Dodd-Frank Reflects ‘New Normal’–“Boards Are the Problem”

Dodd-Frank Reflects 'New Normal'--"Boards Are the Problem"“We’re seeing a sea-change in the environment of shareholder empowerment,” said Holly Gregory, Weil Gotshal partner and governance expert. “The Dodd-Frank bill accelerates a fundamental change, a new normal in the balance of governance power. “ She went on to note that the eighth anniversary of Sarbanes Oxley, enacted during the aftermath of WorldCom and Enron debacles,  boards were seen as the solution to the failures in corporate accountability. “In sharp contrast the new legislation reflects the view that boards are the problem and shareholders must be empowered to hold boards accountable.”

Gregory made these remarks on a National Association of Corporate Directors and Weil Gotshal webinar attended by hundreds of directors on Friday as boards try to gain a better understanding of the requirements that the new legislation that President Barack Obama signed into law on July 21, 2010.

“I want to emphasize that the theme within the legislation is that boards are the problem,” said Gregory.

Boards are well advised to recognize that the implementation of the legislation will fundamentally change their interactions with shareholders.  For directors who have eschewed any contact with shareholders, they must engage with shareholders in meaningful ways to elicit their support.  The sooner and more intelligently that they begin this dialogue, the better for them.

CEOs, Directors and Lake Wobegon

While the news is full of reports about shareholder concerns over the quality of corporate boards, it turns out that CEOs have questions too.

It’s the Lake Wobegon syndrome where 95 percent of directors think they’re doing a good job. CEOs see it differently.  According to work by Heidrick & Struggles, CEOs “almost universally confide” that they have one or two directors who provide wide counsel, offer advice on key issues and contribute both formally and informally to the enterprise.  That means that 80 percent of the directors are seen as not being very effective by the CEO.

The fictional town of Lake Wobegon, where “all the women are strong, all the men are good looking, and all the children are above average,” has been used to describe a real and pervasive human tendency to overestimate one’s achievements and capabilities.

CEOs need to see their boards as providing a competitive advantage to them and their enterprise. If board members are less effective, the board needs to replace them.  Without outside help, CEOs and other directors find it hard to ask less effective directors to leave.

CEOs need to ask, are they giving their boards the right tools to be effective.  Is management teeing up information for decision, providing the context and the why for the company considering it. Or, do boards get a firehose of information or worse yet, only the information that management want them to see? Are boards spending their time on the right issues?  Do boards have access to tools and advisors to make them more effective?

Boards are working harder than ever.  CEOs need to see to it that the board has the resources it needs to create strong work groups.

While the news is full of reports about shareholder concerns over the value their elected representative, the board of directors, bring to the enterprise, it turns out that CEOs have questions too.

It’s the Lake Wobegon syndrome where 95 percent of directors think they’re doing a good job. CEOs see it differently.  According to Heidrick & Struggles, CEOs “almost universally confide” that they have one or two directors who provide wide counsel, offer advice on key issues and contribute both formally and informally