Over the years men and women would agree to serve on the boards of public-traded corporations without giving it a second thought. But the job of a director in today’s climate has become decidedly less appealing for a number of reasons. The activities of directors are now being carefully scrutinized. Both the federal government and investors are paying more attention to directors’ involvement in corporate decision-making. Before the current economic crisis, investors weren’t as concerned about directors’ involvement in corporate wrongdoing. But, they are now looking inside corporate boardrooms. They are demanding answers on why certain decisions were made or why more scrutiny and monitoring of corporate activities surrounding those decisions and the aftermath didn’t happen. Many times directors have routinely approved what high-ranking officers or an executive committee of board members recommended.
The Sarbanes-Oxley Act of 2002 raised the standards for corporate governance and financial accountability at domestic public companies. That, in combination with the economic crisis, has put even more pressure on board members to account for their performance. Director liability for corporate malfeasance has become a major concern and rightfully so. It’s being predicted by a number of legal experts that an increase in class-action lawsuits against companies and, in some cases, individual directors, is very likely because of the economic meltdown and terrific investor losses. As a result of the liability exposure for corporate directors, many persons will elect to get off the boards. Another factor will be the influence the government will have — if any — in choosing new directors at companies such as Citigroup that have received bailout funds. It’s always been my belief that a person should not serve on the board of directors of a large corporation when he or she is not involved in the day-to-day operations of the company. That belief is much stronger today!
Source: Insurance Journal and Reuters
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