The New Year will bring a new focus on corporate board performance. The aggressive enforcement environment has had a dramatic impact on corporate ethics and compliance. CCOs have been empowered and gained independence.
Reform at the corporate board level remains lackluster. Shareholder activism has risen but there has been little change at the corporate board level.
The next five years will see a surge in corporate board reforms. Corporate boards have been too insulated for too long, and the forces are lining up to break down corporate board resistance to greater accountability.
For the last few years, corporate CEOs and senior management have come under increasing scrutiny. CEOs have developed into all-star performers based on their performance at high-profile companies.
Corporate boards have been protected from increased scrutiny. The Justice Department and the SEC have their sights set on corporate boards, whistleblower incentives are likely to touch corporate board operations, and shareholders are continuing to pound against legal doctrines which protect corporate board members from liability.
While the debate is likely to occur over the appropriate level of board accountability, everyone agrees that corporate board performance is a critical factor in corporate ethics and compliance. A direction from the board for increased ethics and compliance programs is a powerful mandate which translates into meaningful reforms and actions by management. Corporate malfeasance often has a direct link to poor board supervision.
Corporate board members often complain about the increase in information they have to review and analyze in order to carry out proper monitoring and supervision of the corporation. Board members complain they have to devote extraordinary amounts of time to review materials and focus on legislative and regulatory requirements.
Many are unsympathetic to board claims of being overworked since board members agree to serve and are well compensated for their service. Others fear that greater accountability will lead to a loss of talented board members who choose to avoid board service rather than face potential liability. There is no doubt that a proper balance must be achieved.
Having a strong and effective compliance program in place is even more important with the increasingly vigorous enforcement of regulations. SEC Chairwoman, Mary Jo White, promised Congress that she would pursue a “bold and unrelenting” enforcement program, and with just over seven months at the helm, she appears to be fulfilling her promise. The SEC has also begun imposing more significant monetary penalties, and has announced new initiatives to target fraudulent and improper financial reporting, abusive trading and fraudulent conduct in securities of microcap companies.
Corporate board expectations are changing. Greater expertise is required and increased focus on board members’ knowledge and experience is likely to result. For example, with the greater need to monitor corporate compliance programs, corporate boards are now reaching out to potential board members who have experience in the ethics and compliance field. This is a very positive development and will improve corporate governance monitoring of corporate compliance programs.
It is too simplistic to quote from the Spiderman movie, but there is truth to the phrase “with great power, comes great responsibility.” Board members are now falling under this mantra and will have to be mindful of increased focus on their performance. Society will benefit from corporate boards which are committed to exercising their responsibilities with care and diligence.