Forty years of corporate governance: what we have today is nearly unrecognizable from that of 1976.

• Author: Brownstein, Howard Brod
• Position: ROAD TO XL * WHAT CHANGED?

In the spring of 1976,1 was honored to publish an article in the very first issue of Directors & Boards. My article, "Audit Committees and Lawyer-Auditor Conflicts," had grown out of my final paper in the JD/MBA program at Harvard from which I'd just graduated. It explored the tension between, on the one hand, a company's duty to disclose contingent liabilities, including actual or threatened litigation that might have a material financial effect, and on the other hand, the attorney-client privilege and the company's understandable desire not to engender otherwise avoidable litigation or embolden litigants. FASB 5, "Accounting for Contingencies," had just been promulgated the prior year, and attorneys, auditors and boards of directors were struggling to deal with these competing considerations, which clearly impacted corporate governance as it then existed. (See accompanying sidebar for an excerpt from the article.)

The ensuing 40 years have seen a coming-of-age in corporate governance. With many exceptions of course, back then the typical board of directors was less a force for risk oversight and managerial accountability and more a supra-management layer for box-checking the requirements of corporate existence, often composed of long-serving "old boys club" members, concerned more with holding off "corporate raiders" than with such current topics as strategy, risk, compliance, management succession, etc.

Fast-forward to 2016, and the corporate governance of today is nearly unrecognizable from that of 1976. "Best Practices" in governance are referred to regularly, and are steadily evolving. "Shareholder Activism" has gained general respectability, with many large institutional investors creating "governance departments" that are increasingly willing to listen to activists, and in some cases, join in their causes. Long-serving board members might be seen as an asset, but the need for "board refreshment" is becoming a countervailing and possibly greater force. Corporate governance now enjoys far more recognition and importance in the mind of investors, regulators and executives alike than 40 years ago. Whereas management formerly led, and boards and shareholders followed, increasingly boards are expected to lead by being involved in formulating (or at least deciding upon) strategy, and then monitoring management's performance in implementing that strategy.

Academic commentators do not agree upon the forces that led to the corporate...