Financial Planning and Agency Conflicts

Posted: August 26th, 2021

Financial Planning and Agency Conflicts

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Financial Planning and Agency Conflicts

            Attainment of maximum profitability through effective corporate governance is the goal of any leading company around the world. To achieve this, a company’s board of directors should exhibit two desirable characteristics. The first attribute isstrategic thinking. Any company’s board can utilize this characteristic for planning purposes for both the short term and long term objectives. Through strategic thinking, the board of directors will be able to identify company activities that are vital in the attainment of the organization’s long term goals necessary for upscaling its operational efficiency (Lu & Cao, 2018). Also, strategic thinking would make it possible for the board to identify factors that can enable the company’s exponential expansion in the customer base. Furthermore, strategic thinking can provide the board of directors with ideas that, when implemented, employees will be highly motivated, and thus, mobilize them towards increasing their productivity.

            The second character desirable of a company’s board of directors is integrity. That is, the board should aspire to collectively have highly ethical, trustworthy, and honest business decisions and moves. As such, they should be responsible and accountable for their individual and collective actions. According to Ujunwa (2012), a high integrity level at the board level could be demonstrated through the board’s ability to be relied upon in seeing their proposed tasks sail through. It is also shown through the accordance of collective support towards decisions arising from the board regardless of the personal beliefs of the individual board members (Ujunwa, 2012). Collectively, strategic thinking and integrity help in strengthening the interpersonal interactions among the board members, which in turn ensure the success of the company. Thus, it is upon recognition of the importance of a company’s board possessing these two characteristics, coupled with continuous refresher board members’ education, that effective corporate governance can be realized, which ultimately results in improved company image and profitability.

References

Lu, Y., & Cao, Y. (2018). The individual characteristics of board members and internal control weakness: Evidence from China. Pacific-Basin Finance Journal, 51, 75-94.

Ujunwa, A. (2012). Board characteristics and the financial performance of Nigerian quoted firms. Corporate Governance: The international journal of business in society.