Magazine article American Banker

The Fine Line That Separates Roles of Directors, Executives

Magazine article American Banker

The Fine Line That Separates Roles of Directors, Executives

Article excerpt

The Sarbanes-Oxley Act has awakened board members to their fiduciary responsibility in a very positive manner. Bank directors, like those at other institutions, realize that expectations have grown, both in number and in significance.

Board committees have been reviewing their charters to ensure compliance with both the letter and the spirit of the new law. The final interpretation is not out yet, but in the meantime, many are struggling with the true meaning behind the new requirements.

Sarbanes-Oxley can cause confusion about the responsibilities of directors and executives. The purpose of boards is to provide elements such as oversight, a final level of controls, and strategic guidance.

However, the directors should not manage the company or second-guess the executive team. Their job is to candidly assess situations and provide input. They must listen to executive recommendations and either accept or reject them. They should not interfere with the implementation of a strategic direction, except to keep a company from falling short of expectations or veering away from that direction.

The board's biggest responsibility is to support the executive team; when the results do not measure up, the board needs to advise, caution, and prod. If need be, it can even remove executives. But it should not manage the company itself.

This distinction between oversight and management is getting harder and harder to make, especially at the audit committee level. Board members should remember that the new law has not changed their fundamental duties regarding the structure of corporations; it just clarified their detailed responsibilities.

The days when boards were a rubber stamp should be over by now. The role of the board is to help shareholders and executives alike by sharing their experience and insights.

When disagreements occur, board members should present their views candidly as they support the leadership team as it makes the decisions it feels are in the best interest of the shareholders. …

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