New Models for Broken Board Governance System by ProQuest


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									 ERM & Internal Controls

New Models for Broken Board Governance System
By Richard M. Steinberg                        I – Greater Shareholder Authority              these responsibilities in two, a monitoring
Compliance Week Columnist
                                               S   ome would say this “new” model al-
                                                   ready is emerging as a reality. With
                                                                                              board being the watchdog and a perfor-
                                                                                              mance board doing what’s necessary to

T    o say that these are challenging times
     to be a corporate director is an un-
derstatement. Shareholders are clamoring
                                               rules requiring ever expanding corporate
                                               disclosures, shareholders should have
                                               greater transparency into the workings of
                                                                                              promote corporate success.
                                                                                                 This too has some surface appeal. As
                                                                                              responsibilities and expectations of direc-
for greater ability to determine what hap-     their companies. We’re looking, for exam-      tors grow but time remains limited, dou-
pens in the boardroom and who sits in the      ple, at additional disclosures having to be    bling director resources certainly would
seats; the SEC is proposing a host of new      provided on how compensation policies          help alleviate the burden.
rules requiring a broad range of expand-       drive risk, director and nominee qualifi-         But this model, too, is flawed. For one
ed disclosures; the pace of new lawsuits       cations, the board’s leadership structure,     thing, because boards use much the same
continues unabated. All this occurs with       and potential conflicts of interest. And       information to carry out both their moni-
memories still fresh of the financial sys-     there’s little doubt that proposed rules en-
tem’s near collapse, against a backdrop of     abling shareholders to put forth director
an economy still struggling emerge from        nominees will soon become regulatory
the “Great Recession.”                         requirements. (See my September 2009
   As if that’s not enough, directors con-     column, “The Shareholder Rights Express           Shareholders do not sit in the
tinue to struggle with their roles as moni-    Rolls On.”)                                         boardroom, and regardless
                   tors ensuring manage-           Under this model, shareholder rights
                   ment properly deals         would continue to expand. Carried to
                                                                                                    of the amount of paper or
                   with legal and regula-      the extreme, we can imagine sharehold-              electronic communications,
                   tory compliance issues      ers being positioned to make absolute                    shareholders cannot be
                   and otherwise does the      and final determinations on such matters
                   right thing, while focus-   as strategic initiatives, management com-          positioned to make informed
                   ing on company strategy     pensation, who takes on or keeps the job          judgments on what’s best for
                   and performance in a        of CEO, and of course, who serves on the
                   fast changing and highly    board of directors.                                 the company or its owners.
                   competitive      environ-       While it might seem appealing concep-
                   ment. The need to spend     tually for a company’s owners to make
                   increasing amounts of       whatever decisions they want about how
time on board business is exacerbated          the company is governed and how it’s           toring and value-add responsibilities,
by expanding committee service, where          run, reality is their decisions will have      having two boards would require more
governance/nominating, compensation,           little if any foundation. Quite simply,        of management’s time and energy to deal
and audit committees are subject to more       shareholders do not sit in the boardroom,      with the two different bodies. Could you
and more rules and taking on a life of         and regardless of the amount of paper or       try to avoid that problem by having both
their own. And when a regulatory action,       electronic commun
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