a) What are the possible advantages and disadvantages facing a board of directors composed of insiders? (b) What are the possible advantages and disadvantages facing a board of directors composed of outsiders?
The board of directors plays a vital part in the domination of any company whether it is a family business or otherwise. For every company or organization the board of directors is different in terms of its composition, roles and responsibilities of the directors and its structure. The composition is normally determined by the nature of the business and its complexity. There are mostly two types of board of directors namely composed of insiders and that composed of outsiders.
Both type of the board of directors have their own advantages and disadvantages.
1. Advantages and disadvantages of the board of directors composed of insiders: Advantages:
I. The board of directors when formed with the insiders, the members usually has no legal responsibilities. This type of board of directors is formed in order to make the company cost minimal. II. It becomes easier for the company to recruit members because the membership is not as much difficult as to form the board of directors. III. The company can avail with the technical support, expertise, skills and knowledge of the members which might not be available at the required level. IV. The insiders usually provide with unbiased advice and have irrational attitude. V. Insiders can offer with new links/contacts which can generate extra sales or source of income. Disadvantages:
I. The board of directors composed of insiders works like a group of experts but their advice is usually not considered seriously and might not be followed methodically leading into loss. II. None of the members of such board of directors in this scenario have authority to collect any sort of information from management, resultantly their recommendations could only be based on what management had informed...
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