Enhanced Corporate Governance: Avoiding Unpleasant Surprises.

• Author: Brownstein, Howard Brod
• Position: BOARDBOOK: Boardroom Reads

It is difficult to read a newspaper or watch a news program without hearing about another corporate scandal, often resulting in serious destruction of shareholder value, as well as irreparable damage to the company's brand and reputation. Of course, the inevitable question posed following such reports is, "Where was the board?" While there is sometimes speculation about what the board might have done, or done differently, until now there has not been a "deep dive" into examples of such scandals to shed light on what actually happened (or failed to happen), and object lessons for boards that can be drawn from these.

Board members of companies large and small, both public and private, will benefit from reading Enhanced Corporate Governance: Avoiding Unpleasant Surprises, by Frederick D. Lipman. Lipman is a senior partner at the international law firm of Blank Rome LLP, headquartered in Philadelphia. He has authored 19 previous books, including four on corporate governance topics. His latest work includes an analysis of several high-profile scandals, including the Theranos product testing fraud, GM's faulty ignition switches and the Michigan State University sex abuse scandal.

In each case, the author reviewed, among other sources, reports of the independent legal counsel engaged to conduct respective investigations. His analyses include what the board of each company apparently failed to do or might have done differently that would likely have created a different outcome. The author's purpose is to educate board members about how to avoid following in those boards' ill-conceived and unfortunate footsteps.

A recurring theme of the book is the importance of maintaining a healthy skepticism regarding the information provided to boards by management. While there is no broad imputation of dishonesty or evil motives by executives, one is reminded that management consists of people with ordinary human frailties and the board is their ultimate employer whom they wish to impress.

There is therefore the ever-present risk that potentially negative information might be delayed, downplayed or omitted altogether, perhaps in the hope that any underlying problem will be quickly resolved without it coming to the board's attention. There may be a reluctance to report bad news when problems have already been reported or if the company is in distress. Even if senior management has only the best motives at heart and fully intends to report faithfully to the...