Corporate Governance: New Rules of the Road
The Sarbanes-Oxley Act (SOX) proposes new rules and guidelines to improve corporate governance practices in the USA. Some observers say that the added cost of SOX in time, money and effort is burdensome, while others grumble that all corporations are being made to pay for the sins of a few unethical individuals and corporations. SOX regulations seek to boost investor confidence in financial reporting by defining the required level of independence, financial literacy and responsibilities of the various inside and outside parties who participate in the review and certification of such reports. In Canada, similar regulations will rely heavily on the "comply or explain" approach. Now, every North American corporation will have to determine the most effective and appropriate governance practice based on its resources and particular circumstances. Making it work; a "Chief Governance Officer" The new guidelines include the following. As well the suggestion that someone ought to be put in charge of ensuring compliance, perhaps a Chief Governance Officer, is valid. *Boards should have a majority of independent directors, and these directors should meet regularly, both with and without top management present. *The board must be satisfied as to the integrity of the CEO. *All directors should be provided the opportunity to upgrade their skills. *A written code of ethics and conduct should be adopted, and compliance monitored. *The CEO Compensation Committee should be composed of independent directors. *Position descriptions for the chairperson, directors and committee chairs should be developed. In the early days, becoming a credit union director used to be more about whom you knew than what you could contribute. Candidates were traditionally selected from the proverbial "old boys" network and selecting directors wasn't necessarily about finding the best people. In fact, there was a notion that you couldn't teach people how to be good directors (still evident in some credit unions today) - they either got it, or they didn't. But today, with governance top of mind for the public, the media, watchdog organizations, shareholders and regulators, directors are subject to far more demanding standards. Showing up is a good start, but not the end of director obligation. Today, a much higher level of performance and prudent conduct by board members is absolutely essential to the longer term health and financial viability of the credit union. Not everyone fits this mold. Building a better board A case can be made that board composition drives the quality of decisions. The diverse board, made up of individuals who understand finance and economics as well as demographics and psychographics, will better reflect the needs of all the stakeholders in the organization. People with different life experiences and intelligence can and will provide diverse perspectives on the key corporate questions that ultimately define the corporate ethos.