Reflection
Corporate governance gives the board of directors of companies the responsibility to oversee the management and direction of the company, and thus monitoring the company’s risk exposure. This implies that if the CEO poses a potential risk to a company, it is within the mandate of the company directors to ensure that the risk does not materialise and lead to loss of shareholders’ wealth. According to the research findings, high levels of trustworthiness perceptions about the CEO’s integrity lead to less monitoring by company directors (Del Brio et al., 2013).
This finding implies that CEOs have a responsibility to work hard and prove to the board that they are trustworthy and able to lead a company’s strategic direction. These findings concur with the literature presented by Siladi (2006), who argues that CEOs often work hard in response to the greater monitoring pressure by the board of directors. Siladi argues that monitoring managerial actions is part of the board’s responsibility as the company needs to be vigilant against managerial malfeasance.
This paper also establishes that the board is more likely to provide more resources to managers if the latter is frequently and effectively monitored. In retrospect, frequent monitoring and evaluation of CEOs result in high performance and integrity among the managers. This element is also found in Siladi’s research as it establishes that professionally managed firms have higher market-to-book ratios because of the periodic evaluation of the executive management by the board of directors (Siladi, 2006).
Paper Critique
This research paper is relevant to the body of existing literature regarding corporate governance. The study establishes a relationship between the director’s behaviour and the trustworthiness perception of company CEOs. As such, this study has found a correlation between increased director’s monitoring and performance evaluation of CEOs and their trustworthiness. The most significant aspect of this study is that it adds to the already existing literature on corporate governance and particularly the impacts of CEO trustworthiness on director’s monitoring.
The research conducted by Del Brio et al. (2013) is also unique because, unlike much of the existing literature on corporate governance, this study has examined the behaviour of directors and chief executive officers. The study mainly focuses on the perception of the board of governors on the performance evaluation and monitoring of managers. Although this presents the unique aspect of the research, it is also an inherent source weakness. The study focuses on the interpersonal dimensions of the directors and managers. It is hard to study the relationship between managers and the board of directors because these parties have tight schedules.
Many do not even yield to requests to hold interviews or fill in questionnaires. This means that the data used in the research to analyse the correlation between managers’ and directors’ perceptions had reliability issues. This is more so because it is normally hard to retrieve sensitive information concerning the performance of managers because such information is regarded as confidential to particular companies.
Another weakness of this study is that, despite the significant contribution it has to the existing literature, the study significantly relied on self-report data (Del Brio et al., 2013). The sample used by the researchers was also small and could not provide a better representation of the population. According to the law of statistical research, a larger sample size provides a better representation of the population variables. This implies that a smaller sample may have a large margin of error, which raises the credibility and reliability issues with the findings. Therefore, it is hard to relate these findings with the generic agency theory because of the limitation of the sample size.
References
Del Brio, E., Yoshikawa, T., Connelly, C. E., & Tan, W. L. (2013). The Effects of CEO Trustworthiness on Directors’ Monitoring and Resource Provision. Journal of business ethics, 118(1), 155-169.
Siladi, B. (2006). The role of non-executive directors in corporate governance: An evaluation. Swinburne: Swinburne University of Technology.