Effective and transparent corporate governance has become popular in many countries due to recent scandals in many parts of the world. In the US, WorldCom, Tyco and Enron come to mind. In fact, due to such scandals, the Sarbanes-Oxley Act (SOX) was introduced in the United States in 2002. SOX requires, among other things, that proper internal financial controls be established in publicly traded companies as well as whistleblower provisions and compliance policies. In fact the U.S. laws and regulations regarding compliance require that the board of directors are not only trained in compliance but also has compliance oversight. Similar measures have been passed in other jurisdictions as well.
The result of such laws and regulations in many jurisdictions was to force upon the board of directors the obligation of ensuring the proper financial controls are in place and that such controls would be properly followed and maintained. As such, corporate governance processes that focus on compliance, crisis management, risk management, investor relations and performance measurement should be considered by the board of directors as part of the board’s fiduciary and legal responsibilities.
Good corporate governance not only plays an important part in the success or failure of a corporation, but it is so important that such governance processes reflect the standards, policies, ethics and controls that must be elevated to the board of directors for such processes to be effective. As the board of directors of a company owes a fiduciary duty and obligation to the corporation, such duty requires a board of directors (BOD) that is fully informed and knowledgeable on major issues of compliance, crisis management, risk management, and ethics. Whether it is ERISA issues, compliance issues, currency risk, antitrust, M&A issues, or crisis communications issues etc., the BOD must be fully informed to make the appropriate decisions involving the management of the company. Due to its very nature, the BOD cannot escape its fiduciary obligations with regard to understanding and approving corporate governance processes.
Good corporate governance requires the board to be fully informed as to the major risk issues facing the company. Failure to properly elevate risk issues to the board level is not only a failure of proper corporate governance but of compliance and risk management processes as well. Authority to implement many processes must come from the BOD of a company, or its counterpart in other organizational forms. Therefore, failure to properly inform the BOD on risk related issues can spell disaster.
In this regard, those of you in Seoul, Korea should be interested in the KBLA’s new Corporate Governance Forum. The Corporate Governance Forum will present for analysis the key issues impacting corporate governance occuring in Korea today. The first meeting will take place on January 25 a the Grand Hyatt Hotel. For more information please contact Jennifer Kim at : [email protected]