Corporate Boards Need to Do More to Reform
CEO succession, executive compensation, strategic planning, the nomination of directors and risk oversight are some of the areas that corporate boards are still grappling with more than a year after they were scared straight by the downfall of companies such as Enron and WorldCom.
While the expected slew of disgruntled investor lawsuits have not resulted from tighter regulations, the courts are getting into the act by putting corporate boards on notice that they are being watched, said Ira Millstein, a corporate governance expert, speaking at the Reuters Corporate Reform Summit in New York last week.
"There are higher public expectations for what directors are supposed to do, and courts are saying that they are going to follow up with a hard look at good faith," he said.
Millstein cited the 2003-2004 Public Company Governance Survey by the National Association of Corporate Directors, which found that many boards are not satisfied that their efforts in areas such as CEO succession have gone far enough.
However, he said that the Sarbanes-Oxley Act of 2002 has ensured that changes such as the addition of independent directors is happening much more quickly than it would have otherwise.
Despite real changes though, 62 percent of corporate board ranked themselves below acceptable levels in the area of CEO succession. Sixty-six percent said they are not doing enough when it comes to executive compensation and 73 percent said they were below acceptable levels on mergers and acquisitions.
"You have the situation where they're not doing what they're supposed to be doing, but they know what they're supposed to be doing, so hopefully it will improve," Millstein said.