies ·      Separate the CEO and chairman (or lead outside director). ·      Board meeting may take place without CEO being present. ·      Committee of independent directors to evaluate the CEO. ·      Independent financial and legal advisors available to outside directors. ·      Measurable norms or yardsticks for judging CEO’s performance.

Board’s Role ·      Board’s role is to foster effective decisions and monitor and reverse failed policies. Board Characteristics ·       Expertise sufficient to allow the board to add value to the decision-making process and performance. ·       Incentives to ensure that the board is committed to create organizational value. ·       Methods and procedures to foster open debate and keep the board apprised of shareholders’ concerns. Policies ·      Vital areas of expertise must be represented on the board such as core industry and finance. ·      Minimum time commitment by the board members (may be two days in a month). ·      Designated committee to evaluate new policy proposals. ·      Regular meetings shareholders with large shareholders. ·      Board members free to ask for information from any employee.