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Oct 31, 2009

New direction

  • Rapid regulatory change has left gaps in directors’ knowledge
  • Flexibility in course provision needed to fit in with hectic schedules
  • More tailored programs being designed to meet specific needs
  • Greater emphasis on courses in risk management

Following a string of corporate scandals, the worst economic downturn in a generation and rapid-fire regulatory change, the boardroom environment has changed forever. Directors are now expected to exercise direct control over management, ensure compliance with various rules and regulations, accurately assess corporate performance and make sure executive compensation is linked to long-term growth targets – all on top of their traditional task of providing strategic oversight and direction.

Modern directors need more information and, often, different skill sets from their counterparts of five or 10 years ago. Corporate secretaries, the conduit of information between the company, shareholders and the board, spend considerable time and effort to ensure directors are furnished with all the information they need to fulfill their duties.

So how do directors ensure they have all the tools at hand to efficiently discharge their fiduciary responsibilities? There is no short answer. Everyone handles change differently and each director will seek to advance his or her performance in different ways.

‘There is more of an awareness among directors at all levels that there are things they do not know, so they are turning to education providers to fill some of those gaps,’ says Dan Siciliano, faculty director at the Arthur and Toni Rembe Rock Center for Corporate Governance, and associate dean for executive education and special programs at Stanford Law School.

There has been some change in the director education market space, but this is more in the flexibility of delivery than in the actual topics. ‘We are seeing a rise in demand for in-house tailored training,’ explains Suzanne Hopgood, director of board advisory services at the National Association of Corporate Directors.

Siciliano notes that some boards are having programs designed specifically for them, which are then brought to their boardroom. This approach means directors don’t have to add extra travel to an already hectic schedule and, more importantly, allows for a greater concentration on issues of specific interest.

Regular updates

Perhaps the most significant change beyond demands for greater flexibility is the frequency of training. ‘Directors are coming in a lot more regularly now. We run updates on all our programs every three months,’ explains Hopgood.

And it is not just about attending a class or having someone come present in-house; there are also larger conference and think tank-style events run by associations, magazine publishers, schools and even law firms.

Siciliano suggests directors attend different types of events over a period. ‘We find a one-in-three approach works well: split over three years, in one year a director could attend a ‘big tent’ educational event, in year two a customized program and a small classroom-style event the third year,’ he explains. ‘This gives the best elements of all programs and allows for a lot of flexibility.’

In terms of timing, tailored in-house programs tend to run for eight hours; this is usually done in a single day but can be spread over two. Classroom programs are typically two days and ‘big tent’ conferences run for between two and four days.

One significant difference is the level of proactivity from directors and corporate secretaries. Rather than just finding a course, many of which were hard to decide between, there is now demand for certain subjects, venues or other elements. ‘The corporate secretary is getting clear instruction and direction from the board, which is pushing him or her to do more analysis on which sort of education would be the best fit for the board’s needs,’ Sicilano explains. ‘In the past we would go to boards and executives but now they are coming to us saying, We want this or that – can you do that for us?’

In terms of content, there has been a greater focus on risk management. ‘One of the big things board members are coming to terms with is the evolution of risk,’ says Hopgood. ‘It is no longer just financial or just the responsibility of the audit committee. As such, we are seeing demand from directors for information on such things as cultural risk, compensation and how structures affect risk taking and motivation, and operational risk, which is a mater for the entire board.’

Siciliano sees it slightly differently. ‘If anything we are seeing more people looking for the fundamentals,’ he says. ‘Coverage of the basic concepts that form the building blocks of efficient board operation is always in high demand. Other fundamentals include things like finance, statistics, strategies and core competencies.’

Stephen Wallenstein, director of the Directors’ Institute and senior fellow of finance at the Robert H Smith School of Business, sees a need for regulatory updates. ‘It makes perfect sense to offer a program in the Washington, DC area in the spring of 2010,’ he says. ‘There are not many other director education opportunities in the area and government is increasingly involved in governance so it makes sense to get former and current legislators, regulators and judges together to pass on their knowledge.’

Brendan Sheehan

Brendan Sheehan is the former Executive Editor at Corporate Secretary magazine, and is a leading expert in public company governance and compliance. He regularly lectures on cutting edge governance, risk and compliance issues and is a regular...