21st Century Oversight
In considering our lives in a society, there’s a reason that students don’t grade their own papers, or write their own exam questions, there is a reason that there is no allowance to give ourselves parking fines, there’s a reason criminal defendants don’t stand in judgement of themselves, or sentence themselves to a penalty of their choosing. It would be amazing if we could award ourselves whatever pay raised we like, or promote ourselves to a job of our own choosing. This is not the way things work.
The last years have seen corporate scandals and company misbehaviour that have led to the global financial crisis as well as individual company collapses.
The Swiss Shareholder Association (SUISHARE) attributes these problems, whether Enron, Tyco, Madoff, Lehmann, etc. to improperly supervised company management, captive Auditors, and out of touch Boards.
Corporate Governance Principles have remained very much 19th century. SUISHARE proposes for the principles to be better aligned with the technologically advanced current economic landscape.
Current governance models where the senior leadership of a company can be at the same time perpetrator, investigator, oversight, judge, jury and enforcer, is no longer a viable model. It is fraught with obvious risk.
The lack of appropriate oversight….
- lack of correct controls,
- lack of division of powers,
- shareholder knowledge gaps,
- the unsupervised and uncontrolled behaviour of senior company leadership,
…can lead to many of the problems that cause consequential and collateral damage.
SUISHARE proposes recommendations for improved Corporate Governance:
- Dissolution of a number of oversight duties to an independent entity / Shareholder Associations in order to establish and ensure an appropriate division of power, transparency and oversight. The powers that will be divested to an independent entity/ shareholder organisations shall be (in Summary):
- The board of directors will in future include 2 Employee representatives as well as 2 members of, or proposed by the national or company specific shareholder organisations. (There already exist some companies, e.g. Swisscom that include Employee representatives in the Board.) SUISHARE sees this as highly beneficial, as in traditional Boards the flow of information to the board is far too often carefully architected by those who wish the board to hear only selective information.
- Term limits on board service of maximum 10 years in order to help keep boards fresh and effective. Studies have shown governance dysfunction is perpetuated indefinitely where too many Directors have extremely long tenure.
- The Internal and External Auditing function will report, and be paid through an independent entity / company specific shareholder organisation to ensure effectiveness, impartiality and a true division of power.
- SUISHARE can (and is already) acting as an independent party for employees to safely raise issues and express their concerns, in the knowledge that their identities will be protected, and real solutions found to their issues. Former company resources concerned with internal misbehaviour investigations should report to an independent entity or sub-company specific shareholder organisation.
- Shareholder Registries should best be outsourced to an independent entity / company specific shareholder organisation, who will also supervise the Annual Meeting. This is necessary step to prevent even the suspicion of vote manipulation and voter fraud.
This enhanced oversight through proper and correct divisions of power should be a “no-brainer”. With improved oversight, governance and transparency, companies will be better protected and employees and management can focus on their core business.