BOOKSHELF : Sarbanes-Oxley and the Board of Directors: Techniques and best practices for corporate governance

By: Scott Green
Publisher: John Wiley & Sons
Price: $129.95
Reviewer: Doug Matheson

This is the best applied governance book from the United States that I have read. However I have to admit I opened it with preconceived view of US corporate governance today. It seemed to me that in spite of the major corporate scandals, and the increasing attention worldwide by institutional investors, the importance of the independence of directors, and the chairman, was not yet widely accepted by US boards of directors. The Sarbanes-Oxley Act, and other regulatory initiatives, appeared to be viewed by US boards more as costly imposition on corporate governance, compliance matter, than features of good governance.
The statistics do confirm that change is slow. In particular, Green refers to number of statistics from an annual survey of the boards of companies listed in the S&P 500. The 2004 survey reveals that 74 percent still combined the position of CEO and chairperson. While this is down from 80 percent five years ago, it demonstrates the slowness of governance reform in the US to address the key problem of the “Imperial CEO” – single individual holding the conflicting roles of CEO and chairperson of public company.
The primary target of the Sarbanes-Oxley Act was public company financial reporting, requiring greater management and governance accountability for financial reporting. Green highlights that the Sarbanes-Oxley Act does address many of the perceived causes of corporate abuses exposed during 2001 and 2002, and when combined with new implementing rules from the Securities and Exchange Commission (SEC) and listing standards issued by the New York Stock Exchange (NYSE) and the NASDAQ, has strengthened US corporate governance practices. But, as he points out, the procedural aspects of the Sarbanes-Oxley Act and these other requirements are burdensome, especially for small companies. I am sure that’s no surprise. Indeed the New Zealand companies that are required to comply with the US requirements complain about the significant costs in both time and dollars.
It is important to note that while the Sarbanes-Oxley Act of 2002 did address the key governance issue of board independence, it limited its focus to the board’s audit committee. However the self-regulatory organisations, the NYSE and NASDAQ, developed more stringent listing requirements which were accepted by the SEC – namely “a majority of the board shall be independent”.
Green makes the point there is still potential for board to be too close to management. I agree with him – that key issue has not been addressed adequately in the US. Green expresses the interesting view “that these combined roles are so pervasive in the nation’s public companies that many believe it would be too disruptive to summarily demand separation”. As we know shareholder activists are not waiting for corporate boards or Congress to begin reform – so watch this space.
After reading the book I concluded the Sarbanes-Oxley Act 2002 rather than being purely restrictive or constraining on corporate governance in the US, has been catalyst for change. In this book Green not only outlines the requirements of the Sarbanes-Oxley Act but also explores relevant best practices in complying with them. He includes examples, case studies and other background to bring context to the requirements.
But the book goes way beyond Sarbanes-Oxley. Green provides sound, practical and comprehensive examination of wide range of governance matters, and provides helpful techniques to address the key governance issues of today. In addition to addressing governance basics he covers the increasing and important role of the audit committee, and of the compensation / governance committee. I was particularly pleased to see that Green addresses the important yet vital governance activity of clear and timely communications from the board. He covers not only disclosure but also provides helpful tips on communications during difficult times.
Green includes two important additions to the usual range of governance topics by addressing “board dynamics” and the “art of oversight”. But throughout the book he does tend to focus on the board’s oversight role rather than its performance role. Perhaps that’s because he is lawyer.
Although based on US law, and the US scene, the extensive and wide ranging practical nature of this book makes it useful addition to the boardroom bookshelf. I personally identified with much of the material Green has included.

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