“How do you adapt to changing
corporate governance requirements?”
“Offer thoughtful counsel
and establish legal priorities.”
The large number of proposals for corporate governance reform now under consideration
present challenges for companies and their legal counsel. Less than a decade after enactment
of Sarbanes-Oxley, we’re back at it again. And the consequences of reform could be just
as far-reaching.
Consider just a few examples.
In the wake of the financial services industry meltdown in late 2008, there are various efforts to
rein in the risk appetite of companies by making boards of directors responsible for overseeing
company “risk.” While there may be some merit in processes which more clearly highlight risk,
I am not convinced that politicians will develop a manageable process. There is little or no
attempt to define what is meant by risk or to acknowledge the reality that one size doesn’t fit
all among industries’ tolerance for risk.
It’s hard to imagine that these proposals won’t cause directors into risk avoidance strategies that
are inimical to the ability of our corporations to compete in highly competitive global markets.
It may or may not be fashionable to say, at least in Washington, but our capitalistic system
depends upon our businesses embracing risk. We avoid it at our own peril.
Another example involves the proposed elimination of broker discretionary votes for directors.
In a variety of ways, this proposal would change the playing field. Yet there is little attempt
among the proponents to address the predictable consequences of the change.
Finally, reflect on the executive compensation proposals that are being bandied about. Clearly,
any such proposals will be driven in part by a highly emotional and political backlash to events
in and leading up to the financial collapse in 2008. There is little sign that the proposals
will allow for careful thinking within companies on what compensation outcomes are in the
John W. Holleran
Senior Vice President,
General Counsel & Secretary
Itron Inc.
Liberty Lake, Washington
best interests of the organization or that they will leave time for proper implementation. All
that’s clear is that there may be a mad rush to implement new plans that comply with the
new regulations at some risk to thoughtful discussions.
From the standpoint of the legal function, as we position our companies for the onslaught of
reform, there is no substitute for offering thoughtful counseling, establishing legal priorities,
and allocating resources efficiently and in the client’s interest.
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