Consider that medical professionals, lawyers, and others with strong fiduciary obligations obtain continuing education credits in their fields. Why not so those among us who oversee and control 90% of the asset wealth of our country?
It’s about corporate responsibility and accountability of Boards of Directors.
I have a theory. If you’re a Board member of Lehman Bros. on a Friday afternoon, and are surprised the firm has ceased to exist by Monday morning, then you have missed something as a Board member. If you’re a Board member of BP, and are surprised to learn the company lacks plans to deal with a massive underwater oil leak, then there is something more you should have done or required as a Board member.
This isn’t about wrongdoing. It’s about whether Board members are poorly prepared and knowledgeable about how to do their jobs.
It leads me to believe there should be standards for continuing education for Board members, to assure they stay up to speed in areas of their principal responsibility: risk management and oversight, governance best practices, strategic planning, and succession planning.
Congress is well along in identifying causes of the recent economic melt-down, and questioning the whereabouts of Boards as their companies burned around them. Moves in Washington to promote greater transparency in Board decision-making should be applauded. These include new Securities Exchange Commission rules for accurate disclosure of the Board’s role in the risk management process, compensation policies and their impact on risk-taking, director and director-nominee qualifications, company leadership structure, and potential conflicts of interest of compensation consultants.
Yet, how can we legislate or regulate integrity in corporate boardrooms and in Board decision-making?
It has been said that “Corporations determine far more than any other institution the air we breathe, the quality of the water we drink, even where we live. Yet they are not accountable to anyone.” Monks and Minow, Power and Accountability 1991. At the same time, the authors of this treatise go on with unforgettable words: “[B]oards of directors are like subatomic particles – they behave differently when they are observed.”
In the past, Americans have tried to balance the power of big business with regulations enforced by government, including those requiring better transparency. Today, many recognize that government regulation, while often necessary as well as effective, is inherently inefficient when unaccompanied by a culture of self-policing. The keys to creating wealth and maintaining a free society lie primarily in the same direction. Both require that broad based systems of accountability be built into the governance structures of corporations themselves, not solely or primarily in government regulation.
It requires simply this: self-enlightenment.
I would argue the most effective means to achieve this end is to establish systems not unlike those established for other key professionals in our society, and that is a system of continuing education.
Let’s put it this way. A Board of directors oversees a company, giving direction, leadership and advice, and ensures the company makes sound decisions. It’s a daunting task. They must be aware of activities of their organization, ensure its mission is carried out, and steward its resources. They must assure sustainability and long-term success. They must avoid actual and perceived conflicts of interest, and excessive risk-taking. They must ensure the organization meets legal requirements. And, they must do this on a part-time, sometimes essentially volunteer basis, failing which they could face personal liability, and hefty fines and jail time.
While many Boards do this well, it is obvious many could do better. Boards should always be seeking ways to improve performance and corporate oversight, and in all too many cases this falls quite short of the ideal.
Public and investor confidence in corporate America is not high, and Board directors have a key role in helping to restore this confidence. Boards today are seen as part of the problem, and our challenge is to show that Boards are part of the solution. If Board members don’t lead, someone else will. Even Congress.
The key to developing a great organization is cultivating an excellent Board. Board members can become disengaged from Board participation not from lack of caring, but because they lack clarity about their role, accurate and effective information about corporate strategy and risk, and the tools and resources to carry out that role. Yet, it is the responsibility of our Boards to ensure their companies operate efficiently and with integrity.
Effective Board education is an integral part of ensuring that companies, and their management, receive the oversight they need and deserve. Boards of directors must be willing to invest time and money into being high performing Boards, ultimately ensuring high performing organizations that effectively carry out their missions in the public interest. They need to know how and what to do as members of a Board of directors.
