Board Lucidity

October 21, 2009 at 2:51 pm

waterCorporate boards have always been somewhat of a paradox. On the one hand they are highly visible and evident. Corporate directors are listed on a company’s web site, in its proxy, annual report and any number of other easily accessible materials. Along with names there are often photos and even short biographies listing jobs other board affiliations as well as civic and non-profit connections.

On the other hand, what do we really know about these exclusive and stealth assemblages? As shareholders cry for evermore knowledge and control there is the natural resistance that comes from the prospect of massive change. But the time has surely come for increased lucidity around boards of directors.

As a result the SEC has proposed an amendment to their rule 401 which will require expanded disclosure regarding director qualifications. The SEC is hoping to compel companies to be clear about why a particular director is qualified and appropriate for a certain board. To be fair, in many cases companies have precisely analyzed their requirements and strategically selected board directors. However there are certainly situations in which directors are chosen for who they know rather than what they know. This chapter of corporate governance is hopefully coming to an end.

There will undoubtedly be numerous costs associated with these changes both financial and otherwise. However the anticipated results, namely deliberately structured boards comprised of a variety of skills and qualifications should more than offset the expenditures.

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Entry filed under: Business, Corporate Governance.

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