Should Continuing Education be Mandatory for Board Members?
The financial mess that we are in is bringing to the light that many boards were unable to properly perform the oversight role they are charged to do with public companies. What happened?
In good times, oversight is easy as the proverbial tide lifts all boats. It is not until the tide goes out the Warren Buffet famously stated that we see who has been swimming naked! In this scenario, corporate boards should be playing the role of lifeguard. They are charged with setting policy, tracking compliance, monitoring risk, and evaluating performance (particularly of the CEO). However, it seems that some of these would be lifeguards have been more interested in tanning by the pool and collecting big checks than doing their jobs.
Were the Merrill Lynch, AIG, WaMu, Lehman and Citigroup boards capable of understanding the myriad of businesses, products and resulting risks these companies were engaging in? Were the boards properly qualified to direct these complicated entities. Will their D+O (Directors and Officers) Insurance protect them?
The Citigroup and WaMu boards had federal bank examiners that were also charged with review and examination to ensure compliance with existing law. How were the problems missed by both bank examiners and board members?
Is it time to require directors of publicly held companies to attend mandatory continuing education sessions like other professionals (doctors, CPA's and attorneys)? Does it make sense to test directors knowledge to ensure that they have enough content knowledge to serve in the role that they were appointed (or technically elected for)?
Note: William A. Donius was elected CEO of Pulaski Bank in 1997. He took the bank public in 1998 with Pulaski Financial Corp. NASDAQ listed PULB as the holding company. Under his leadership the bank grew from $168 million to $1.3 billion. Pulaski Bank is the largest purchase market, mortgage originator in St. Louis and one of the top three in Kansas City. Pulaski Bank was voted the Best Place to Work in St. Louis in 2007, received a Torch Award from the Better Business Bureau in 2008 and is ranked as one of the best performing smaller banks/thrifts by industry publication SNL. Donius retired from the CEO position in April of 2008 and remains Chairman of the bank. This essay represents his personal view and may represent the view of the bank.
Donius was appointed to a two-year term on the U.S. Federal Reserve Board TIAC Council in 2008. Donius served a four-year term on the Board of Directors of America's Community Bankers ending in 2007. In addition, he served as Chairman of for profit subsidiary, America's Community Bankers-Partners for two years.
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Do you think the BOD of Sun Trust could use some of that education?
http://www.usatoday.com/money/companies/management/2009-02-24-suntrust-ceo-pay-raise_N.htm
And like other professionals, they should be licensed and required to take an oath of job performance and ethics, and when they fail, either through incompetence or neglect, they lose their license and get to brush off their bartending skills for their new job at TGI Friday's, instead of jumping to another fat check at some other Wall Street firm.
Sadly, I agree with commenters allthings, JudyfromNewYork, schatsie, rad21, sparafucilli, and vippy. No technical solution will make a difference. Yes you can point to the British banks' CEOs' confessions that they didn't know what "their bright young boys" were making. But we can point to the fact that the newly appointed head of Freddie Mac, Moffett, was formerly a director of AIG, worked for Carlyle (two defunct funds in this crisis), and was a VP at Security Pacific (Calif bank that went broke).
Nothing changes, because the same people just swap around the chairs. Same golf and board buddies. Same culture. And haven't we heard that all before? While leadership can change the culture of a company, it never seems to hold. Did you read the BoA heiress' complaints? Same thing. Why is this?
We're all just going to face the fact: the corporation is a broken model. It's unresponsive to its owners (shareholders), sociopathic (anything for self preservation and profit), and its internal reward structure disadvantages the ethicists, compliance departments, and whistleblowers (hence the unrestrained greed, sociopathy, and top level collusion...).
We need to change the paradigm.
"If you don't measure, then you can't manage" has been a truism that well run businesses have honored for decades. The corollary, 'If you can't measure, then don't proceed" has been ignored with tragic results. No continuing education will be of any value if basic principles are ignored.
They changed with the new fancy accounting and they knew very well what they were doing. One does not create Zombie Banks to circumvent the law, and that is what they did. Whistleblowers were told to shut up or paid off. This was planned. No need for continued education but time for prison!
Let me tell you contiuing legal education for lawyers is a total farce. Why? Because it does not include testing or any way to measure knowledge retention.
Each state determines how many class hours per year are required in order to maintain licensure by said state. In Pennsylvania, 12 hours per year are required. Great care is taken to have attorneys sign in and sign out of sessions. However, no identification is required (everyone knows how honorable and ethical all lawyers are). One IS asked to turn off one's cell phone, but otherwise you can ignore the live or video taped speakers. Lawers read newspapers, text message clients and the office, bring files with them - multi-task,if you will, to get their CLE credits completed and bill hours at the same time. Some lawyers do pay attention, but that is strictly voluntary.Furthermore, there is no requirement as to the relevance of course content to their practise. They can take Great Courtroom Scenes in Hollywood Films, Cross Examination at the Movies, "Adobe Acrobat 9 for Attorneys" or . . . wait for it . . . ."Harry Potter and the Lawyer's Curse".
Then there's the on-line option. Basically, the attorney logs in and, after muting the volume, can carry on his/her other (billable) work as long as they respond to the occasional screen prompt required to show that someone is monitoring the program. This option is available 24/7. You can watch Sunday afternoon football and have the CLE course on your
Board members are monkeys. They 'See no evil, Do no evil and Speak no evil'. Only then are they elected to serve and continue to serve on the board. In return they get the Board members' compensation for showing up at meetings, all the gratuitous perks, the opportunity to rub elbows with other high flying board members.
We could change all that by making the borad liable for the default of the company executives. Yes, many of them are covered by insurance specially designed for corporate boards. Yet, they never know when they individually could be stung by some smart plaintiff's lawyer or a class action law suit.
Also a vigilant press could publicize names of board members of failing companies. Perhaps society and their individual families could shame these board members for failing in their corporate responsibilities.
I am in favor of not allowing corporate indemnification of their liability...I think for the board of directors and the top 1% of the employees, that they should be personally liable, instead of HIDING BEHIND the corporate shield....If they are as good as they think they are, then there is no reason for the corporate shield...they should all be held personally liable....
The Insurance Companys like AIG went bankrupt to aviod paying claims !!!!!!
While it would be a great thing if boards were more competent, even 50 hours a year of continuing education would probably not be enough to train the member or cover the skills required.
The real problem with corporate boards is that they are selected by magagement because management thinks they will support management. Any board mdmber who tries to do his or her job and raise troublesome issues is likely to be kicked out or at least marginalized.
And management's interests in big payouts, in growing the company bigger to justify big payouts, in big bonuses, in big stock options, in big perks and private jets are not the same as the shareholders interests. Shareholders want a profitable secure company that pays reliable dividends and avoids excessive risks. Management figures that if they take a big risk they get the rewards, but there is little downside to failing.
We need to greatly strengthen shareholder control. At a minimum shareholders should be able to nominate board members whose names and qualifications would be included on the proxies at the corporation's expense. That way there would be a fair and free election. It simply is not feasable for even the most sophisticated shareholder to conduct a proxy fight.
Right now board elections are a joke. Its kind of like the elections in Communist countries where everyone has the right to vote if they want but there is only one candidate or slate to select from.
Continuing education?!! Hell, I don't think these board members should be forced to retake basic math!!!!
its a perfect technocratic solution but it would be for naught.
Right now, I know of a collection of corporate officers who take compliance exams every year on critical responsibilities and regulations and it has had virtually no effect on how they actually transact business. The only thing that I know of that can actually force a change among business people is a very business savvy compliance department who does not cry wolf, but effectively portrays what the real world consequences of non-compliance is.
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