(image from Hera Grupo Italy a good website)
Recent developments in the world economy and the financial markets are placing a sharper focus on Corporate Governance in 2009. I see headlines such as “Corporate Governance Hot Topic in 2009”, “Poor corporate governance makes business headlines” and “Time to kill Sarbanes-Oxley”. Then there is Directorship magazine that says in “A New Era–From the NACD”
Never before has the need for vigilance and attention to corporate governance been so imperative.
Well I thought it might be useful to look a some surveys and forecasts about what are the top issues for Corporate Governance. First, The 2008 What Directors Think study (PDF), cosponsored by PricewaterhouseCoopers LLP and Corporate Board Member, and available on the CFODirect network, indicates that Boards are focusing on
- Risk management
- Strategic planning
- Succession planning
- Recruiting of new members to enhance board strength and skills.
Next, Directorship magazine in the “Pre-empting Future Shock: How Boards Can Address the Economic Crisis Now” article, December 18, 2008, indicates five critical areas–
- Strategy Boards should …consider whether their companies’ foundational assumptions regarding the nature of their markets, customers, and business economics are changing and, if so, the implications for strategy.
- Operations/Organization Boards can make sure that scenarios have been tested under several different assumptions of sharp volume and pricing changes of, for example, 10, 15, and 20 percent drops in volume and a pricing decrease of 5 percent.
- Balance sheet/liquidity The consideration of various operational scenarios should also look at whether the liquidity of the company is sufficient under each set of assumptions.
- Compensation Because the current environment presents compensation committees with unique problems and will continue to do so for some time, they will have to consider whether and how to modify the compensation system.
- Enterprise Risk Management (ERM) Now is certainly the time for boards and management teams to think about how to integrate ERM into the short- and long-term planning processes.
- Apply judgment in tailoring governance structures and processes to the current needs of the company.
- Take a fresh look at board composition and director competency.
- Consider implementing some form of independent board leadership..
- Ensure that risk oversight is on the board’s agenda, as a matter of substance and process.
- Understand the impact of risk on strategic aspects of operations.
- Reemphasize (and review) disclosure controls and procedures to ensure timely and accurate disclosures, as well as effective internal controls, compliance and ethics systems generally.
- Scrutinize compensation incentives through a risk-focused lens.
- Build risk management into CEO and senior executive evaluations.
- Exercise caution in adjusting previous equity compensation grants (for example, repricings or exchanges) or in otherwise adjusting compensation with respect to missed performance goals.
- Ensure the vitality of the tone at the top and its alignment with risk profile, strategic direction, compensation incentives and financial reporting and controls.
Now let’s see what Corporate Governance experts are saying.
Writing in Compliance Week on January 21st, Rick Steinberg, founder and principal of Steinberg Governance Advisors and the author of Corporate Governance and the Board — What Works Best and Audit Committee Effectiveness — What Works Best indicates–
Risk management and corporate culture — are two of the areas that Steinberg believes need to be focused on by boards to help reverse the frightening trend that as manifested itself recently. Additionally, strategy and implementation need to be monitored by boards, as well as an analysis of whether performance measures are in alignment with strategy and compensation.
Common themes seem to be Risk Management, Compensation, Succession Planning and Strategy. Boards are beginning to learn that they must not abnegate this vital function to management. Strategic Planning touches all corporate areas and requires the active involvement of the Board.
Strategy will be covered in more depth in future posts.
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