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Management article
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Reference no. 95210
Authors: John Pound
Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 1995

Abstract

At its core, corporate governance is not about power but about ensuring that decisions are made effectively. That is why reforms of power relationships will not by themselves create more smoothly run organizations. What is needed is a system in which senior managers and the board truly collaborate on decisions and both regularly seek the input of shareholders. The first step to improving a company''s governance system is rethinking the role of directors. They must have expertise in the company''s industry and in finance; meeting procedures should focus on new strategies, not just on reviewing past performance; directors need better access to company information; they should be required to devote substantial time to the corporation; and their compensation should be linked to stock performance. Second, managers, board members, and shareholders must set up lines of regular and direct communication.

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Abstract

At its core, corporate governance is not about power but about ensuring that decisions are made effectively. That is why reforms of power relationships will not by themselves create more smoothly run organizations. What is needed is a system in which senior managers and the board truly collaborate on decisions and both regularly seek the input of shareholders. The first step to improving a company''s governance system is rethinking the role of directors. They must have expertise in the company''s industry and in finance; meeting procedures should focus on new strategies, not just on reviewing past performance; directors need better access to company information; they should be required to devote substantial time to the corporation; and their compensation should be linked to stock performance. Second, managers, board members, and shareholders must set up lines of regular and direct communication.

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