A Radical Thought About Governance

This morning, I was reading the local (London) paper and saw an ad for a training class in governance for non-executive directors (affectionally called "NEDs" here). It set me thinking. Maybe dreaming is a better word.

What if:

  • Directors were required to take training classes in corporate governance?
  • The training had to be certified by a recognized authority as including guidance on all topics relevant to effective board and director performance (which would include topics dear to my heart such as the role of internal audit, oversight of strategy and risk management, executive compensation, responsibilities to the shareholders, etc.)?
  • Each year, the board was required to disclose that each of the directors had received the necessary and appropriate training to perform their duties, including training in corporate governance?
  • Boards had a code of governance that each director was required to sign annually?
  • Each year the board was required to disclose not only that assessments of performance had been performed at board, committee, and director levels, but what the results were?

Would this be beneficial, superficial, or a waste of time?

Posted on Feb 17, 2011 by Norman Marks

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  1. I think it would be beneficial. However, I am not sure that it we would avoid corporate scandals etc. due to this. But I think there is a need to enforce requirements (other than general legislative responsibility requirements) and provide guidance to the directors. I could even add a bullet to your list: each year the board should be required to disclose the meeting attendance of each of the members both at board and committee level as I think this would be to the interest of the shareholders to elect board members who are fulfilling their responsibilities.

  1. Overall just a check the box superficial.  I am more inclined to view evidence of actions, such as reviewing Directors, BOD and Audit committee members experience with governance at other companies as a key entity level control rather than some annual certification.

    Of course as one of the recipeints of that rule, if it was required to be taken in some resort destination as a company paid boondogle...I would be all in favor (only kidding)

  1. When I worked in the English Health Service our corporate governance framework (set centrally by the Department of Health) had many of these requirements. The framework had to be localised to each organisation, revised annually and signed off by all Board members along with their code of conduct. It was accompanied by an annually set out training program for the Board which included sessions on risk, audit and governance topics such as fraud.

    Compliance was through the Internal Statement of Control (part of the audit framework) and various inspections. Sometimes it felt like a bit of beurocratic exercise, but having moved to a very different model, I'd say it had a lot to commend it as an approach. 

  1. Its one way good to external stakeholders... in a sense, it gives an assurance that board is atleast aware of their governance related role & responsibilities but at the same time, from a board prospective, it might be one more requirement to be complied with (hence, chances of taking entire program lite)...

    No matter whatever introduced, as long as the board has no intention for good governance things do not change and we keep hearing abour corporate scandles...

     

     

  1. I think it would be a major step in the right direction.  And why not? Most professions of note have requirements and standards that evidence their professionalism and adherence to a generally agreed upon set of standards/requirements/qualifications/continuing education - external auditors, internal auditors, lawyers, health care professionals, IT professionals, even industries such a animal care and international home-stay exchange programs.  So, it would seem that stakeholders would welcome some level of effort and evidence that the Board members tasked with overseeing the organization and making key strategic decisions have a more than basic understanding of the rights, responsibilities, and emerging issues of their profesion. 

  1. I support such initiatives. Mere fact there is some system of training will increase accountability and rules out the chance of alibi of ignorance. I agree with Seshagiri Rao that No matter whatever introduced, as long as the board has no intention for good governance things do not change and we keep hearing about corporate scandals.

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