New Rules Require Better Board Communication

“By adopting these rules, we will improve the disclosure around risk, compensation, and corporate governance, thereby increasing accountability and directly benefiting investors,” Chairman Mary Schapiro said in her opening statement at yesterday’s Securities and Exchange meeting.

The rules will be in effect by the 2010 proxy season and could be published as early as next week.

Do boards understand that they are being challenged to communicate more openly with their shareholders?  Better communication gets to the heart of many of the governance issues that the SEC and the pending legislation hope to address.

So what’s a board to do?

Boards should think in concrete terms about what they have communicated with their shareholders in the past and how they can improve the clarity of communication.They should avoid legalese and adopt plain English in their discussion about risk, compensation and governance.

Greater disclosure is about clarity.  Boards are in a communication battle they can win if they recognize the element of respect in their communication with the company’s owners.