The View from the Board in the Wake of Dodd-Frank

Dodd-Frank has been described as the most comprehensive overhaul of the financial regulatory system since the great depression. Since it was crafted to address the most significant market crisis since the one which spawned the Federal Securities Laws, many may find that more than appropriate.

In the wake of this new legislation which many claim constitutes over-regulation which will hinder business, PWC conducted its annual survey of corporate directors on a range of topics from risk management to executive compensation and FCPA compliance. Risk management is in many ways a centerpiece of Dodd-Frank, while executive compensation has been a much discussed topic and FCPA compliance a key focus of the Department of Justice and the SEC. The results of the survey provide interesting insights into these issues. Those results include:

Board in general

• Over half of the directors indicated that more time and focus should be spent on risk management.
• Over 70% of the directors stated that they do not believe their board should have a separate risk committee, while 67% concluded that the board is very effective at monitoring risk management to mitigate corporate exposures.
• Over half of the directors stated that the board does not receive general and/or specific customer satisfaction research.
• Most directors stated that during the last 12 months the board had discussed an action plan that would outline steps the company would take if faced with a major crisis.
• Almost 80% of directors indicated that sustainability/climate change is already a major focus and no additional time on the question is required.
• Almost 90% of directors surveyed stated that no additional time is required on social responsibility issues because it is already a major focus.

Regulatory and compliance

• Almost 75% of the directors stated that compliance and regulatory issues are already a major focus and do not require more time.
• The top five items identified as "red flags" in signaling a director to step up his/her board involvement are: (1) a restatement of the financial statements; (2) charges or investigations; (3) management missing strategic performance goals; (4) an adverse 404 opinion; and (5) multiple whistle-blower incidents.
• Almost 25% of the companies involved in the survey do not have an FCPA compliance program.
• Significantly less than half of companies in the survey have an FCPA program which covers employees and agents, while almost 20% have a program limited to employees.

Management

• 90% of the directors surveyed concluded that the board is very effective at standing up and challenging management when appropriate.
• 58% of directors stated that U.S. company boards are experiencing difficulty controlling the size of CEO compensation.

Effectiveness of board

• Only about 30% of directors concluded that the company had an effective board evaluation process.
• Over 81% of directors stated that the most important technique in ensuring that directors continue to be effective on the board is an effective evaluation process.

The survey results are available from PWC at www.pwcglobal.com.

For more cutting edge commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.