Question

There is a substantial body of evidence linking financial reporting quality and likelihood of financial misstatement with certain characteristics of board of directors.

a. Identify four board characteristics that may be beneficial for a company and its shareholders, referring to academic research.

Answer 1

Solution =

The four board characteristics that may be beneficial for a company and its shareholders, referring to academic research are as follows -

1) Being Open-Minded -

The best boards are those that are diverse and respectfully so. Diversity isn’t effective if it’s met with conflict and aggression from those who have opposing ideas. Being a successful board director includes keeping an open-mind to that diversity and being vulnerable enough to admit when your mind is being changed.

While it can often be difficult to put your personal opinions aside when it comes to various topics, a successful board director will be able to take on new ideas and allow their opinions to be challenged.

2) Bravery -

Part of being an effective board director is being brave and having great leadership skills, and if your personality is more prone to passivity, you might find this hard. But change will never be brought on by being passive. If you aren’t brave enough to speak up in the boardroom, especially when it’s about issues you care about, you will never be able to change things. If you want to make an impact, you have to make waves.

Bravery in the boardroom means having the ability to understand which important questions need to be asked, and having the smarts to know when you should ask them. Asking the right questions and challenging the assumptions made by both yourself and your fellow board directors can make sure your board remains on topic and on the right path.

3) The Ability to Prepare -

Being properly prepared is an essential attribute to board directors. If you’re heading into a board meeting with absolutely no idea of what’s to come, it will never look good – regardless of whether it’s your first board meeting or your fiftieth. When you are the most prepared person in the boardroom, you’re also the most influential, and that’s a highly desirable position to be in.

To be properly prepared, read all the papers before the meeting to make sure you fully understand everything that will be discussed. And if you don’t understand something, ask about it beforehand. You should also conduct prior research. Not just about the topics to be discussed, but the influences that could apply to your fellow board directors, and the key challenges that are currently being faced by the stakeholders.

4) Emotional Intelligence -

Emotional intelligence (EQ) is potentially more important than intellectual intelligence (IQ). EQ is defined simply as having the ability to monitor both your own and other people’s emotions, to discriminate between different emotions and label them appropriately, and to use emotional information as a guide for your own thinking and behaviour.

When you know yourself and how you connect with others, you are in a much better position to handle stressful situation and make better decisions.

5) The Ability to Commit -

Commitment is one of the key aspects in an effective board director. Often, people don’t realise just how time-consuming sitting on a board can actually be. It’s not just a matter of turning up once a month for a few hours – you must also take things like committee meetings, necessary training, strategy and planning days and company events into consideration.

You may also be involved in fundraising events, networking, acting as an ambassador for the organisation, and building sustainable relationships, not just with your fellow board directors, but with the stakeholders, investors, management team and donors. This workload can be manageable, even if you have a day job. But you have to first decide whether you’re committed, because if you’re not, it will soon show.