Newsletter | Volume 1

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Issue V
Issue VI
Issue VII
Issue VIII
Issue IX
Issue X
Issue XI
Issue XII
Issue XIII
Issue XIV
Issue XV
Issue XVI
Issue XVII
Issue XIX
Issue XX
Issue XXI
Issue XXII
Issue XXIV
Issue XXV
Issue XXVI
Issue XXIX
Issue XXX
Issue XXXI
Issue XXXV

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When mistrust and suspicion between Top Management and Board is the issue

Although the contours of this conflict vary with every company, the problem is universal. It would therefore be useful to draw on the experience of others, and in particular, from the experienced speakers at the Copenhagen Compliance conference who will inform the participant's on the lessons learnt that could be used into your organization.

Crossing the Rubicon is the reference made in this article, when trust, limitations, disclosures and reporting responsibilities, that are set out by the Board of Directors (BoD) with precise policies and guidelines but are not followed by top management.

Historically, it is a concept that goes back to the days of ancient Rome when it became necessary to ensure the unity of the vast Roman Empire. The democratically elected senate declared the river Rubicon that borders the city of Rome, were as sacred a line that was never should be crossed by any military governor of an outlying province.

In 49 BC, ambition got the better of Julius Caesar and he crossed the Rubicon and entered Rome with his army. The tragic consequences that followed were dramatically portrayed in William Shakespeare's masterpiece. Even then it was an Antony who made his mark.

Sometimes members of senior management of corporations are tempted to be a Caesar. If caught they are in deep trouble. Each time there is a major disagreement between the Board and the management, the situation turns into a crisis and goes spiralling out of control.

On the other hand it is the (BoD) that must show the statecraft in clarifying the exact red lines that should never be crossed, where the managements decisions, reporting responsibilities to the BoD is concerned.

To the company, such a spectacle is undoubtedly an enormous embarrassment, while the media uses the opportunity to stir up the usual unresolved debate on how to handle unruly management making decisions that could be detrimental to the company.

Each time there are hardened views expressed on either side of the divide of conflicting ego's that often end in even more damaging litigations that merely waste the judiciary's time.

The company does not have an accepted framework for handling these reporting problems, only if neither side is aware of the limit to which a disagreement is acceptable.

The final outcome left to their personal instincts and temperament of the Chairman of the Board who knows that strong management can be a great asset for company but somehow they seem to make the BoD a bit nervous.

It is apparent that somewhere deep within the system lurks an irrational phobia about the Management posing a challenge to the BoD. The situation has perhaps been compounded by the happenings if there is also a problem with the current or future profits and stakeholder rewards.

A set of guiding principles needs to be formulated along with rules that are clearly defined in the various charters that exist between the many committees that often act as a liaison between the BoD and Management.

Handling BoD-Management relations can be a complex task, when there is an issue of trust between them. The ultimate need is to induce confidence in their relationship and re-create an environment of trust, and to correct them largely depends on their ability to communicate with respect in spite of the trust issues that perhaps prevail.

While defining the norms for professional corporate conduct, the most difficult task before the BoD is to boldly define the line that must never be crossed by management. This is an extremely sensitive issue that calls for perceptive statecraft but needs to be exactly addressed.

It is one thing for the rank and file can seek legal recourse but it is quite another matter for a fired CEO serving chief of the Indian armed forces to take up bat against the Chairman of the Board. That may seem like be crossing the Rubicon.

Here are some of the issues that will be discussed at the Copenhagen Compliance Conference on the consequences and how to avoid lack of Accountability in Policy Management.
  • Today's compliance programs affect every person involved supporting the business, including internal employees and third parties.
  • Implement an auditable means of policy maintenance, communication, attestation, and training.
  • Document the how and what of each policy that is in effect, how it was communicated, understood, instructions, evidence, the exceptions, history on policy violation, resolutions, monitoring issues etc.
  • A well-designed policy management is part of a lifecycle process.

Another speech will be on the coordination between Investors Management, Board of Directors and Committees.
  • How to develop a program for collecting metrics on your organizations GRC efforts and what to presents to the board.
  • What should directors and senior management report and inform, based on their vast array of data and concerns, to what boards of directors truly need to know, understand, and act upon.

Hege Sjø, Head of the Scandinavian Corporate Governance Team, Hermes Investment Ltd, UK