The Dilemma of Progress

August 11, 2009 at 4:45 pm

The SEC recently initiated several rule amendment proposals surrounding, amongst other issues, corporate governance disclosures in proxy and information statements. These proposals are currently open for public comment and if they are approved will become effective for the 2010 proxy season.

One SEC proposal suggests the expansion of disclosure requirements surrounding the qualifications, experience and skills of board directors and nominees. The idea here is to provide the public with increased information on suitability of directors and director nominees. Currently, the method by which directors are nominated to public company boards is very private. So this call for increased transparency is a valuable one.  

Looking at this from a bigger picture perspective, improved corporate governance has to start with the meticulous and exacting selection of board directors. The process should be as objective as possible and based on clearly enumerated criteria and qualifications.

Just as public companies today generally have their governance principles and guidelines accessible on their web sites so should company boards make clear the credentials of their directors. An obtainable board matrix or grid with directors along one axis and various qualifications along the other can help shareholders and others better understand the composition of a particular board.

Further, when there is outside involvement in the board selection and evaluation process by, for example, an executive recruiter, the methodology and criteria by which the recruiter made their recommendations should be available as well. This will go a long way towards opening up the board selection process to a wider variety of qualified candidates and thereby moving corporate governance forward.

We are in the midst of great change in corporate governance practices and in the words of the great inventor Charles Kettering:

“The world hates change, yet it is the only thing that has brought progress.”

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