Final answer:
The board of directors' role includes setting the strategic direction, monitoring performance, and hiring executives while representing shareholders' interests. Corporate governance also involves auditing firms and outside investors. Despite these systems, failures in governance can occur, leading to significant issues.
Step-by-step explanation:
The role of the board of directors in a corporation encompasses several key responsibilities. They are primarily tasked with determining the strategic direction of the company, monitoring the performance of the organization, and hiring top executives. The board operates as a governance body representing the shareholders, ensuring that the company runs in accordance with their interests. The board members are elected by the shareholders, but it's worth noting that top executives often have significant influence over which candidates are chosen for the board, potentially affecting the independence of the board's oversight.
In addition to the board, corporate governance involves other institutions such as the auditing firm hired by the company to review financial records, as well as outside investors, including those managing large mutual or pension funds. These stakeholders collectively work towards maintaining the integrity of the company's operations and financial reporting. However, as seen in cases like Lehman Brothers, sometimes corporate governance fails, leading to misinformation and adverse outcomes for the company and its investors.