Recently, the Institute of Internal Auditors announced a new “corporate governance index” that annually rates listed companies – based on surveys of Chief Audit Execs.
While I’m not sure I can get behind the claim that this is “the first to truly probe – and grade – core actions and responsibilities that are crucial to successful, ethical, and sustainable organizational practices among American businesses,” it’s somewhat unique in highlighting auditors’ views (see page 7 for a take on that group’s role in corporate governance). Since my mom spent most of her career as an internal auditor, I can attest that these folks often have different perspectives & opinions than those of us on the legal side.
But don’t take my word for it! This note accompanies the finding that companies are vulnerable to corporate governance weaknesses because they have no formal monitoring or evaluation mechanism (which incidentally is the category of “worst performance”):
CAEs also reported that, if the evaluation is not conducted by internal audit, it is most often done by the general counsel’s office or under the direction of the nominating/governance committee, at which point it is more likely to be a compliance “check-the-box” exercise relative to listing exchange requirements and other laws and regulations.
Anyway, the surveyed companies averaged a “C+” grade and the report is pretty emphatic that there’s room for improvement (with all due respect to my auditor friends, if there’s anyone more “glass half empty” than us lawyers, my money is on CAEs). The grading is based on eight “Guiding Principles of Corporate Governance” – and helpfully, you can see the actual survey questions and the overall grade that each question generated. Here’s a finding that we can probably all agree is troubling:
When presented with specific scenarios in which the CEO wants to delay reporting negative news, respondents believed that only 64% of board members at their company would push back on the CEO, meaning more than one-third (36%) of board members would not. Similarly, CAEs gave a D (67) to the issue that board members should be asking whether information presented to them is accurate and complete.
-Liz Dunshee, TheCorporateCounsel.net January 2, 2020
