During the last four months, the Governance Center released four pieces of research that cover the independent auditor and regulator perspectives on the director’s job description, a theory about outsourcing public company board functions to a board service provider, three lines of argument to promote shareholder engagement, and the adoption by companies of corporate political spending disclosure through private ordering.

This research is available to all members of The Conference Board and its Governance Center.

Just What Is the Corporate Director's Job? Independent Auditor and Regulator Perspectives (March 2019)

The latest installment of the Just What Is the Corporate Director's Job? series presents the perspective of independent auditors and regulators from a roundtable held in Washington, DC, on September 6, 2018.

Here are some highlights:

• Engaged audit committee. An audit firm’s risk goes up if the audit committee is not engaged. The quality of its audits depends greatly on the oversight of the audit committee.
• What is the ideal audit committee member? The ideal director for the audit committee of a public company should possess three key traits: high integrity, high energy, and “people skills,” in addition to financial literacy. Furthermore, the audit committee will soon need directors with expertise that ranges beyond the more traditional critical audit matters and financial reporting to include the understanding of sustainability and other non-financial measures.
• Audit Committee Financial Expert (ACFE) definition—too broad or too narrow? There were mixed opinions about the definition of the ACFE. Some believe the current definition may be too broad. Re-examining the definition of the financial expert could include creating a standard that specifies that person’s required knowledge and responsibilities, such as serving as a sounding board or consultant on financial matters and/or being the ultimate authority and decisionmaker.

Can the Board Really be Outsourced? (January 2019)

The board service provider model may be ahead of its time, but the conversation it has started may fix what is truly broken. The idea, which inspired the book Outsourcing the Board: How Board Service Providers Can Improve Corporate Governance written by professors Stephen Bainbridge of the UCLA School of Law and M. Todd Henderson of the University of Chicago Law School, was the subject of a September 2018 conference at UCLA Law School.

Here are some highlights:

• The growing demands on today’s boards raises a legitimate argument that the current board model needs to be revamped, enhanced, or replaced.
• The primary obstacle to BSPs is a legal one: currently directors are required by law to be natural persons.
• The BSP model would face resistance most notably from powerful institutional investors, proxy advisors, and “imperial” CEOs.

Forcing Shareholder Engagement: A study on the underpinning and political ambitions  (January 2019)

This Director Notes report addresses the topic of shareholder engagement in today’s politically charged world. Using Europe as a model, the author posits that since share ownership and the proprietary rights that come from such ownership do not lead to shareholder duties, there seems to be no justification for criticizing shareholders for being absent or passive owners.

Here are some highlights:

• Based on a traditional legal understanding of ownership, shareholders should be seen as owners of shares, but not as owners of the company or owners of the company’s assets.
• Share ownership does not entail any duties for shareholders, nor do the proprietary rights derived from share ownership generally entail any duties.
• This strong encouragement of shareholders to play an active role in the corporate governance of investee companies is arguably rather controversial as it is not based on traditional corporate governance theory.

Campaign Finance Reform Without Law (December 2018)

This Director Notes report focuses on a private ordering approach to corporate political spending disclosure. The author wrote that given the current legal and political climate, it is time for boards, CEOs, campaign finance scholars, and advocates to look beyond the law when it comes to corporate political spending and its related disclosure.

Here are some highlights:

• Following the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission (FEC), which lifted restrictions on corporate political spending, some predicted a deluge of corporate money into the system. That has not happened.
• An important virtue of private ordering is that it frees campaign finance reformers from the shackles that jurisprudence and politics place on public regulation. But private campaign finance reform is a viable alternative or compared to public regulation only to the extent that private parties have the incentives and capacities to act.
• Existing law can make private action more or less difficult, and, conversely, private interventions can affect whether and how legal change occurs. By thinking beyond the law, reformers can seek to achieve what law cannot, while also helping law achieve what it can.