Looking back, having a governance wish list ready does not seem like a bad idea for corporate secretaries.
Whether it’s a slew of whistleblowers coming forward about corporate misdeeds or billions missing from clients and firm balance sheets, this year companies had the opportunity to closely observe the missteps of their peers.
The collapse of MF Global, for instance, spawned a tidal wave of allegations against disgraced former New Jersey Governor and CEO Jon Corzine, who is unable to account for an estimated $1.2 billion in customer funds. Across the pond, Olympus’ former chief executive turned-whistleblower, Michael Woodford, is out to win over shareholders and regain his seat at the company. Meanwhile, the Japanese camera manufacturer is wrestling with regulators over a $1.7 billion accounting fraud that Woodford brought to light.
These are just two of the many companies that have made it to the naughty list this year.
‘The Olympus board apparently did not adequately question the company's off-balance-sheet transactions or carefully scrutinize the company's deal performance,’ says Douglas Park, pictured left, Silicon Valley corporate governance expert. ‘Similarly, the MF Global board appears to have been timid in critically analyzing Corzine's strategy because of his stature.’
As a result of such scandals and the regulatory pressure placed on companies, corporate secretaries are busily crafting their governance wish list for 2012 and checking it twice. Coincidentally, sitting prominently at the top of their list is – risk management.
According to Arden Phillips, pictured right, corporate secretary and governance officer at Washington Gas 
Light Company (WGL), operational risk and risk management principles could have steered MF Global and Olympus in the right direction. But with the avalanche of lessons to be learned from these two companies coupled with the string of reforms, tighter regulations and new policies set to go into effect next year, Phillips suggests that companies should pay particular focus on the following:
(i) Increased shareholder engagement: Companies should have good communication with shareholders to avoid negative say-on-pay votes. Since proxy access was shut down this year, shareholders can now approach different companies and submit proposals to nominate directors to the board. Due to this, communicating with shareholders is important, especially when preparing for next year’s proxy season.
(ii) FCPA compliance: One area of growing concern is compliance. Many companies are now operating in different countries and there should be visible corporate policies against violations of FCPA. At WGL, the compliance officer reports directly to the board; there is no middleman who could hinder the process. In turn, this allows compliance officers to immediately set best practices.
(iii) Clawback provisions in Dodd-Frank: A hot issue for 2012. The current clawback requirements are ambiguous and should be tweaked. Many corporate secretaries would like to see these rules repealed or revisited because it is impractical to try to take money back. And governance professionals should be prepared to face this battle sooner than they expect.
As for Park, his governance wish list includes a stronger culture and greater understanding of transparency. ‘Transparency means few, if any, off-balance-sheet transactions, no covering up or minimization of risk warnings, and a free, consistent flow of information from executives to the board, and the board, auditors, and attorneys should have the latitude to question suspected activities.’
Looking back, having a governance wish list ready does not seem like a bad idea for corporate secretaries. After all, it should help ensure you get what you want; and it’s a great way to be prepared for 2012. No one wants to end up on the naughty list, especially at this time of year.
So what's on your governance wish list? Click here to find out what other governance experts are saying.
