Concerned about the fate of corporations that have behaved not only irresponsibly but criminally, and worried that that's the way it always will be? Concerned about the fate of the planet, and worried that things will never get better? If so, it's time to sit up with a good book. Change is possible, and this month we look at titles that offer suggestions on how and why corporations should change their attitudes and their practices.
Building Public Trust: The Future of Corporate Reporting, by Samuel A. DiPiazza Jr. and Robert G. Eccles (Wiley, 2002), is a call for change in the way corporations divulge information about themselves and the challenges they face. DiPiazza, CEO of PriceWaterhouseCoopers, and Eccles, president of Florida-based Advisory Capital Partners, a provider of advisory services to businesses, offer their analyses on the current state of corporate reporting and its hazards. But they don't stop there. They also offer a detailed plan for reporting corporate data in a way that will give consumers and industry analysts alike a better understanding of companies' challenges and achievements.
The authors argue that transparency, consistency, and even the proper format of reporting have become vital to restoring confidence in the marketplace. They also argue in favor of the use of an Internet-enabled platform for that reporting–Extensible Business Reporting Language (XBRL). This platform, they say, will enable businesses to better meet the challenges of global reporting following consistent standards. In addition, they propose a design for reporting information on a much wider range of topics. In order to accommodate such a diverse collection of data, they have also devised a new reporting system to handle it, divided into three separate tiers: Tier One is classified as global generally accepted accounting principles (GAAP); Tier Two, industry-based standards; and Tier Three, company-specific information.
Each area is handled in depth, with a look at the shortcomings of the current system and how the proposed system can remedy those faults. The authors forcefully address the arguments against implementing a new system. Their suggestions are clear and practical, and their arguments sound. The book also relates cases where regulatory bodies abroad are requiring more transparent reporting and the use of different standards.
Anyone with a stake in corporate reporting, whether as members of a corporation or board of directors, advisors with fiduciary responsibility, or consumers with an eye toward the balance sheet, should be aware of proposed changes such as these and their potential to restore the integrity of the system. Savvy readers in a position to do so may even be able to effect some changes of their own.
Board Governance
Corporate Boards to Create Value: Governing Company Performance from the Boardroom, by John Carver with Caroline Oliver (Jossey-Bass, 2002), is another book designed to effect change in the way companies are run, in order to forestall future catastrophes ? la Enron. The authors assert that it is the board of directors that holds responsibility for how a corporation behaves, and that there has been precious little attention devoted to board governance despite the corporate scandals and the bear market. In fact, they say, boards focus inwardly entirely too much, on achieving results for management, and fail to focus outwardly on behalf of their true focus of accountability: the corporation's owners. The very "nature of board work," they say, is "not management one step up but ownership one step down."
Based on this principle, the authors have devised a system of board governance called "Policy Governance." The system offers new insights into how boards can add value to the corporations they serve, but in order to do that, there is a need to redefine and recast traditional concepts, such as "owner." While such an idea may seem simplistic, they point out that the definition of ownership can vary from place to place and from corporation to corporation. There is the matter of shareholders, but there is also the matter of employees–which in some countries are counted in the category of ownership. They point out, as well, that to some even that definition is considered too narrow, and that stakeholders of all kinds such as communities, creditors, customers, and suppliers must also be counted within the definition of "owner."
Defining a board's job and then designing it to function as an "accountable and effective" leader for a corporation are integral to making that board into a force majeure that can guide a corporation into right-minded business practices and maintain its in fiscal health. The authors point out that boards whose membership has been "decided or significantly influenced by management" are often ineffective in the kinds of hard issues that have faced many corporations of late. Boards must be independent in order to do what they must: govern.
