Composing a Balanced and Effective Board to Meet New Governance Mandates

Abstract

The roaring 1990s came to a screeching halt with a stock market crash and a wave of corporate scandals. Investor glee with towering stock prices had created an environment of uncritical oversight throughout the marketplace. Even for wellintentioned corporations, responsible governance was undermined by the demands of expectations of double digit earnings growth that justified ever rising share prices.1 As Securities and Exchange Commission (SEC) Chairman William H. Donaldson remarked, ‘‘As the band played faster and faster, standards began to erode throughout the business community.’’2 By the dawn of the new century the music had died.3 In the wake of several well-known corporate failures, caused at least in part by the failure of boards of directors to effectively oversee management, the SarbanesOxley Act of 2002 (‘‘Sarbanes-Oxley’’ or the ‘‘Act’’) was adopted, effective July 30, 2002.4 In addition, both the New York Stock Exchange (NYSE) and the Nasdaq Stock Market, Inc. (‘‘NASDAQ’’) proposed and now have adopted new corporate governance listing standards,5 and various marketplace-rating agencies have