5.2 Effect Of Board Independence On C. S. R.
2.5.2 Effect of Board Independence on C.S.R.
Board independence refers to a corporate board with majority of outside directors. It is believed that board dominated by outside or independence directors are more vigilant in monitoring behaviour and decision making of the company (Finegold et al., 2007). The reason is that shareholders` interest could be well protected by outside directors than the inside directors.
Outside directors bring in more skills and knowledge to the company which increases expertise necessary for strategy implementation (Kamardin, & Haron, 2011). For Independent directors to perform their duties well they must be free from management`s influence. The effective monitoring by independent directors reduces agency costs and increase company performance. The presence of independent directors on board gives greater weight to board`s deliberations and judgment (Saat, et al., 2011). …show more content…
This is often influenced by the closeness of independent directors with the Chief executive officer .Close relationship between the chief executive officer and directors can enhance the board’s resource provision role by promoting relational capital, mutual trust, and ease of communication (Luo et al., 2012).
Agency theory suggests that separation of ownership and control causes a potential problem of the shareholders’ long-term interests not aligning with those of management because it is difficult recoup social investment in the short term. (Walsh & Seward, 1990), argued that Agency theory posits that managers’ self-serving behaviours could be regulated by independent monitoring. One of the most effective ways to monitor managers’ agency behaviour is to assign outsiders to the
Board independence refers to a corporate board with majority of outside directors. It is believed that board dominated by outside or independence directors are more vigilant in monitoring behaviour and decision making of the company (Finegold et al., 2007). The reason is that shareholders` interest could be well protected by outside directors than the inside directors.
Outside directors bring in more skills and knowledge to the company which increases expertise necessary for strategy implementation (Kamardin, & Haron, 2011). For Independent directors to perform their duties well they must be free from management`s influence. The effective monitoring by independent directors reduces agency costs and increase company performance. The presence of independent directors on board gives greater weight to board`s deliberations and judgment (Saat, et al., 2011). …show more content…
This is often influenced by the closeness of independent directors with the Chief executive officer .Close relationship between the chief executive officer and directors can enhance the board’s resource provision role by promoting relational capital, mutual trust, and ease of communication (Luo et al., 2012).
Agency theory suggests that separation of ownership and control causes a potential problem of the shareholders’ long-term interests not aligning with those of management because it is difficult recoup social investment in the short term. (Walsh & Seward, 1990), argued that Agency theory posits that managers’ self-serving behaviours could be regulated by independent monitoring. One of the most effective ways to monitor managers’ agency behaviour is to assign outsiders to the