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Corporate Governance and Board of Directors Essay

The Corporate Governance of any business is the relationship among the board of directors, management and shareholders to help in determining the path and performance of the corporation (Hunger & Wheelen, 2007, p. 18). Although laws and standards vary, the board of directors is: ·Those who set the overall path, vision and mission within the business. ·Those who make the decisions to hire and, or fire any top management member (Hunger & Wheelen, 2007, p. 19) ·Those who oversee management and evaluate strategy.

·Those who have the shareholders’ best interest in mind. ·Those who review and approve the use of company resources, as well as monitoring the effectiveness of the governance practices. An example of issues facing the board of directors within the Kmart Corporation was from their former CEO, Joseph Conaway and former CFO, John McDonald who were pardoned on claims stating that they made misleading statements in the Management’s Discussion and Analysis section of the Kmart quarterly and annual reports.

It was stated that the two had lead the corporation into bankruptcy while receiving $23 million dollars in compensation for only 20 months of work (Civil Enforcement, Securities, 2005). “A fraud claim requires proof of intent or recklessness, and that

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by withholding information from the MD&A Conaway and McDonald knew or recklessly disregarded the effect that would have on investors” (Civil Enforcement, Securities, 2005). However, there was no found proof that Conaway or McDonald misstated the underlying financial standings.

“Conaway was hired because he was a turnaround specialist, and many understood the weaknesses in K-Mart” (Civil Enforcement, Securities, 2005). In the aftermath of this such case, it will be interesting to see if changes will be made within a near to failure corporation, much like Kmart’s, when decisions are made to hire a costly top management turnaround specialist who was approved by the board of directors to hire when there is little to no money for operations.

Reference: ·Civil Enforcement, Securities. (April 24, 2005). SEC Files Securities Fraud Suit Against Former Kmart CEO and CFO. Retrieved August 2, 2008, from Law Professors typepad database. http://lawprofessors. typepad. com/whitecollarcrime_blog/2005/08/sec_files_secur. html ·Hunger, J. D. , & Wheelen, T. L. (2007, p. 18) Essentials of Strategic Management (4th ed. ). Upper Saddle River, NJ: Prentice Hall.

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