Accountability & Responsibility Don't Mix on 'Boards'
The forex fiasco at National Australia Bank has revealed the need for companies to take a look at the age and style of their board of directors and ask themselves if they are up to speed with the latest ways of doing business today.
The lesson from the prolonged agony of National Australia Bank and chief executive Frank Cicutto and Chairman Charles Allen over the bank's foreign exchange trading scandal is clear; it's no longer good enough for directors and top executives to claim ignorance of systemic failures in risk management, audit, remuneration or other critical functions; they have a duty to know, and if they don't, they put themselves at risk of being hounded out of office. They need to be open and transparent with shareholders and analysts.
Cicutto joins a long list of chief executives who have had to come to grips with this unpleasant fact - though the $3.3 million he is being paid to go away is not exactly a flea in the ear and will fuel anti-business rhetoric about rewarding failure. But while the NAB chief has paid the ultimate price, further executive retribution could follow once the PWC report is tabled.
How is it that the board could take two and a half years from the $4 billion HomeSide mortgage finance disaster to put a risk-management committee in place - but it did. As a result of this extraordinary complacency, the committee was in place too late to prevent the forex scandal.
Nor does it cut any ice for other directors to excuse themselves on the grounds that Cicutto made himself responsible for risk management.
Directors, as a class, need to take more responsibility for the crucial functions of corporate governance. It is no longer good enough for them to turn up once a month for board meetings. If they serve on a sub-committee they must take their duties seriously. Unfortunately, a lot of boards are made up of people who are wrapped up in their own self importance who think their mere seat on the board is a status symbol and that that is enough!
Directors need to get into the habit of drilling down below CEO level, calling in second and third-tier managers for a grilling or insisting on external reviews. This may put at risk chummy relationships with CEOs who prefer to filter information upwards, but directors will be better able to defend themselves when fund managers want blood.
Directors who fulfil these increasingly onerous duties properly will be entitled to higher fees than in the past. But too many directors still treat their board seats as sinecures, and not just in obvious cases such as HIH and One.Tel.
A lot of boards get off too lightly when things go wrong, and really they have to take responsibility and be truly accountable to the shareholders. Ridiculous golden handshakes rewarding CEOs for stuffing up also don't cut it and it's high time the government acted.
Directors can't expect to win the argument about the increasing burden of corporate governance unless they do a better job.
Comment/Opinion - Tony Martin - Director
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