Board Members Who Should Be Fired

Norman Marks, CRMA, CPA, was a chief audit executive and chief risk officer at major global corporations for more than 20 years. The views expressed in this blog are his personal views and may not represent those of The IIA.

 

Over the years, I have worked with and for a great many board members. Most of the directors were diligent, committed to their responsibilities, and a pleasure to work with. Others fell short.

In this post, I share a few examples of poor performance that I have observed. While exhibiting just one of these traits may not be cause to remove a director from the board, more than one should be.

These are not in any particular order of significance:

  • Failing to read the board material until the meeting, or skimming through it shortly before.
  • Failing to speak out (especially if they show disagreement later).
  • Allowing the chairman or management to limit the discussion of topics important to the board. Another dimension to this problem is silently accepting the board agenda.
  • Lacking complete faith in an executive or the board chair but remaining silent.
  • Allowing emotion to dominate reason.
  • Delegating review of the regulatory filings (e.g., with the SEC) to the single "financial expert."
  • Showing deference instead of oversight to the external auditor. This includes not challenging the quality of their team, their risk assessment, or their negative comments (or lack thereof) about management.
  • Not taking the time to get to know the other members of the board.
  • Not taking the time to get to know key members of management.
  • Not taking the time to understand the business, its external environment (regulatory, competitive, etc.), its organization, primary processes, and so on.
  • Failing not only to understand the primary ways the organization provides value to stakeholders, but also not acting to address the deficiency.
  • Similarly, accepting a lack of knowledge and understanding of the organization's strategies — and the risks to those strategies.
  • Being reactive instead of proactive. For example, waiting for management to contact them about potential issues or opportunities instead of initiating discussions when these potential issues come to their attention (e.g., in the news).
  • Accepting or continuing a board position with full knowledge that they don’t have sufficient time to be fully engaged.

Have you seen these? What else comes to mind?

I welcome your comments.

Posted on Nov 4, 2013 by Norman Marks

Share This Article:    

  1. Question for other auditors, related to dealing with Boards. 

    Let me preface it with a quote from the Fraud Examiners Manual (page 4.733): "A common fallacy in discussions about ethics is If it?s legal, it?s ethical. A common defense to charges of unethical behavior is to invoke the law. This legalistic approach to ethics mistakenly implies that actions that are not explicitly prohibited by the law are ethical. The main error in this approach is that legal standards do not establish ethical principles. Although abiding by the law is a part of ethical behavior, laws themselves do not describe how an ethical person should behave. One can be dishonest, unprincipled, untrustworthy, unfair, and uncaring without breaking the law. Ethical people measure their conduct by basic principles rather than rules."

    So, here is the question:  A CEO does something that is completely dishonest, cruel, unethical, and, frankly, down right dirty.  However, it was done in a manner that was perfectly legal, and not in violation of any policies or rules.  Should auditors report this to the Board, even though a finding cannot be written due to the lack of a criteria? 

    (Disclaimer: I'm not asking for my organization, but I'm aware of a circumstance and thought it is a good question when auditors deal with Boards.)

  1. My questions to you would be: (1) If you were on the Board, would you want to know about it? (2) If the issue wasbrought to the public's attention, would the fallout be damaging to the organization?  If so, then I would say that the matter should be brought to the Board's attention. The fact that the act did not violate the law or any written policy does not nullify the fact that the the act was unethical and therefore, damaging to the organization.  As you quoted from the Fraud Examiners Manual, "Although abiding by the law is a part of ethical behavior, laws themselves do not describe how an ethical person should behave."  If you were on the Board, wouldn't you want to know whether or not your company's CEO is behaving unethically?

  1. My friend's situation is tricky. What the CEO did was this. Had an 15 year employee go on maternity leave. Hired an intern to help with her workload. Hit it off with the intern, and was impressed with his technical skills. They do lunch about 3 times a week. When the woman returned from maternity leave, he laid her off. Then created a new position for the intern under a different title. Positions have been made to look unrelated on paper, but the new employee is doing the same work from the same office as the person he supposedly didn't replace. The Board is completely unaware. They will probably be shocked and appalled when and if told, but unlikely to do anything about it since doing so would open them up to liability. What is obvious intent is more difficult to prove when the official paperwork was designed for legal protection. Best outcome would be to put the CEO on the hot seat and make him think twice about such nonsense again. The auditor would likely be putting his job in jeopardy by going to the Board.

Leave a Reply