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Board of directors

In recent years, legislators and regulators of many countries have introduced new rules to enhance disclosure and oversight at public companies in order to retain and strengthen confidence in the capital markets.  Among the most significant of the new rules is the U.S. Sarbanes-Oxley Act, though similar new codes of corporate conduct continue to be stitched into the fabric of governance throughout Europe, Canada and Asia, such as Mainland China and Hong Kong.

The objectives of these new regulations are designed to address the more extreme problems of corporate malfeasance, such as fraud and the falsification of accounts. Many of the new rules focus on the role of the board of directors – as representatives of the shareholders, the board plays a key role in overseeing the organization and ensuring that it continues to operate in the best interests of its shareholders. Given the complexity of today’s organizations, that is no simple or straightforward task.

With expectations of them continuing to increase, boards can take several actions to govern more effectively. They must pay greater attention to the key drivers of performance and diligently monitor how well those drivers are being applied. They need to make those drivers a fundamental part of the board's business - and ensure that management is responsible for them. They must create better tools to monitor and measure performance, and they have to set specific performance targets, both financial and non-financial.

Perhaps most importantly – and as a means of sending a clear signal to their senior leadership – boards must tie compensation to key success factors, not just financial results.

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  • In the dark II: What boards & executives don't know about the health of their businesses
    A 2007 survey
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