Question

In: Finance

Members of the Board of Directors for a certain firm that has 12 seats on the...

Members of the Board of Directors for a certain firm that has 12 seats on the Board for which members are elected for six-year terms. The firm is currently using an election system that puts all members of the Board up for reelection every six years. An alternative is proposed by the CEO that will put only two Board members up for reelection every single year. He justifies this request by saying that reelecting entire board carries the risk that the entire board may be changed, hence the firm would lose valuable experience.

Objective Students are expected to argue in favor of positions they may not necessarily agree with, and in the process, learn to understand where opposing views come from. Such skills are necessary to stay away from "incestuous amplification" that arises from groups of people who think alike. You are required to defend the request made by the CEO to change the election system as if it was made in a court of law in front of a judge.

Solutions

Expert Solution

The CEO intends to change the election system by re-electing only two board members instead of re-electing the whole board of 12 members. In order to defend this we can emphasize on the point that the board of directors is made up of 12 members who are elected for a period of 6 years. If all the 12 members are put to re-election then the whole team will change. The change of the whole team may be harmful for the company as the new board of directors will have to start afresh. This may not be good in all cases for the company. The re-election of 2 of the board of directors will help to bring some continuity in the work. The board can then continue with the old policies that were good and change only the ones that are not so useful or successful. The presence of the 2 members will also ensure that the board of directors is in track regarding their work. Therefore, the re-election of the 2 members will be a good decision and also useful to the company in the long run.


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