By: Michael Volkov
This article was republished with permission from Michael Volkov’s blog, Corruption, Crime & Compliance.
If there is one area where I would like to see improvement in the corporate governance world, it has to be at the corporate board level. While companies are expanding internal compliance programs, companies fail to take a hard look at their own corporate board performance beyond rote and well-established self-assessment models.
Corporate boards have to be held accountable for their performance and commitment to compliance. If you see a company faltering in the compliance sphere, much of the problem can be attributed to board-level failures to exercise proper oversight and monitoring functions.
Given the talent level of board members, you would expect to see greater effort to train and improve board members on how to exercise proper governance strategies. Instead, we have seen little change at the board level, steadfast legal protections that impose lax standards for performance and an unwillingness to replace old strategies with much-needed new approaches.
One area where we have seen little improvement in the United States is diversity of corporate boards. A number of other countries have adopted gender diversity requirements for corporate boards. In the United States, however, nominating committees continue to operate without any requirements except shareholder demands and public opinion.
The SEC is currently drafting regulations requiring that companies disclose the diversity of their respective corporate boards. The proposal is still pending. The SEC tentatively concluded that disclosure of such diversity figures would facilitate greater scrutiny of the issue by key stakeholders.
To support diversity requirements, researchers and commentators have cited conflicting studies. Some studies show that diverse boards improve overall corporate management and financial performance. Other studies do not confirm such a causation link.
One study on the positive side (here) found that companies with a higher level of racial diversity in the boardroom, defined by the number of minority directors and their degree of experience and influence over corporate initiatives, typically implemented stronger governance mechanisms and pursued more breakthrough product improvements. For a review of some of the inconclusive studies, read here.
Defining the benefits of board diversity is important. If the goal is to establish improved financial performance, studies should be designed to isolate this factor. On the other hand, if the goal is to improve corporate governance decision-making or enhance a the company’s reputational value by its commitment to diversity, then diversity at the board level may be an important focus.
From my perspective, diversity is important for a board, even if there is no causal financial performance link. A board should reflect the diversity of its senior management, its employees, its shareholders and its community. Diversity brings competing perspectives and is an important protection against groupthink at the board level. In this regard, diversity of board members ensures that decision-making perspectives are enhanced.
Diversity is also important to reflect a changing customer base and to promote employee morale. Multi-racial representation at the board level ensures that employees identify with board members who may provide an important perspective on certain issues and encourage consideration of additional viewpoints.
The United States has been reluctant to regulate board membership, focusing only on issues of independence and conflict of interest. Even in this area, government regulation and mandates have been fairly modest, especially in comparison to the European Union and other countries.
Michael Volkov is the CEO of The Volkov Law Group LLC, where he provides compliance, internal investigation and white collar defense services. He can be reached at mvolkov@volkovlaw.com. His practice focuses on white collar defense, corporate compliance, internal investigations, and regulatory enforcement matters. He is a former federal prosecutor with almost 30 years of experience in a variety of government positions and private practice.
Michael maintains a well-known blog: Corruption Crime & Compliance which is frequently cited by anti-corruption professionals and professionals in the compliance industry.Michael has extensive experience representing clients on matters involving the Foreign Corrupt Practices Act, the UK Bribery Act, money laundering, Office of Foreign Asset Control (OFAC), export controls, sanctions and International Traffic in Arms, False Claims Act, Congressional investigations, online gambling and regulatory enforcement issues.
Michael has assisted clients with design and implementation of compliance programs to reduce risk and respond to global and US enforcement programs.
Michael has built a strong reputation for his practical and comprehensive compliance strategies.Michael served for more than 17 years as a federal prosecutor in the U.S. Attorney’s Office in the District of Columbia; for 5 years as the Chief Crime and Terrorism Counsel for the Senate Judiciary Committee, and Chief Crime, Terrorism and Homeland Security Counsel for the Senate and House Judiciary Committees; and as a Trial Attorney in the Antitrust Division of the U.S. Department of Justice.
Michael also has extensive trial experience and has been lead attorney in more than 75 jury trials, including some lasting more than six months. His clients have included corporations, officers, directors and professionals in, internal investigations and criminal and civil trials. He has handled a number of high-profile criminal cases involving a wide‐range of issues, including the FCPA and compliance matters, environmental crimes, and antitrust cartel investigations in countries all around the world.
Published by Conselium Executive Search, the global leader in compliance search.
