Corporate Governance Guidelines: Reviewing One Company's Document

General Dynamics has shared their Corporate Governance Guidelines and they make interesting reading.

I am not going to comment on whether I think this is a great document or not, except to say that it has some provisions I really like and others I question. Rather, let me point out a few areas that I think merit some thought and, perhaps, comment from you:
  • The general statement of board responsibilities does not include any discussion of risk oversight or even whether performance is optimized; perhaps these are both thought to be ‘understood.’
  • That section discusses the selection but not the termination of the CEO.
  • Directors are not expected to speak for the company without the approval of senior management.
  • Under Qualifications, there is no mention of how the director will add value. Perhaps this will be beefed up as a result of the Frank-Dodds legislation.
  • Directors may serve on as many as four other boards. Audit committee members may serve on to other audit committees.
  • Directors over the age of 72 are subject to re-election restrictions.
  • The CEO may act also be the chair of the board.
  • Although the board and its committees perform self-assessments, there is no requirement for the assessment of individual directors.
  • There is no separate risk committee (nor IT, for the IT enthusiasts).
  • Whistleblower activity is not directly shared with the audit committee — it goes to the ethics officer.
  • There is no statement supporting board diversity.
Comments are welcome.

Posted on Feb 7, 2011 by Norman Marks

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  1. Norman,

    These are interesting questions you have raised here. My one point here is how will a regular risk management employee know what is occuring behind the close doors of a global board meeting. One can read the corproate governance policies available of the site, but what occurs in reality and what is one paper maybe in some be vastly divergent and different.

    Kind regards,

    Sonia

     

     

  1. Interesting thoughts Norman...

    Just because it is Monday, I will play the antagonist. However, I do think your post should spawn an interesting conversation.

    How do we know that risk oversight as we understand it, is not prevalent within General Dynamics as you suggest? It likely is, yet it goes under the name of effective management principles or KPI acheivement... A few years ago a water purification salesman came to the door of our California home. He introduced us to the terrors of what could be in the water we drink every day. We thought it tasted OK, but he left us with specific questions to ask our water company. Did they use a filtration system of a certain variety? Could they guarentee that a list of dangerous chemicals were not in the water? Of course both answers were they could not. We purchased a Britta filtration pitcher as a short term solution and scheduled an appointment with the water system salesman. When he came to test the water, sure that it would be deadly of some variety, he thought we were tricking him because it was as pure as his filter could make it. He even inspected the water heater and under the cabinets to find our hidden filtration system. Frustrated he left, saying something funny was going on. We later found out that the company who actually delivered water to our neighborhood had additional filtration measures and routine testing as part of their agreement with the parent water company.

    To me the moral of the story lies in the fact that the needed solution was outcome based. Do the risk oversight frameworks, processes and tools we supply today really improve the outcome. I think in many instances they do not, because we have not spent enough time to understand how the company is currently acheiving their objectives. 

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