Woodford assumed the role of president at Olympus in February 2011, and shortly after discovered $1.7 billion in accounting fraud. After raising a red flag, he was fired. Woodford pushed his story into the public arena through the media and through filing reports with the Serious Fraud Office in London. News of the fraud caused a shake-up at the camera and medical devices manufacturer, eventually leading to guilty pleas from several executives and a new slate of corporate directors.
In his keynote address, Woodford will share experiences from his book—Exposure: Inside the Olympus Scandal: How I Went From CEO to Whistleblower—about how he confronted both the Japanese culture that prizes groupthink and shareholders who were more distressed by negative publicity surrounding the scandal than by the fraud.
Woodford’s story is also being made into a movie. The Ink Factory, with support of Film 4, has obtained film rights to Exposure. “This is a story about the frailties of human nature and at its heart, loyalty, and betrayal,” Woodford said in a press release. “I hope that it will reach out to people who will engage with it both as a human drama and as a meaningful metaphor of our time.”
Woodford’s keynote address at the NACD annual Board Leadership Conference will inform a discussion where audit, legal, and governance experts will discuss lessons learned from the Olympus scandal and actions that boards can take to identify and prevent internal fraud, the roles of internal and external auditors, and the relevance of cross-cultural differences.
As summer nears, directors may have a brief respite from the frenzied proxy season following new financial regulations. However, the rest of the governance community kicks into gear, pushing to digest and summarize the past months. For example, this week on Fortune.com, a contributing post titled “Why corporate directors should thank Dodd and Frank,” examines proxy advisory firm recommendations and director reelections from this season. According to the article:
“The results so far just go to show that the consequences of reform legislation like the Dodd Frank bill can actually go in favor of corporate leaders rather than against them.”
The article praises the Dodd-Frank governance reforms, pinpointing the legislation as the impetus for a decrease in “no” recommendations from Institutional Shareholder Services (ISS). In 2011, ISS voted against 7% of Russell 3000 directors, down from 13% in 2010. Additionally, just seven directors failed to win majority support for reelection, a significant decrease from 107 in 2010.
While this decline is significant, the Dodd-Frank Act brought several additional provisions that the article did not address. As is often the case with legislative governance reforms, these provisions may bring unintended consequences that the boardroom is forced to accept. Although proxy access is still under judicial review, it has the potential to disrupt boardroom composition.
Establishing a boardroom with the “right” directors—those who bring the specific skill sets the board needs strategically and who also function effectively with constructive skepticism—requires a significant effort. This effort is a key responsibility of the board’s independent nominating/governance committee, which seeks to align board composition with the company’s long-term strategy. Directors nominated by shareholder groups, and not the nominating/governance committee may or may not have the experience needed.
The proposed Dodd-Frank whistleblower bounty program has also been subject to boardroom criticism. As NACD president and CEO Ken Daly testified to a House Financial Services Subcommittee last week, implementation of this program should be delayed for modifications. By providing financial incentives to whistleblowers for reporting directly to the Securities and Exchange Commission (SEC), the new bounty program could potentially harm the internal compliance channels required under Sarbanes-Oxley.
Despite boardroom apprehension leading into this year’s proxy season, the season has been relatively uneventful. In addition to the increased support for director reelection, Towers Watson reports that 90% of votes cast have supported companies’ say-on-pay proposals. However, these issues are just the tip of the iceberg, and it’s far too early to determine whether directors should be thankful for the Dodd-Frank legislation.
Yesterday afternoon, NACD President and CEO Ken Daly had the opportunity to go before Congress and represent the views of NACD’s 11,000 members at a hearing on the SEC’s proposed rules for implementing Dodd-Frank’s whistleblower provisions. While whistleblowers play an important role in discovering fraud and ensuring corporate accountability, the provisions included in the Dodd-Frank Act could potentially be detrimental to the culture of accountability that the NACD actively works to promote. You can read the testimony here, or visit our twitter pagefor real-time updates from the hearing.