A director's blurry line.

• Author: Kaufman, Henry
• Position: From The Road to Financial Reformation - Book review

From The Road to Financial Reformation by Henry Kaufman. Copyright 2009 by the author. Published by John Wiley & Sons Inc. (www.wiley.com).

GOOD GOVERNANCE in financial institutions--or in any organization, for that matter--begins at the top, with the integrity and skills of the leaders. Easy as this may sound, it is extremely difficult to attain within large institutions. Whatever a particular leader's skills may be, large financial institutions, typically, are involved in many activities--foreign exchange, investment banking, trading of securities, proprietary position taking, insurance, money management, among others. Senior management therefore must depend on middle management for a flow of accurate information.

Corporate directors face an especially demanding challenge. Each day they must confront the difficult question: How informed should board members be about all the activities and policies of the institutions they serve? In this realm, the line between policy and operations often is blurry. How much should a board member know about transactions with affiliated companies, about the transfer of assets to affiliated entities, or about off-balance-sheet activities?

My own experience suggests that the information quandaries that confront board members can be alleviated in a number of ways. First, new board members should undergo...