Professional Board of Directors: Why You Should have one

by Fred Abramson on December 6, 2010 · 0 comments

Robert C. Pozen, writing in the Harvard Law School Forum on Corporate  Governance and Financial Regulation argues that Sarbanes Oaxley has been largely ineffective.  Many of the largest companies had to be bailed out despite adhering to the rule that  all boards of public companies as well as their important committees would be comprised mainly of independent directors.

Mr. Pozen argues that the problem with current corporate boards is that there are too many directors and too few experts with too much emphasis on procedures.

His solution: creating a small group of professional directors with enough relevant experience and sufficient time to hold management accountable. Makes sense to me, however I disagree with his assessment that Sarbanes Oxley was large contributing factor to the financial crisis.  For example, weak regulation of mortgage backed securities certainly caused more harm than having too many board members.

He argues for a six pronged approach to reforming Sarbanes-Oaxley to include the following:

  1. Smaller size. The current average for a board of directors is 11. He argues that the size allows individual members to skirt responsibility and to hide. A more manageable size would be six members.
  2. Greater experience. There should be more board members that have experience in the business itself.
  3. Increased time commitment. Outside board members should spend 2 days of month with the company and attend six full time board members during the year.
  4. Professional Board Members are hard to find. Since board members with relevant experience are hard to find and often with competing companies. It is suggested that companies should rely on retired executives.
  5. Professional Board Members will be too expensive. It is suggested that the rate of pay be boosted to $400,000.
  6. Professional Directors will have greater legal exposure. Professional directors need to be independent of company management. If directors are independent, state courts will defer heavily to their business judgment about what is best for the company

The Law Office of Frederic R. Abramson represents businesses in New York.  If you have a question about business law, contact me at 212-233-0666.

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