Challenges presented, plans developed, costs controlled, opportunities seized and change promoted. This is how some public companies are successfully navigating the changing corporate governance world. The federal government, stock exchanges and, most importantly, stockholders have presented the challenge to companies that they reform their governance and disclosure practices, while at the same time improving, or in some cases reinvigorating, their businesses. Some public companies have responded to this reform challenge by ensuring only that they are technically compliant with the new requirements. But in today's environment, where the opinions expressed by a few institutional investors and an even smaller number of "corporate governance experts" can have a significant impact on how a public company is perceived in the competitive capital markets, technical compliance, by itself, will likely not be enough to differentiate a company. Moreover, if strict regulatory compliance is the only reason that a company is putting governance and disclosure reforms in place, it runs the risk of "publicly differentiating itself" through negative or poorly timed press in the event ill conceived or ineffective reforms fail the company and its owners, managers, employees and customers. One does not need to look far to see how deficient governance and disclosure efforts, whether actual or merely perceived, can harm a company's business. Loss of government contracts, customers pulling money from mutual funds besieged with bad press, and lenders and other financial business partners limiting their business with "lax companies," these are real world business challenges that can result from a public perception that a company has minimal corporate governance, compliance or disclosure standards.
But responses to these demands for change do not need to be minimalistic or, worse, ill conceived or poorly planned. A company's response can be tailored to its industry, business, culture and resources. An effective way to respond to these demands is to approach corporate governance and compliance reform as the company would any other large scale project involving an integral part of the company's operating platform. Companies devote substantial internal and external resources to developing, planning and implementing large scale IT initiatives, R&D projects or manufacturing improvements, and the same thoughtful, team based approach should be followed in the corporate governance and compliance arena, as these changes, if designed properly, also will add value over the long-term. Moreover, when planned and administered effectively, these efforts do not need to involve the tremendous drag on operating profits that so many pundits have predicted (though these efforts will still cost money and involve meaningful internal time commitments, which is part of the added cost of being a public company today).
So what does an effective corporate governance reform program require?
First, it requires a fundamental understanding that these initiatives are not one time events – public companies must live and breathe positive corporate governance and effective compliance and disclosure programs every day. Most companies have already taken action in planning and implementing some reforms, but simply putting some charters and corporate governance guidelines in place does not fulfill the spirit of the reform demands. A company should take the opportunity to adapt these charters and guidelines to its specific circumstances and try to examine how proposed changes could shape the company over time.
Second, corporate governance reform and maintenance must have a Champion – and that Champion should, for nearly all companies, come from inside the company because an outside advisor (like an outside lawyer or consultant), no matter how well regarded, will not have the full grasp of the company's culture and operating environment that is necessary to develop achievable policies and programs that are tailored to the company's unique attributes.
Third, the Champion must build a team to address corporate governance reforms for the company, which team may include an independent director, a group of interdisciplinary employees and trusted outside advisors.
Fourth, the Champion and the team must develop an overall plan to address, at a minimum, each of the new corporate governance requirements and, when appropriate, other opportunities for reform. Included with this article is a "timeline of effectiveness" that I and Daniel P. Adams, a colleague of mine, developed for ourselves initially to help us keep the numerous governance requirements straight. I believe that the Champion and his or her team may well find the timeline effective in order to establish what should have been accomplished already and, more importantly, what must be accomplished in the near future. This timeline is not a "form" or a "model." Instead, it (along with its live links to more detailed resources) can be used as a simple planning tool to verify that the company is on track. Of course I am a lawyer, so I need to note that the timeline is certainly not a substitute for experienced, professional and pragmatic counsel and we encourage each company to seek this counsel (whether internal, external or both) in the context of its overall plan.
Fifth, as the plan is implemented, appropriate observations must be made to understand where the planned activities need to be adjusted to best accomplish the corporate governance, compliance and disclosure objectives. Moreover, the implemented changes must be monitored, evaluated and, in some cases, altered.
Finally, public companies may want to consider letting the world (or at least those persons who are interested in the company) know what corporate governance milestones have been achieved and what other milestones are planned. This public rollout is especially important for companies that have had a long, quiet history of attention to corporate governance – let the world know that this attention is a company hallmark and that the reform that has been demanded has long been practiced at the company. Companies should consider using a prominent location on the company's website, as well as the company's proxy statement and annual report, to talk about what has been accomplished. And consider having a link to the company's corporate governance and disclosure efforts right on the company's home page. This instant, one-click accessibility sends a message that integrity and good conduct is fundamental to the company's business, and is not just an IR/PR afterthought that is buried somewhere deep in the "investor relations" section of the company's website. There are more than just stockholders who are interested in how the company conducts its business, so it is important to help them find this information with ease.
So, with an effective Champion and team, a well thought out plan, a receptive company culture and the right blend of third party advice and organic company knowledge, public companies can turn the corporate governance challenges of 2002 and 2003 into opportunities that they can capitalize on and promote, giving them an advantage in the ultra competitive capital markets of 2004 and beyond.
To view the timeline which is kept updated on the Goodwin Procter LLP website please go to http://www.goodwinprocter.com/pdfs/S_O_timeline.pdf.