Pushing Corporate Boards To A New Style Of Governance

by Michael Volkov

newcorp4William James used to preach the “will to believe”. For my part, I should wish to preach the “will to doubt”…. What is wanted is not the will to believe, but the will to find out, which is the exact opposite.
- Bertrand Russell Skeptical Essays, 1928

 “Man’s greatest asset is the unsettled mind.”
- Isaac Asimov

In the coming years, the pressure on corporate boards will reach new levels.  Enforcement agencies are scouring investigations and sources of information to bring civil and criminal cases against board members.  Activist shareholders know that the best way to push their agenda for reform is to challenge corporate boards.  A confluence of financial incentives, shareholder reforms, academic research and regulatory and enforcement focus is lining up to bring about significant change at the board level.

Against these forces of change, corporate board members have to adopt new strategies and avoid clinging to old ways.   Many board members complain about the overwhelming amount of information they are being provided, the increase in risks surrounding their own conduct, and the over-regulation of corporate board responsibilities. Corporate boards are often “responsible” (through a mistake or a failure to act) for almost every corporate scandal.

It is in this environment that corporate boards need to embrace change.  Or as Bob Dylan wrote and sang in “The Times They Are a Changing” – “You better start swimming or you’ll sink like a stone, for the times they are a changing.”

An initial step, which is very modest, is for board members to apply a healthy dose of skepticism to their job.  I do not mean with respect to their interactions with other board members but more directly to their oversight and monitoring responsibilities over senior management, employees and corporate management.

Applying this skepticism should lead corporate boards to go the extra mile, ask the next question, to request additional information, clarifications and verification of information.  I do not mean to suggest that the board should not trust senior management but they need to dig deeper and verify the information they are provided.newcorp

This attitude is especially critical in monitoring compliance information.  All too often chief compliance officers provide reports to the board which are filled with generalities, platitudes and summaries, which fail to address the real issues.  Board members know the presentation is important but they do not dig down into the issues, question the CCO or much less challenge the CCO.

A healthy bit of skepticism will go a long way towards improving the quality of compliance reporting and the performance of the compliance program.  Board members can use skepticism to improve the dialogue at the board level, communicate to the CCO the importance of compliance and the expectations that the board has with respect to the CCO and the compliance program.

newcorp2The message of skepticism needs to be communicated to the CEO as well – the board is not a rubber stamp and should never act as one.  That is why I have always advised against having one person serve as both the CEO and Chairman of the Board.  It is a recipe for disaster because it basically cedes an important check on CEO conduct – corporate board oversight.

Bertrand Russell and Isaac Asimov’s quotes reflect a simple truth – we do our best thinking when we question and challenge the assumed truths.  The same holds true for corporate boards.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

Written by:

Michael Volkov

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