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Board of Directors Reform: Adopting a New Model for Board Members

boardreform1It is easy to tie FCPA violations to corporate governance performance.  Sometimes the tie is strong – sometimes a little more attenuated.

The BIzJet case from last year underscored the importance of proper board oversight and monitoring.  The bribery scheme in the BizJet case was specifically presented to the BizJet board.

You would have expected the board to rise up, demand an explanation and immediately squash the proposed bribery scheme.  Instead, as related in the statement of facts, there was a deafening silence, the scheme went forward, and the rest is history.

The BizJet case is an important reminder of the importance of corporate governance and proper board oversight and monitoring.  BizJet is only one of many examples involving other scandals and misconduct stretching across other enforcement issues, especially AML and sanctions compliance.

All of this underscores the importance of companies reviewing and revisiting basic governance issues.  As part of this process, companies need to avoid a simple trap – a company boardroom has to connect to senior management and develop an active working relationship.

Too many companies approach the job without considering important questions as to the talents and expectations of a board member.  It is an opportunity to bring in board members who are a value-add to the company, not because of their reputation, or their high-profile stature in the business community.  Instead, board members should possess certain skill sets.boardreform

For example, a company board should include a board member (or board members) who has (or have):

(1) leadership experience and prior corporate board experience;

(2) financial expertise either as a CFO or similar position for a company in order to oversee and monitor financial reporting, internal controls and SOX compliance;

(3) prior ethics and compliance experience separate from financial reporting and SOX compliance issues;

(4) experience in, and/or familiarity with, the industry in which the company competes; and

(5) prior experience serving on comparably sized corporate boards and preferably has experience navigating oversight of internal investigation and government enforcement action resulting in remediation.

This list is not exhaustive but reflects some key requirements for board members.  The company CEO should also serve on the board to ensure communications and coordination between senior management and the board.

boardreform3Whether the CEO should serve as the board chairperson is a more difficult question and raises serious governance issues.  The benefits can sometimes outweigh the risks of having a CEO wear both governance hats.

Companies need to refine their corporate governance programs as an important step to promote ethics and compliance and improve overall company performance.  The quality of board members has to be carefully tailored to the specific issues the company faces.

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