FINN 383 ASSIGNMENT 1

ROLE OF
DIRECTORS
IN THE
MODERN
CORPORATI
ON
PROF. KHALID A. MIRZA

Abdullah Ismail

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Abdullah Ismail
FINN- 383 Capital Markets and Corporate Governance
Prof Khalid A. Mirza
'Role of Directors in a Modern Corporation'
In the modern day, the directors play an increasingly important role when it comes to ensuring
that the company matters are adhered to in a relatively civilized manner. The directors continue
to play an important role when it comes to solving important policy matters pertaining to
operations and fundamental decisions which influence the stakeholders having a certain interest
in the company. Over the subsequent years, the role of directors has taken different forms to be
where it is today.
In the past, directors role was predefined in the realms of governance and compliance related
matters. However, in the modern age, the directors role has highly changed, and it is deemed
very crucial for the company because of reasons pertaining to the overall corporate image,
smooth functioning, and avoidance of any uncomfortable situations as far as the corporation is
concerned. Moving on the role of Directors in the modern day, we can see that they can be
broadly defined into three main categories. They are advice and counsel, some sort of discipline,
and decision making in crisis situations (Myles L, 1971).
As far as advice and counsel are concerned, it can be seen that many of the presidents and
members agree to the fact that the role of directors in the modern era is highly advisory as
opposed to decision making. More often than not, these directors are quite busy, and hence do
not have sufficient time at their hands to make themselves available for the day to day affairs of
the corporation. However, they can provide their valuable output and advise based on their

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knowledge and experience. Therefore, the directors have the role of giving advice on matters
which, although are highly important, but do not require extensive or penetrating analysis.
Secondly, another role that the directors play in the modern day and age is that concerning
instigation of discipline in the corporation. Given the fact that over the years, awareness on the
part of investors and other stakeholders have increased considerably, there needs to be a
governing body that can overlook both, the principals and agents (principals being the investors,
per se, and agents being the president and the other front-line managers). Directors play this role
of the governing body. The president and the other front line managers know that they have to
appear before the directors. The fact that they have to appear in front of the directors does create
some sort of discipline as it increases the level of accountability and responsibility that the
President and the front line managers have when it comes to justifying the top notch positions
they hold in the corporation.
Directors also have the crucial role of decision making in crisis situations. There can be a couple
crisis situations where the role of directors is highly crucial. In case of the unprecedented death
of the president or incase of the situations where the performance of the president and other
directors raise serious questions over the credibility of the selection made the board of directors.
In these situations, the role of directors has become more than advisory. So in these crisis
situations, the directors play the role of controlling the company and taking responsibility of the
company to prevent it from being shut.
Therefore, in the light of situations mentioned above, it can be seen that the role of directors in
the modern day and age is very crucial to gain the trust of investors and shareholders. If the
directors play the role, as mentioned above, then the company can be anticipated to be successful
in functioning in a smooth manner. The role of directors has changed nevertheless over the past

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years, and with increasing awareness and decreasing information asymmetries, the role becomes
progressively more fundamental and substantial.

Work Cited:
Directors: Myth and Reality from Harvard Business School Press (1971), Myles L. Mace
Pawns of Potentates: The Reality of Americas Corporate Boards from Harvard Business
School Press (1989), Jay W. Lorsch and Elizabeth Maclver