The Big Idea: The Case for Professional Boards - Harvard Business Review

The Big Idea: The Case for Professional Boards - Harvard Business Review: "When the world’s largest financial institutions had to be rescued from insolvency in 2008 by massive injections of governmental assistance, many blamed corporate boards for a lack of oversight. This was a problem we had supposedly solved nearly a decade ago, when blatant failures of corporate governance (remember Enron?) prompted Congress to pass the Sarbanes-Oxley Act. The new rules had seemed promising. The majority of a board’s directors had to be independent, which would, in theory, better protect shareholders. Senior executives were required to conduct annual assessments of their internal controls for review by external auditors, whose work would be further reviewed by a quasi-governmental oversight board.

The recent financial meltdown, however, has made it clear that the new rules were insufficient. Most major financial institutions in 2008 were more than compliant with SOX. Indeed, at the banks that collapsed, 80% of the board members were independent, as were all members of their audit, compensation, and nominating committees. All the firms had evaluated their internal controls yearly, and the 2007 reports from their external auditors showed no material weaknesses in those controls. But that didn’t stop the failures."