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The “New Reality” for Corporate Boards

board3I have very little patience for a corporate board that fails to do its job. A board usually consists of talented, successful and experienced professionals. They have seen good and bad business practices in their days. Board members are paid well and are not forced to agree to serve.

I know this is another in my list of profound grasps of the obvious but it sets up my point. When I hear board members complain about their overwhelming responsibilities, I roll my eyes. My response (to myself) is usually, “oh gosh, another prima donna.”

Too many board members have expectations that they will be spending most, if not all, of their time deciding business issues. In other words, they will be focusing only on business decisions – acquisitions, business expansion, product changes, new market analysis, financial management, and all the sexy business issues. It is time that board members exercise realistic and responsible duties aimed at creating a sustainable business.

Not only should a Board exercise oversight of company operations, they have a responsibility to attend important company meetings and offer their assistance to promote the company culture and commitment to compliance. Business people are reluctant to hold board members accountable but if everyone else is stepping up to the plate, corporate boards have to do so as well.board

Sitting back and watching a company perform while reviewing quarterly reports is no longer acceptable as a model for performance. A corporate board has to assign lead responsibilities depending on the talents and experience of a board member.

Board members with financial experience are natural leaders for the audit committee. Hopefully, one of the board members has prior experience or familiarity with ethics and compliance programs. Whether the audit committee or a separate compliance committee is responsible for the oversight of the ethics and compliance program, board members with interest and familiarity with ethics and compliance should be assigned to the supervision of ethics and compliance.

Corporate boards have to attend to the ethics and compliance function. It is no longer a luxury or an issue that takes up 30 minutes of every board meeting. Board members have to understand the details of ethics and compliance programs, look for meaningful measurement of an ethics and compliance program and hold the CEO, CCO and others accountable on the issue.

Some corporate boards are learning the new reality and embracing it. Some only do so after watching the companies go through a horrendous enforcement action and government intervention.   And some only do so after shareholders are forced to challenge the board in a lawsuit.

board2More attention needs to be devoted to defining a “new reality” for corporate governance.   Instead, professionals are unwilling to challenge the old model and urge a new approach to board governance. It is interesting to watch as professionals tread lightly in this area for fear of upsetting what they perceive as thin-skinned board members.

The FCPA Paparazzi will never challenge the status quo because they are too busy “marketing” fear and loathing in the legal world. With the rise of the ethics and compliance function, compliance professionals will be faced with difficult challenges, one of which is certainly to be improving corporate governance. This may lead to some positive changes in the corporate boardroom. My fingers are crossed and I am hopeful but realistic.

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3 Responses

  1. Kamalnath Shenoy says:

    At least in India, not much more than 10% Board members have so called, authority to exercise. Most of the Board members in most of the Companies get paid to to toe the line. Probably it suits both parties. Corporate Governance is only an eye wash in 70% of companies. Probably it is a matter of evolution and hopefully, we are evolving.

  2. Elliot Fisch says:

    Good article Michael. One responsibility that a compliance committee should have to inform the Board of the company’s compliance program and activities, but to also make the Board aware of upcoming legislation that may affect the company. The Committee Chair should question what the new rules are and what the company is planning to be compliant. I my experience, the Board is usually looking back on the company’s compliance performance, rather than looking at issues that may lie ahead.

  1. December 23, 2014

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