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Sarbanes-Oxley 10 Years Later: Boards Are Still the Problem
This is a guest post by Mark Rogers, the founder and chief executive of BoardProspects, an online professional community launching in August 2012 dedicated to building better boards for private, public, and nonprofit organizations.
There will be no cake, balloons, or formal ceremony on July 30, 2012, but it’s an important anniversary in corporate America. It is the tenth anniversary of the enactment of Sarbanes-Oxley, the landmark legislation intended to improve corporate governance in the wake of the 2001 bankruptcy of Enron. Here we are 10 years later, and not much has changed. Corporate governance scandals are still commonplace, Green Mountain Coffee, Chesapeake Energy, Wal-Mart, and Groupon being among the latest examples. The fact is that Sarbanes-Oxley was well-intentioned but didn’t address the real
Everyone knows the Enron saga: Ken Lay and Jeff Skilling, Enron’s former chief executive/chairman and president, cooked the books, screwed over a lot of people, and became the poster boys for corporate greed and fraud. Even though the names Lay and Skilling are forever associated with scandal, they did not act alone. The entire Enron board had guilt on its hands, not just the ringleaders.
A Senate subcommittee agreed with that assessment, as it found that “the Enron Board of Directors failed to safeguard Enron shareholders and contributed to the collapse of the seventh largest public company in the United States, by allowing Enron to engage in high risk accounting, inappropriate conflict of interest transactions, extensive undisclosed off-the-books activities, and excessive executive compensation.” Despite this conclusion, when Congress passed Sarbanes-Oxley, in 2002, it failed to fully account for the critical role a board of directors plays in improving corporate governance.
After Enron, Congress directly addressed corporate fraud in an effort to improve corporate governance through several provisions including:
Simply put, Congress failed to set a high enough bar for corporate governance in America. It flat out whiffed when it had public sentiment in its favor and could have dropped the hammer on corporate America to ensure that this type of misuse of power never happened again. The worst part is that it would not have taken a long list of statutes to properly regulate boards of directors. In fact, you would just need to incorporate the following measures:
Would the above actions have prevented the scandals at Green Mountain, Chesapeake Energy, Groupon and Wal-Mart? One can only wonder what the outcome would have been had Congress given greater attention to the human capital charged with oversight of those companies. Legislative reforms are only as effective as the boards at the companies that incorporate them. Congress missed a critical opportunity to truly improve corporate governance by neglecting to set firm standards and guidelines for the boards of directors of the future.
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