A new report shows that most fraudsters are not acting on their own. Usually it involves the CEO and CFO working together to cheat shareholders. The report also reveals that external auditors and directors might be in on it too.
The preoccupation with independent directors under Sarbanes-Oxley is misguided. What's needed is diversity. Company directors are a small exclusive club. What's needed are different kinds of people. The kind who will ask hard questions.
Most companies in the US are continuing to fill their board rooms with the same sorts of people: white, male and mostly in their 50s. Only 17 percent of new board positions are filled by women. Some organisations are now trying to match women up with companies.
Call it the six degrees of separation theory of corporate governance. A study has found that study has found that the probability that a company would start backdating stock options study rose by up a half if 0ne 0f its directors was also on the board of a company already backdating options.
The Securities and Exchange Commission is now examining whether directors who sit on more than one company board may have spread the practice of backdating stock-option grants with research showing that 40 per cent of the companies under scrutiny have common directors. This is all part of the “six degrees of separation” theory of corporate governance.
In most companies today, it truly seems as if ethics are as disposible as paper cups. If we don’t encourage companies to have codes of ethics and actually stick by them (and not vote to suspend them to partake in unethical activities, like Enron did), the corporate world is going to get out of control. As children, we are always told that we need to take responsibility for our actions; however, some Boards of Directors seem to believe in the “Do as I say, not as I do” mentality. Why should we, as consumers, have to worry about the companies that produce the products and services that we use on a constant basis? Hopefully, some industry leaders in the corporate world will read this article and realize how truly important ethics and ethical policies are.
Leon Gettler is a blogger and senior business journalist at The Age, specializing on management issues. His latest book, Organisations Behaving Badly focuses on the forces that lead smart executives into making dumb decisions.
