Sending the Board Back to School
College classrooms are seeing more corporate directors these days.
That's the upshot of the recent wave of corporate scandals and demand for more accountability from corporate boards. Directors, feeling pressure to ask the right questions in order to avoid financial and ethical landmines, are signing up for specializied executive education courses in increasing numbers. And business schools are eager to have them.
"It is time for directors to step up and voice their views on corporate decisions," says David Wittrock, a director of California Micro Devices (CAMD) in Milpitas, Calif., who earlier this year participated in the Stanford Directors' Forum, a course offered at the school's Graduate School of Business. "The days of unanimous votes on every issue without any challenges to top management are over."
The SarbOx Effect
Indeed, the Sarbanes-Oxley Act, a federal law passed in 2002 to create more transparency in financial reporting and enhance accounting practices of publicly traded companies, is making education of corporate directors more necessary, not to mention more desirable, than ever. And B-schools are reforming existing executive education programs and creating new ones in response to this emerging market of students.
Companies support executive programs because they benefit from sending their directors for additional training. Institutional Shareholder Services (ISS), a provider of proxy voting and corporate governance advice for more than 35,000 companies across 115 markets around the world, has been accrediting corporate director programs for about four years. The organization also rates companies on their corporate governance practices. One of the 63 criteria for the corporate governance quotient is whether directors are being trained and educated.
The number of companies sending board members to educational programs is increasing. In January, 2004, 93% of boards at 5,400 U.S. companies did not have any directors who had participated in additional education or training, according to ISS attendance records. By October, 2006, that figure had dropped to 76%.
ISS accredits programs for corporate directors based on a variety of factors, including whether the course includes at least eight hours of instruction that must be completed within a year, and the type of organization that is creating and administering the coursework. Dartmouth's Center for Corporate Governance, Goizueta Director's Institute at Emory University, and the University of Southern California's Corporate Government Summit are among the more than 60 ISS-backed classes for directors.
Stanford's program got started about five years ago, when some of the B-school faculty were talking about the mistakes made in high-profile corporate cases—and they decided they could do something about the problems. "We recognized that what we research and teach would have been helpful," says Maureen McNichols, director of the Stanford Directors' Forum.
Since then, about 55 corporate directors annually attend the ISS-accredited Stanford course. During the nearly three-day session that has the business faculty teaming up with those in the law school, participants learn about issues including CEO selection and succession strategies, litigation risks, financial reporting, and determining executive compensation. As a result of increasing demand, the course will be offered twice annually starting in the 2007-2008 academic year.
Know Your Numbers
For the last three years, Columbia Business School has offered Accounting Essentials for Corporate Directors, a three-day course in New York backed by ISS that takes place twice a year with about 20 to 40 students.
A similar executive education program for nonfinance executives is also offered. These programs focus solely on accounting and financial reporting in this new era of heightened scrutiny.
"Without the numbers, directors can't ask the right questions," says Grant Ackerman, associate dean of executive education and professor of management at Columbia. One part of the program involves participants going over the financial reports of their companies searching for red flags and determining appropriate questions and action.
In the spring, Wharton at the University of Pennsylvania will be debuting a new course for first-time corporate directors. It will build on previous executive education programs that the school has offered over the last 10 years, but this time the focus will be on training freshmen directors. Coursework during the three- to four-day program (participants with little finance knowledge can opt for a fourth day of class focusing on accounting and finances) features everything from learning how to properly read a balance sheet to determining ethical obligations. Wharton has also recently begun to offer similar programs to participants in China and India.
Placing its attention on first-time directors and those in emerging markets allows Wharton to add value by meeting the needs of groups that weren't getting enough attention, says Michael Useem, professor of management and director of the Wharton Center for Leadership and Change. He adds that in light of the state of affairs in today's business world, educators have an obligation to teach directors and have an impact on the world outside of academia. "The key is that directors leave [the course] feeling as though they're in the driver's seat when it comes to key decisions," he says. "They need to know how to make conclusions without micromanaging."
These executive education courses are helping to professionalize the role of corporate director. Some, including Newton Margulies, director of executive education at University of California-Irvine's Paul Merage School of Business, say that the day might even come when directors will have to have some sort of certification to be considered for the job. In the meantime, directors have to adjust to the quickly changing landscape.