Hold Boards of Directors Accountable
By David R. Beatty C.M., O.B.E.
Boards of Directors should be held accountable when it comes to scandals or criminal failure. Here's why.
USA Gymnastics board members resign amid Nassar sexual assault scandal. They should have been held accountable - and the University of Michigan is opening a full-scale investigation into who knew what and when.
Well, let's look at publicly traded companies and ask when they are ever held accountable. The Worldcom Board was certainly brought to task - each director had to pay a fine equal to 20% of their net worth. But who paid the fines levied against banks for fixing LIBOR or any other rate? The shareholders!And it is generally the innocent shareholders who get stuck with paying the fines - we sought to get directors aligned with shareholders by encouraging them to own shares in the companies they "directed" and now we should get the SEC to hold them accountable when things go badly wrong.We pay for performance. Why is the opposite not true as well - we charge for abject and criminal failure.
Read More: Are You Getting All You Can From Your Board of Directors?
David Beatty is an adjunct professor and Conway chair of the Clarkson Centre for Business Ethics and Board Effectiveness at the Rotman School of Management. Over his career, he has served on more than 39 boards of directors and been chair of nine publicly traded companies. He was the founding managing director of the Canadian Coalition for Good Governance (2003 to 2008). A version of this article will also appear in the Winter 2017 edition of Rotman Management, published by the University of Toronto’s Rotman School of Management.