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▪ Expand on acting honestly in good faith

▪ What are the main duties imposed on directors?

▪ What is the nature of man in accordance with the original corporate concept?

▪ Expand on stewardship theory/Criticism on “stewardship theory

▪ Expand on the agency theory.

Task 3. Reading 2

Getting started

▪ Before reading the text, discuss in small groups what role plays the board of directors in the governing the company.

▪ Skim the he text to find out if your ideas are similar to those in the text.

▪ While reading the text, pay attention to the words in bold and try to explain them. Consult Vocabulary p. 139–140.

▪ Title the text.

The board of directors of a limited company is primarily responsible for determining the objectives and policies of a business. It is the directors who determine the direction the business is going to take. They will need to ensure that the necessary funds are available and will appoint key staff to whom they will delegate the authority to run the business on a day-to-day basis. They will need to design an effective organisation structure so that there is both a chain of command linking one level of management with another and an effective communication network so that instructions can be passed downward and information passed upward.

The directors are appointed by the shareholders, normally at the company's annual general meeting, at which the chairman of the board will be expected to account for their stewardship during the previous year. The company's accounts will be presented to the shareholders at that time so they can judge for themselves whether or not the board has been successful.

Direction in business is like strategy in a war situation. The strategic decisions determine the areas in which the company's resources will be employed. Above all it involves planning to ensure that the business first survives and then flourishes. Strategic decisions, made by the board of directors, are concerned with the disposition of resources. These contrast with the tactical decisions by means of which the senior executives (appointed by the directors) carry out in detail the plans conceived or approved by the board of directors.

The fact that boards of directors tend to meet rather infrequently, say once a week, means that part-time directors can be elected to the board. Since they will not have departmental responsibilities within the company they are often described as non-executive directors. There are arguments in favour of such directors though they may lack a detailed knowledge of the company's activities. They may bring expertise to the board. Some are lawyers, or experts in tax affairs. Some represent influential groups of shareholders whose support is necessary if the board is going to carry out its plans, while others are directors in a number of companies and are used to interlock boards within a group of companies. For example, a holding (or parent) company may appoint a director from their board to serve on the board of a subsidiary company, with a view to keeping a watching brief on the directors' activities.

Task 4. Talking Point 2

Work in groups of three, consult Speaking References p. 126–130 and discuss the following:

▪ Why delegating is used in running the business?

▪ What role do the senior executives play in the company?

▪ What happens at the annual general meeting?

▪ What is the difference between a strategic and a tactical decision?

▪ What part can non-executive directors play in the proceedings?

▪ What is meant by an interlocking board of directors?

▪ How is it that a board of directors can control a company though they only meet, say, once a week?

Task 5. Vocabulary 1

A. Match the phrases from the text (1–9) to their definitions (a– i).

B. Fill in the blanks in the text below, using the words from the box:

link, company’s, actively, coming, increase, delay, sell, company’s, capital, provided, run, spent, certain, mixture, brand, overseas, combines, course, coming, faced, benefit, appointed, marketing, financial, general, advertising, complex, buy, directors, management, post, appointed

EXECUTIVE DIRECTORS

A modern business enterprise is often a system requiring a lot of ______, which is provided by the public when they _______ shares in the company. Since they have _______ the capital, it is appropriate that they choose the people who are to _______ ________ the company for them, namely the board of directors. Many of the_______ also have executive responsibilities.

Thus, a marketing director might be a full director of the board, _______ by the shareholders at the annual _________ meeting like the other directors. Yet he might also be responsible for the day-to-day ________ of the marketing department. Most of his time will be _______ on administrative matters, organising market research, dealing with _______ and generally ensuring that the ______ sales are maximised. But he will function as a director when the board of directors meets. The _______ of managing director also ______ the role of chief executive with membership of the board and this allows him to act as a vital _______ between the board of directors and their ________ management team. The managing director is often also chairman of the board of directors.

Executive directors have the advantage that they are ______. Involved with the ________ affairs. If the board of directors wishes to move in a ______ direction the executive directors will know whether such a ________ of action is practicable. For example, the board might wish to ______ their products in a particular ________ market. The market would be profitable for the company, but the ________ director knows that his teams of salespeople lack the experience to take advantage of the situation. Or perhaps the board would like to _______ the advertising expenditure during the ______ year but the _______ director knows that the company will have to meet some heavy commitments during the _______ months and it would be better to _______ the campaign.

Perhaps the best board is one which contains a _______ of executive and non-executive directors. In this way the board has the ______ of some directors who know the practical problems ________ by the business, while others bring their own ________ of expertise to the boardroom discussions.

Task 6. Vocabulary 2

Multiple choice. Read the text again and check that you have understood the main points by choosing the best answer a, b or c to these questions:

1. When the directors are discussing the problems facing the company they primarily have to consider

a) the interests of the public.

b) their own interests.

c) the interests of the shareholders.

2. When a proposal is made and a vote taken the usual arrangement is that

a) each director has one vote no matter how many shares he hold.

b) only the chairperson can vote.

c) the directors with most shares have the most votes.

3. Key members of staff will be chosen by the managing director because

a) he is more knowledgeable than the other directors.

b) he has got to answer to the board for their performance.

c) he earns more than the other directors.

4. Non-executive directors will often be appointed because

a) they have valuable contacts with potential customers.

b) they have departmental responsibilities.

c) no-one else is available.

5. Directors are usually required to have shares in the company so they can

a) be seen top have a personal stake in the business and thus be affected by their decision.

b) receive share certificates from the registrar's department.

c) take on administrative duties.

6. Strategic decisions are concerned with

a) the details of day-to-day Administration.

b) the disposition of the company's resources.

c) the payment of wages.

7. While decision-making powers are commonly delegated to senior executives

a) the directors are not responsible to the shareholders for any mistakes which might be made

b) they are not responsible for any errors of judgement.

c) the directors remain responsible to the shareholders for any mistakes which might be made.

8. The further ahead one plans

a) the more troubles there are likely to be.

b) the more one can anticipate problems and thus avoid them.

c) the less one can anticipate problems.

9. Tactical decisions are those by means of which the senior executives

a) carry out their own plans.

b) destroy the opposition.

c) carry out the plans prescribed by the board of directors.

10. The directors have to initiate long range plans with a view to ensuring

a) the achievement of the company's objectives.

b) the maintenance of good relations with the senior executives.

c) compliance with the law.

Task 7. Talking Point 3

Study the information about a situation in Rumford Engineering. It is a public limited company and its shares are quoted on the London Stock Exchange. The chart below shows the lines of communication and command between the company's senior officials.

Figure 1.

After studying a chart, discuss the following questions with your partner:

1. From whom do the Line Managers and the Chief Engineer take orders?

2. If the Managing Director and the Production Manager had a meeting, what do you think they might discuss?

3. How many executive directors are there in Romford Engineering?

4. If the Computing Manager was sending information to the Managing Director should he send it through the Financial Director? Why?

5. How many immediate subordinates do each of the Departmental heads have?

6. In what circumstances do you think the Marketing Director and the Production manager might have conflicting interests?

7. Would you expect the Chief Engineer to be paid more or less than the Production Manager? Why?

8. What sort of work would you expect the Wages Officer to do?

9. If there was a dispute between one of the line managers and the Chief Engineer, how would you expect it to be settled?

10. If there was a dispute between the Marketing Director and the Financial Director how would you expect it to be settled?

Task 8. Vocabulary 3

Fill in the blanks with appropriate words from the list below:

Nouns: accounts, board, responsibilities, directors, votes, shareholders, resolution, team.

Verbs: make, propose, elected, answers, passed, ensure, undertake, send.

1. The ________ of a company have the responsibility to ________ that the requirements are complied with.

2. The directors of a company must ________ a copy of the company's annual ________ to the Registrar of Companies.

3. The directors will ________ decisions by passing resolutions at the ________ meeting.

4. Each of the directors will normally have one vote when a ________ is ________.

5. Resolutions are ________when there are a majority of ________ cast in favour.

6. Executive directors are those who ________ departmental ________.

7. The directors are ________ by the ________ at the annual general meeting.

8. The managing director ________ to the board for the performance of his management ________.

Task 9. Reading 3

Getting started

▪ Before reading the text, discuss in small groups why planning is significant for successful work of the companies, what types ofplanning you know and what main differences are between these types.

▪ Now read the text, title it and check if your ideas are right. Consult Vocabulary p. 140.

Top management is often under heavy pressure so that immediate problems often absorb much of their efforts. Time to analyse complex data and project future trends is likely to be limited. To combat this problem a long-range planning department might be set up to act in an advisory capacity. The long-term planning team would be directly responsible to the managing director, but freed from routine duties. Such a department would be small and made up of top quality generalists, trained to see the wood as well as the trees.

It is difficult to decide how far ahead to plan. An accurate long-term forecast is most advantageous to the firm, but the further ahead one looks, the less certain one can be of the outcomes. To overcome this problem a flexible approach needs to be adopted. Long-range plans for, say, three to five years might be mapped out, but there will have to be frequent reviews and re-appraisals so that the direction of the firm can be changed as and when the need arises.

Firms may want to enter new industries, launch new products, enter new markets (perhaps overseas) or acquire new subsidiaries. Existing activities may be expanded, consolidated or cut back. Whatever the requirements, careful planning is called for. The production side of the business has to be geared to keep pace with changes in the market. At the same time stocks must be kept at just the right level. If the stock level is too high, capital is tied up unproductively. If the stock level is too low, an upsurge in demand will lead to potential customers being turned away, possibly permanently.

There is also a difficult choice to be made between a policy of diversification and short term profit maximisation. The risk of failure can be reduced by choosing to produce a range of goods and services so that if revenue from any of them contracts it represents only a small part of the whole. A policy of diversification can be equated broadly to an insurance contract, and there is a price to be paid in both cases. In the case of insurance the price is in the form of a premium, and in the case of diversification it is the cost of choosing less profitable but more diversified activities. It is also possible, indeed likely, that the expertise of top management will fall short of encompassing all the diverse skills and detailed knowledge called for in such a wide range of undertakings.

The managing director, like the conductor wielding a baton on his rostrum, has the often unenviable task of orchestrating the diverse activities into a purposeful concerto.

Task 10. Writing 1

Read the text thoroughly again and make a summary (100 words). Consult Writing References, see Appendix I p. 131.

Task 11. Reading 4

Error correction. You are the Personal Assistant to Richard Grieves, the Sales Manager at Fenton Floy Ltd. He has been asked for a brief report on sales for the last quarter by Robert Davidson, the Managing Director. The report was drafted and sent down to the typing pool but it has e-merged with a number of mistakes in it. Richard has asked you to go through it correcting any errors you find. 'There are at least ten obvious errors,' he says, 'and there may be more’.

Sales for the last quarter of 2015 for the first time in six years we have fallen short of our quarterly sales target (by approximately 3 %) and while this was a disappointment to the whole of our team there are some simple explanations for the poor results. I understand you have already been given a detailed breakdown of the sales figures.

Overseas Division

The recent falls in the value of the US dollar have had an adverse effect on our sales in that part of the world. We find ourselves in an extremely competitive market, with a number of domestic companies already undercutting our prices. We have until now managed to retain our 10 % share of the market, but the further decline of the dollar has put new pressure on us.

New Products Division

This is the other area which has produced disappointing results. The explanation here is, as you will know that the Head of the Division recently suffered a heart attack and will not be returning to work. His replacement, Michael Graeme, had to be brought in from outside the company. While I am sure he will soon bring about a recovery, there has been a temporary downturn in sales in this division.

Action being taken

every member of my team has been made aware of the seriousness of the situation and I am glad to say that from the projections in front of me it looks as if our total sales are once again beginning to rise, please let me know if you require any further details.

Richard Grieves

Task 12. Reading 5

Getting started

▪ What do you know about the concept of “decision-making”? Discuss it in small groups.

▪ Think about situations when you are to make a decision and choose between alternatives: what influences your choice.

▪ Now read the text and check your ideas. Consult Vocabulary p. 140– 141.

When we talk about making decisions in business we tend to think of the major decisions which are made from time to time, such as the decision to go ahead with the Eurotunnel Project, or the decision to appoint a new chairman for the National Coal Board. The fact is that a multitude of decisions are being made in business every day. Certainly there are major decisions in process as the boards of directors and chief executives in large public companies decide to enter new markets, spend millions on new plant and machinery or advertising campaigns, and buy new buildings or make take-over bids against their most threatening competitors. Yet, for every one of these monumental decisions there area hundred thousand decisions made by more ordinary mortals.

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1

Some of the material in this chapter appeared originally in 'The non-executive director' in The Director's Manual; Director Books, Simon & Schuster, Cambridge, England, 1990.