July/August 2009 / Governance
Raise the Bar on Board Membership
Given recent turbulence in the world economy, plus some telling failures in corporate governance and heightened shareholder involvement in decision-making, experience should be a key factor when choosing corporate directors, the authors says. Bringing in experienced directors is a smart move in any economic environment, but particularly critical now, and the SEC and shareowner watchdog groups are demanding it.
Sen. Charles Schumer introduced a bill to give shareholders a say in board activities. It instructs the SEC to issue rules granting shareholders access to the corporate proxy for board nominations. It also would require that the CEO and board chair positions be separated at publicly traded companies, and that corporate boards establish risk committees. Some proposed regulations would mandate more lengthy biographies of current and proposed directors. specifically addressing their qualifications.
To build a more effective board, the author proposes a review of the qualifications of acting directors. They should have a solid background in finance and compliance. He suggests splitting the chairman and CEO jobs as soon as possible. Shareholder interests are best served if the CEO is required to report to a board chaired by an independent director. Shareholders and the government will eventually require it, so he advises getting ahead of the curve.
