According to a recent report, Chief Audit Executives (CAEs) don’t think that companies are doing a very good job evaluating corporate governance. The report was issued by the Institute of Internal Auditors and the Neel Center for Corporate Governance at the University of Tennessee. The report says that IIA and the Neel Center partnered to develop what they call the “American Corporate Governance Index” (ACGI) that’s based on eight guiding principles of corporate governance.
The report is based on survey responses from 128 Chief Audit Executives of publicly traded U.S. companies. Survey respondents answered questions anonymously, so scores aren’t assigned to individual companies, by indicating their level of agreement or disagreement with specific statements and scenarios.
Emphasizing the difficulty in overseeing corporate governance across all levels of an organization, the report’s survey questions were designed to capture the effectiveness of corporate governance enterprise wide. Key findings include:
– 10% of Index companies scored an F
– Many companies are willing to sacrifice long-term strategy in favor of short-term interests
– More than one-third of board members are not willing to offer contrary opinions or push back against the CEO
– Boards fail to verify the accuracy of information they receive
– Independent boards drive stronger governance
– Companies are vulnerable to corporate governance weaknesses or failures – the report says that the majority of respondents reported no formal mechanism for monitoring or evaluating the full system of corporate governance
– Regulation does not correlate with stronger governance
Aside from the report’s key findings, it also said that CAE’s reported when corporate governance is formally evaluated, internal audit completes the evaluation 75% of the time, and when not, it’s often done by the GC’s office or under the direction of the board governance committee, at which point “it is more likely to be a compliance ‘check-the-box’ exercise”. Reading that CAE’s say regulation doesn’t correlate with stronger governance, regulations aside, I suspect many wouldn’t support dropping ‘check-the-box’ governance evaluations.
-Lynn Jokela, TheCorporateCounsel.net March 2, 2020
