Corporate Governance for the Future
The model for corporate governance is changing. Boards are now demonstrating concern for ethical behavior in business strategy, operations and culture. With the new global economy, the board and all the stakeholders are beginning to recognize that environmental, social, and governance are critical to the corporation’s reputation and ultimately, profits.
These new concerns are front and center before the board. Directors need to provide well-informed strategic direction and oversight beyond short-term financial performance. By considering all of these issues in a social context, companies can prepare to respond to risks – by doing so, they enhance the company’s reputation. Such a focus can also create shareholder value through an increase in business and greater access to markets. This new vision is fast becoming a reality – corporate values will converge with a set of core values encompassing social concerns like human rights, environmental protection and anti-corruption measures.
In order to accomplish this transformation, access to information will be critical and board expertise must be reformulated to embrace new issues. The lifeblood of every corporate board of directors is timely and accurate information. A board can adopt all the corporate governance best practices it wants but if it does not require, verify and review information from senior management, the board will fail all of its stakeholders.
How should the board make sure it has access to critical information? All too often, senior managers try to wiggle around bad news, business risks or failures. Directors need to make it clear to senior management from the start that they need and want access to important information. Board committees need to set up a schedule for regular meetings, at least quarterly, and they have to make sure that they are provided accurate information. Senior managers have to be held accountable on this score. If the information turns out to be inaccurate, the board has to find out why and remedy the problem so it never occurs again.
In this enforcement environment, board members have to remember that the SEC, shareholders and others are looking over their actions and are ready to hold them accountable for failures to act. The SEC has brought actions against independent directors for failing to carry out their responsibilities, ignoring issues and continuing with business as usual.
The best defense to regulatory enforcement is an offense – leadership in the new direction of global corporate governance.
Thank you for your insightful article. Your assessment of the responsibilities of a BoD is.spot on. The problem as your article pointed out, is a basic problem, a cover up by Senior management on issues which in the long run manifest into major problems and oft times result in criminal activity. What has to be initiated is a two fold process.
First the Bod has to form an oversight committee within the BoD.
Secondly, the BoD has to have a senior manager as part of the BoD without a voting right. This individual would be responsible as a BoD member to make sure all problematic issues are placed before the BoD in an acurate, timely manner. Take for example the issues moving forward with the Penn State scandal. This is a blatant cover up of a serious situation that had the BoD and other officials within the organization taken swift remedial action the fallout from this event would have had minimal damage to the organization and the collateral damage would have been suppressed and the image of Penn State would have been preserved.
However, the opposite took place. With poor internal controls and individuals thinking within the short term benefit arena, the event became a monster with PSU receiving a horrendous negative response to their BoD actions. Damage that is irreparable to the school to their staff and most importantly to the parents/students, who are the stakeholders in this situation. What could have been a simple solution to a problem had the correct controls been in place has turned into a catastrophic event. In your article, you have mentioned every concept of what must be initiated within every board , for every corporation in America and globally. The PSU case should be reviewed as a case study for every BoD globally.
Thank you