Overthe past decades, the challenges of corporate governance continue to influencethe way in which firms perform. It is ever-present in the conflicts ofinterest, differences in decision-making and the rise of residual losses(Jensen and Meckling 1976: 310). These challenges, or agency costs, are sofar-reaching in firms that it is inevitable to search for reasons which explainthe impact.
Even as mechanisms of corporate governance unfolds – the marketcalls for an internal device which aims to control agency costs efficiently,and so, acts as a response to competitors (Fama 1980: 289). That is, the boardof directors whose task is to approve, evaluate, and advise in decision-makingas a method to minimise the risks related to a firm’s survival (Fama and Jensen1983a; 1983b). It is exactly why the role of boards matter, and its place incorporate governance looks to reveal some common threads, that firms shouldtake strides and assess its boards in a narrower, more balanced perspective.
Insuch case, the focus is far from what corporate boards do, and rather torecognise how changes in director selection characterises their effectiveness(Hermalin and Weisbach 1988: 589). This is somewhat of a debate in itself, aswho gets selected is key to unlock the nature of firms and reflects the controversiesin recent reforms to board practices (Baysinger and Butler 1985). Except it isfor a fact that these issues stand out as a dynamic aspect of firms, hence, renewsthe interest to a setting which falls short of both its needs andopportunities.
It brings to fore, the question as to how boards can improve theireffectiveness that is so long at a crossroads – to be aware of financialresults which take the impact; and its means that shape corporate governance(Zahra and Pearce 1989: 291).