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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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