Directors Are Essential Gatekeepers
Those of you who are directors play a critically important role in overseeing what your company is doing, and by preventing, detecting, and stopping violations of the federal securities laws at your companies, and responding to any problems that do occur. In other words, you are the essential gatekeepers upon whom your investors and, frankly, the SEC rely. We see you as our partners in the effort to ensure that investors in our capital markets can invest with confidence and, hopefully, success.
At the SEC, we typically use the term “gatekeeper” to refer to auditors, lawyers, and others who have professional obligations to spot and prevent potential misconduct. And while there are certainly other gatekeepers who may be closer to some of the action or more familiar with the details of a transaction or a disclosure document, a company’s directors serve as its most important gatekeepers. For by law, it is ultimately the fiduciary responsibility of the board of directors to oversee the business and affairs of a company.
In discharging this important responsibility, it is essential for directors to establish expectations for senior management and the company as a whole, and exercise appropriate oversight to ensure that those expectations are met. It is up to directors, along with senior management under the purview of the board, to set the all-important “tone at the top” for the entire company.
Ensuring the right “tone at the top” for a company is a critical responsibility for each director and the board collectively. Setting the standard in the boardroom that good corporate governance and rigorous compliance are essential goes a long way in engendering a strong corporate culture throughout an organization.
How directors can most effectively instill a strong corporate culture and how challenging it is to do so will vary from company to company. CEOs come with a range of experiences and perspectives. Many, including some here in Silicon Valley, are, at heart, innovators whose day job has come to include being the business leader of a public company. As board members, one of the most important duties you have is to select the right CEO for your company and to ensure that he or she “gets it,” in terms of understanding the importance of tone at the top and a strong corporate culture. Deficient corporate cultures are often the cause of the most egregious securities law violations, and directors, both directly and through the oversight of senior management, play a key role in shaping the prevailing attitude and behaviors within a company.
As a former director and member of an audit committee of a public company, I know the heavy responsibilities you bear and the time-consuming work that is required of you. The best advice I can give for being an effective director is to learn and be engaged. As directors, you must understand your company’s business model and the associated risks, its financial condition, its industry and its competitors. You must pay attention to what senior managers say, but also listen for the things they are not saying. You have to know what is going on in your company’s industry, but also the broader market. You need to know what your company’s competitors are doing and what your shareholders are thinking.
At the risk of hearing a collective groan in response, I would also urge you to consider another outside view that would also be useful to you as a director—the view of your regulators. Listen to what they say publicly is important to them, what is problematic to them. Talk to them. Perhaps visit them. I know of an audit committee chair who visits all of his company’s major regulators once a year, including the international regulators. You may get an earful from time-to-time, but it will be invaluable input for you as a director.
To state the obvious, you must ask the difficult questions, particularly if you see something suspicious or problematic, or, simply, when you do not understand. You should never hesitate to ask more questions, and, always, insist on answers when questions arise. It also goes without saying that you should never ignore red flags. It is your job to be knowledgeable about issues, to be vigilant in protecting against wrongdoing, and to tackle difficult issues head on.
Of course, it is always important for you to know what your shareholders—the owners of your company—are thinking. As most boards today recognize, an open and constructive dialogue with shareholders is not only the right thing to do, but also very helpful in providing perspective on the challenges a company is facing. Many institutional shareholders have unique insights on industry dynamics, competitive challenges and how macroeconomic events are shaping the environment for your company. But it is important not to forget about your other shareholders. There is real value in listening to their views and their voice, as well.
Look thoughtfully at the proposals shareholders are submitting to your company. Ask your management team about them and about the proposals that other companies are receiving that could be relevant to your company. Look at the voting results at shareholder meetings—the percentage of votes for a shareholder– supported resolution or against a management–supported resolution are important, irrespective of whether the resolution is approved, or not.
Ethics and honesty can become core corporate values when directors and senior executives embrace them. This includes establishing strong corporate compliance programs focused on regular training of employees, effective and accessible codes of conduct, and procedures that ensure complaints are thoroughly and fairly investigated. And, it must be obvious to all in your organization that the board and senior management highly value and respect the company’s legal and compliance functions. Creating a robust compliance culture also means rewarding employees who do the right thing and ensuring that no one at the company is considered above the law. Ignoring the misconduct of a high performer or a key executive will not cut it. Compliance simply must be an enterprise-wide effort.
Aujourd’hui, je vous présente les grandes lignes de l’allocution que Mary Jo White, présidente de la US Securities and Exchange Commission (SEC), a exposé devant les membres du Stanford Directors’ College, le 23 juin 2014.
Après avoir brièvement décrit la structure et les fonctions de la SEC, Mme White a choisi d’aborder trois thèmes très importants pour les administrateurs de sociétés :
(1) Le rôle crucial que les administrateurs de sociétés jouent en tant que gardiens des intérêts des actionnaires;
(2) La divulgation des malversations et la coopération avec les investigations de la SEC;
(3) La description du programme de dénonciation (whistleblower) de la SEC, son fonctionnement et ses relations avec le programme de conformité et de contrôle interne de la firme.
Dans ce billet, je présente le point de vue de la SEC eu égard aux rôles fondamentaux que les administrateurs jouent dans la gouvernance des entreprises. Je crois, que comme moi, vous serez intéressé de savoir ce que pense la présidente du plus puissant organisme de surveillance et de régulation des marchés des capitaux au monde. Bonne lecture !