Question

Generally, a board will limit itself to establishing what? Outline the typical scope of responsibilities for a board and the specific limitations it might impose on its activities.

Answer 1

A board of directors limits its activities to policy establishment and oversight to ensure the company serves the interests of shareholders, with responsibilities for corporate governance, strategic oversight, and executive evaluation. They avoid daily management, relying on auditing firms and large shareholders as further governance mechanisms.

Step-by-step explanation:

Generally, a board of directors will limit itself to establishing policies and ensuring that the firm is run in the interests of the true owners, the shareholders. The board's typical scope of responsibilities includes corporate governance, strategic oversight, selecting and evaluating the performance of top executives, and protecting stakeholders' interests. Specifically, the board may limit its activities to avoid micromanagement, entrusting the day-to-day running of the company to the executives, whom they oversee.

The board of directors is the first line of corporate governance and oversight for the firm's top executives. In addition to the board's oversight, two other key institutions of corporate governance are the auditing firm hired to review the company's financial records and the outside investors, particularly large shareholders. These institutions are meant to work in tandem to ensure transparent and responsible governance, as seen in the case of Lehman Brothers where corporate governance did not fulfill this role effectively.