KSU center has shaped national dialogue on corporate governance for 15 years
Corporate Governance Center’s expertise has been at forefront of national discourse
(Jul 2, 2010) — Corporate Governance Center’s expertise has been at forefront of national discourse as boards of directors have
faced increased scrutiny
In the summer of 1995, a group of three accountants –– two college professors and
a former audit partner with Price Waterhouse –– got to talking in Atlanta. Over lunch
and casual conversation, they came up with an idea: Why not launch an academic center
focused on helping improve the performance of corporate boards? Just like that, the
Corporate Governance Center at the Coles College of Business was born, the first academic
center of its kind in the U.S.
“We literally hit it at a perfect time,” said one of the Corporate Governance Center’s
founders, Paul Lapides, then a director at a real estate investment trust. “We’ve
been participating in the dialogue on corporate governance for 15 years now, and we
have actually shaped some of the things that are now required in the boardroom.”
Over the past decade and a half, KSU’s Corporate Governance Center has been at the
forefront of the national dialogue on corporate governance, which examines how directors
oversee the conduct of a company’s business in order to promote the best interests
of the company and its shareholders. As investors and regulators have demanded greater
accountability and expertise from corporate America’s boards of directors, the center
and its faculty have emerged as an important voice on key governance issues, including
what should be the role of the board and the audit and compensation committees.
The center’s work ranges from issuing principles on effective governance and conducting
original research to serving on an influential task force of the National Association
of Corporate Directors, giving hundreds of media interviews on hot-button issues,
and working closely with directors to educate them on best practices. Finance professor
James Tompkins, the center’s director of board advisory services, served as an expert
witness on an Enron case.
“The KSU folks have made an immeasurable contribution to the corporate governance dialogue,”
said Joe Carcello, director of research at the University of Tennessee’s Corporate
Governance Center, which the KSU center helped launch. “The team at KSU put together
one of the best corporate governance centers in the nation.”
In the mid 1990s, years before the Enron Corp. and WorldCom financial disasters, the
boards of many large companies were finally standing up to management and firing underperforming
CEOs. However, at the time there was little information available on corporate governance
best practices, and director education programs were rare. Most significantly, most
directors were picked by CEOs.
Disastrous events such as the Enron financial reporting scandal and ensuing bankruptcy,
the accounting fraud and massive bankruptcy at WorldCom, and the collapse of Arthur
Andersen LLP, Enron’s longtime auditor and one of the nation’s Big Five accounting
firms, brought about positive changes in corporate governance, said Lapides, a professor
of management and entrepreneurship and director of the Corporate Governance Center.
Today, it is uncommon for CEOs to select directors. There is much more awareness ––
as well as information and education –– on best practices. Directors and investors
now understand the role of the board much better. And new regulation brought about
by laws such as the Sarbanes-Oxley Act of 2002 as well as tougher listing requirements
on the stock exchanges have mandated changes, including more independence and expertise
on the part of directors.
“There is a much clearer understanding of the role of the board on the part of directors,
the media and regulators,” said Dana Hermanson, co-founder and the center’s director
of research. “Directors get raked over the coals in the media when there are disasters.”
Directors are expected to be much more independent today, said Lapides, who has given
hundreds of media interviews and written dozens of articles and commentaries. But
being independent is not enough.
“You have to exercise independent judgment,” he added. “There’s no question that shareholders
expect more from directors and if they are not happy with the board, it is now easier
for shareholders to nominate and elect directors, or to get the board to nominate
directors that large shareholders want.”
Nowadays directors have to work much harder than they used to, Tompkins said. “It’s
a job that is taken a lot more seriously.”
In addition, the job carries the risk of personal liability for failure to do what
is required. “Being a director of a public company is no longer just a free lunch
and social club. It now requires a tremendous amount of work,” Lapides said.
The rules that govern directors are basically the same and their primary responsibilities
have not changed, Lapides explained. Yet directors are more likely to get sued today.
Courts look carefully to see if directors paid the appropriate attention to matters
before the board and exercised good judgment.
Hermanson, who recently co-authored “Fraudulent Financial Reporting: 1998-2007,” a
major study on financial fraud, believes that while there have certainly been advances
in making boards more accountable and transparent, work remains to be done to improve
the processes of how board committees oversee company management. Many directors,
he added, still have personal ties to management, and boards need to get a better
handle on risk oversight.
“Many directors are far too trusting of management,” Hermanson said. “There is a need
for more skepticism, like an external auditor should have.”
For more information on “Fraudulent Financial Reporting: 1998-2007,” please go to
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