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What roles do boards of directors play?

Published on April 30, 2023   7 min

A selection of talks on Strategy

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0:00
I'm Jeremy Short, the G. Brint Ryan Chair in Entrepreneurship and Professor of Management at the University of North Texas. Managing large firms is a complicated task and managing them successfully is often a function of effective corporate governance. I'm excited to tell you a little bit about the various roles of boards of directors and to outline some important issues relevant to learning more about corporate governance.
0:26
Shakespeare once famously noted that all the world's a stage and the men and women merely players, boards of directors are asked to play many roles in their official capacity, including acting as an accountant, lawyer, adviser, activist, human resource manager and agent. In the United States in 2002, the Sarbanes Oxley Act was passed in efforts to ensure that board members play their roles to carefully serve key stakeholders with the firm and not just act as rubber stamps for the CEO and president.
0:59
Unfortunately, board members do not always manage each of these roles effectively, the study of corporate governance is often linked to issues of boards approving lavish CEO perks, that suggests there is not always great accountability from board members. While some are fairly pint-sized, like the CEO of Ben and Jerry's receiving ice cream for life, others are more decadent, such as access to corporate jets for personal use and a car and driver for life in some cases.
1:28
Given their power and influence, CEOs and boards are ideally operating at a high level of moral reasoning. Psychologists Lawrence Kohlberg noted three levels of reasoning, ranging from Level 1, where actions are tied to personal concerns, such as avoiding punishment, Level 2, where actions are compared to the expectations of society and Level 3, where individuals act based on personal ethics and higher-level moral principles. Example of a higher-level principle would be the golden rule where individuals act towards others as they hope others might treat them.

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