1.What is the role of outside directors? How do they serve the corporation? 2.Tr
ID: 346611 • Letter: 1
Question
1.What is the role of outside directors? How do they serve the corporation? 2.Traditionally, outside directorships were given to chief executives and the chairmen of other boards, not CFOs. What has changed? Why do companies seek the expertise of the chief financial officer from another company? 3.Why has there also been a decline in the number of chief executives willing to serve as outside directors? 4.Why have some CFOs declined the opportunity to serve as outside directors? Please provide answer to each question with a number for clarity. Thanks
Explanation / Answer
1. The role of outside directors is to guide the organization in the right path and they do it generally by following two aspects, by increasing the governance standards of the organization and also by enhancing the credibility of the organization as a corporate because a corporate should abide by basic norms and also set an example to the others.
2. Traditionally, outside directorships were given to chief executives and the chairmen of other boards, not CFOs because generally the objective was to understand the business from a neutral perspective and for that it is better to assign the responsibility to someone who does not hold any position in the organization and it is assumed that this person will actually have a neutral view regarding the organization.
Companies seek the expertise of the chief financial officer from another company because of the same reason as the person will have neutral perspective regarding the finance of the organization and the condition of the organization. A CFO is a very important role because finance is no doubt the most important aspect in a business, hence the organization should be very careful in hiring for such a position.
3. This is a very unique case that has been occurring recently and previously the CEOs were actually hired as outside directors but today CEOs are not preferring such a position because the role of a outside director may seem very important on papers but is actually not because the CEO of the organization controls the activities and I believe that this is the main reason why former CEOs are actually not preferring to serve as an outside director. They have played an important role for organizations and now they do not want to play the role of someone whose approach may not even be considered.
4. CFOs have also declined the opportunity because of the same reason as they feel that the role is not that important practically and CFOs are generally expert in the financial field of the industry and they may feel that they might not be able to do justice in the new position. The world of business has changed a lot and professionals in all field are expected for the well being of an organization.
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