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The board of directors (BOD) is the senior most authority in a modern corporation’s hierarchy
which is enforced by law worldwide to protect the interest of the various stakeholders of an
organization. One broader role of BOD is of protecting the interests of the stakeholder or the
“Agency Role." The other role is the “Resource Dependence Role” in which the BOD connects
the organization with external factors to mitigate the risks associated with the external
environment. These two roles are carried out using different mechanisms such as advising the
CEO on matters ranging from corporate governance, strategies, and problem solving which
essentially means that they are present for either advice and council or serve as a sort of
discipline and to act in a crisis. However, in a modern-day corporation's BOD are viewed
The Agency role of the BOD on a theoretical level is to safeguard the interests of the
shareholders. The shareholders, in this case, are the principal and the BOD is the agent of these
shareholders trying to maximize their benefits. Fulfilling this role involves the BOD advising,
counseling and monitoring the senior level management of the organization to make sure that
the shareholder benefit is maximized (Mace). This also involves the hiring and firing of the
CEO and the senior management if it is seen as ineffective. A 2018 study suggests that around
80% of the BOD agree to be involved in setting the strategy for the organization and 45% saw
themselves as a monitor while only a mere 23% of these saw themselves as the “watchdogs”
for shareholders (Adams et al.). Even though it can be argued that helping set the strategy and
getting involved in matters of corporate governance is part of the bigger picture that primarily
benefits the shareholders gain value over time, however, the agency role something which is
enforced by law to protect the shareholders and it is surprising that this is not the first
of the organization to minimize the risks from various environmental factors. This role requires
the BOD to comprise of insiders, business experts, support specialists and community
influencers. This distinct and diverse composition attempts to mitigate all the various
uncertainties. When the outside environment changes there comes a need for a new strategy,
and the BOD are the ones who plan the strategy knowing their strengths and weakness against
the external environment (Hillman et al.). In this way, the resource dependence and the agency
These roles are defined on a very theoretical level, and in reality, the characters played by
directors are vastly different. Some studies suggest that the BOD develops a strategy. However,
there are also contradictory, more convincing studies that show that even on the strategic level
the BOD is only involved for advice and counsel and not to develop the strategies. One of the
reasons for this is that developing an organization-wide plan requires time and knowledge
about the organization which the BOD does not have. Some of the BOD members are part of
in a few cases 10-20 different boards which suggest that at most they can only advise the
organizations and nothing more. This contradicts the earlier made argument that through
strategic decisions the BOD can safeguard the rights of the shareholders and leads one to
believe that the board is only present because of the law and is present to fulfill one role and
that is to advice and counsel the organization on various issues and in times of needs and crisis
situations. Even though this advice and counsel can be on matters of strategy and corporate
governance, however, is there is no guarantee of its implementation, and the president and the
CEO still have full autonomy and power in decision making (Mace).
In conclusion, the BOD have a few different roles in a modern corporation on a very theoretical
and legal level however in reality only a few roles are fulfilled because of the power of the
president and the CEO above the board which limits their role to mere counsel.
Works Cited