Tag Archive: c-suite relations

Five Boardroom Deficiencies: Early Warning Signals

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At the most recent NACD Director Professionalism® Course in Charlotte, North Carolina, faculty member Michael Pocalyko, an experienced director and chairman of TherimuneX Pharmaceuticals, described five boardroom deficiencies that he has observed in almost every recent major corporate scandal or failure.

In his presentation on “Board/C-Suite Relations,” Pocalyko proposed that these elements pervade the board culture at troubled companies—and when identified, directors can use these red flags as a warning system for difficulties ahead:

  • A disconnect between the company’s stated core values and the way its executives, managers, and personnel behave.  “When core values devolve into nice words while the way the company actually operates is antithetical to its codified ethics, serious problems are looming.  Those problems involve not just lawsuits but orange jump suits.”
  • A deferential board of directors.  “Every troubled company, public or private, including the one that will star in the next corporate scandal, has a board that is far too deferential to its CEO.  This happens more often where the chairman and CEO roles are unified.  Courteous challenge and vocal independence should not be perceived as affronts to power.  They are essential to accountability.”
  • Inventive corporate finance.  “When the non-financial board members especially have trouble figuring out exactly what the financial statements are saying, without significant interpretation, someone is being way too creative.  Exotic finance often masks mischief, market gaming, or worse.”
  • Co-opted information technology systems.  “They are tremendously expensive cost centers but absolutely essential to effective internal audit, SEC audit, and reporting.  If the board has only an ephemeral understanding of these complex systems and their role in the audit process, IT can be co-opted fairly easily to the impediment of proper board oversight.”
  • Legal “fitting.”  “Like a tailor fitting a suit, when legal counsel fits an opinion to comport with a desired action—rather than delivering an outright ‘don’t do this’ or even ‘it’s a terrible idea’—right then, the board is being brought complicit into future failure.”

NACD Director Professionalism is the foundation course for aspiring or new corporate directors, providing boardroom insight and skills in a highly interactive, two-day format covering the fundamentals of boardroom effectiveness.  For more information about NACD Director Professionalism, please go to www.NACDonline.org/DP.  During the remainder of 2012, the program will be offered at the following locations and dates: