Corporate Governance Consultants: The Issue of Qualifications

Article excerpt

Today's increased focus on corporate governance means that boards of directors, managers, and others need advice in the development and evaluation of governance structures and processes. The demand for these services has been driven by corporate managers and boards interested in improving governance, satisfying shareholders and regulators, and preventing lawsuits. On the other side, judges, jurors, arbitrators, and mediators need governance experts to help them understand the nuances of governance practices and the way they relate to management.

Arthur Levitt's landmark "Numbers Game" speech of September 1998 called for boards to engage independent professional and legal advisors. Levitt offered further insights on the governance challenges facing boards with "In Defense of Sarbanes Oxley," an op-ed he co-authored with Paul Volcker in the June 14, 2004, Wall Street Journal. Levitt and Volcker went beyond the earlier proposition that a breakdown in "tone at the top" was the primary cause of business collapses, and pointed to the breakdown in "corporate checks and balances." Inherent in these checks and balances are the assignment of responsibilities, the requirement for accountability, and the existence of consequences.

Levitt's recognition of the value of professional advisors, and his emphasis on checks and balances, has expanded the role of corporate governance consultants. With this expanded role comes the need to clarify the "qualifications" that should be expected of those who would represent themselves as qualified corporate governance consultants.

This article establishes a set of expectations-a common body of knowledge-for qualified corporate governance consultants. This definition is made more critical by the absence of licensing or other professional standards in the field. The common body of knowledge requires working with legal and accounting specialists, building on the professional and academic literature, and drawing from the knowledge, skills, and experience of executives and directors.

The development of a common body of knowledge is neither novel nor unique in the practice of business management. Almost 50 years ago, another group of business professionals addressed a similar need. The Association of Consulting Management Engineers (ACME), now known as the Association of Management Consulting Firms (AMCF), recognized that the growing demand for management consulting services led many people to enter the field-some were qualified, others were not. The ACME established qualifications for management consultants in its 1957 publication, Common Body of Knowledge Required by Professional Management Consultants.

The mission of the ACME study was to closely examine the elements of "managing." The ACME study was built on well-understood principles solidly embedded in business practices and business literature. The ACME study did not consider the oversight role of the board of directors and board committees a matter of critical importance today. Nevertheless, the ACME study provided an excellent framework for setting out a common body of knowledge for corporate governance consultants. The ACME study contributed significantly to the discussion of management structures and processes that follows.

A Common Body of Knowledge: Overview of Basic Principles

What type of education, training, experience, and other capabilities should such advisors have in order to consult in the area of corporate governance?

The two basic components of the common body of knowledge (CBOK) for qualified corporate governance consultants are: 1) an understanding of, and experience with, management structures and processes, and 2) an understanding of, and experience with, governance structures and processes. Before addressing these basic components, the CBOK addresses certain other fundamentals.

A qualified governance consultant must be able to evaluate the functions of management and the board; a consultant must also be able to evaluate the relationship between the two entities. …