Article in Business / Compliance
This article sets forth the perils of passive corporate governance by boards of directors who have abdicated their authority almost exclusively to CEOs in some corporations.

University of Phoenix Professor of Corporate Governance, Dr. Milton Luoma, has noted that corporate share ownership has become more widely dispersed over a broader base of shareholders than it had been at the end of the 19th century and the early 20th century (Luoma, 2008). This has led to more a more freewheeling attitude among CEOs who feel less of an obligation to act in shareholders' best interests and puts less pressure on boards of directors to more closely watch out for their shareholders' interests.

As mentioned above, there has been considerably less pressure on boards of directors to look out for the interests of the shareholders. This has been especially true during the spate of scandals during the early 2000s and even more recently during the current recession which began with the collapse of Countrywide in August 2007.

Incredible collusion has occurred among some senior executives, accountants, auditors, and sometimes even with board members to line their own pockets and to provide CEOs and other senior executives multi-million bonuses even in the face of rapidly decreasing profits and employees getting laid off. Frankly speaking, some senior executives and boards of directors have often left investors “hanging out to dry” by looking out for their own interests only and by not attempting to generate profitable outcomes for the stockholders.

Another significant factor that has contributed to corporate-governance problems has been the increasingly monocular focus on quarterly profits only without due consideration given to ways of creating and sustaining profits over the medium and the long-term. Medium and long-range strategic planning is often given very short shrift in the headlong rush to make as much money as possible in as short of a period of time as possible.

Such shortsightedness often prompts senior executives to cut corners in terms of employee and managerial training which adversely affects employee performance and productivity that often results in the inferior quality of the products produced and customer dissatisfaction that adversely affects sales and the corporate bottom line. Additionally, a fanatical focus on quarterly profits often weakens an organization’s commitment to corporate social responsibility (CSR) which is an integral part of any entity’s long-term success and welfare.

People, people, and people are the keys to any organization’s successful corporate governance over time. People in terms of employees and managers; people in terms of the board of directors and people relative to the shareholders. Historically, companies that have put people first have long outlasted those which have not. Money should only be a means to an end, not the end itself.

(Source: Dr. Milton Luoma, Professor of Corporate Governance, University of Phoenix, Lecture, August 23, 2008).

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About the Author 

Dave S Morse
I've completed a Masters of Management in Public Administration at the University of Phoenix and am seeking to enter the field of social and

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