Final answer:
The Board of Directors in a modern U.S. corporation is responsible for ensuring a company's actions align with shareholder interests, selecting top executives, and reviewing financial practices. Their ability to govern effectively can sometimes be compromised by close ties with the company's executives, as seen in historical cases of corporate governance failure.
Step-by-step explanation:
The Board of Directors in a modern U.S. corporation serves as the first line of corporate governance, entrusted with the responsibility to ensure the company operates in the best interests of its shareholders. Despite being elected by the shareholders, the board often comprises candidates who have a strong backing from the company's top executives. This can sometimes challenge the board's ability to act independently and safeguard shareholders' interests effectively.
Examples of the Board of Directors' functions can include:
- Selecting and appointing company top executives.
- Overseeing and reviewing the company's financial practices and health, often by liaising with an auditing firm.
- Engaging with significant outside investors like those from mutual funds or pension funds to communicate and maintain confidence.
- Ensuring the company's actions align with its mission and the long-term interests of shareholders, which includes potentially challenging decisions made by top executives if necessary.
In cases like Lehman Brothers, a failure in corporate governance highlighted the challenges Boards of Directors can face, underlining the importance of a strong and independent board that can provide rigorous oversight and accurate financial information to investors.