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SELF-DEALING ISSUE

There was not a conflict of interest policy that applied to directors. Board guidelines did not exist to address confidentiality, the use of corporate opportunity, the treatment of inside information, related-party transactions, or identifying and adequately addressing perceived conflicts of interest. The author was unable to ascertain self-dealing, but robust policies and controls did not exist to deter, detect, monitor, or enforce anticorruption, in any event.

Board Composition

As mentioned previously, several directors were long-serving. Independent directors were selected originally (and to the author's observation, still) on the basis of personal knowledge and prior working relationships. All directors, however, were believed to comply with formal independence standards in place. There was little if any documentation of such independence, of the expertise directors possessed, or of collective expertise that the board needed.

Preparation of the Author's Report and Communication with the Regulator

Given the foregoing, the author prepared 43 recommendations for the review of the regulator and the board of directors.

The regulator endorsed the 43 recommendations that the author provided, with minor modifications and with two additional recommendations to establish a compliance committee of the board and to have a board-approved strategic plan, which the regulator suggested and which the author incorporated into his report. There were 45 recommendations in the author's final report, which he was now to present to the board of directors of Chessfield. The report was 14 pages long.

CHESSFIELD BOARD MEETING TO DISCUSS THE AUTHOR'S RECOMMENDATIONS

The author was invited to present his report and 45 recommendations to the full board of directors of Chessfield Inc. in New York City at 10 a.m. on a Friday morning in December. This was a special board meeting, and the author's report was the only item on the agenda.

The author had 15 minutes to present a summary of his recommendations. (Note: The board had a full week prior to the board meeting to read the author's report.) There was to be a 45-minute period of dialogue and questions and answers, after which the author would leave the room and the board would discuss the report in closed session.

The author was told by the general counsel that the regulator had requested to the chair of the board that the board approve a resolution adopting the author's report in whole, supported by a commitment to implement the recommendations within the time frame prescribed in the report. The chairman of the board was to telephone the regulator shortly after the meeting to report whether this requested approval had occurred. (The regulator had told the chair early in the process that Chessfield was close to having its license to operate revoked because of the governance and risk shortcomings.)

When the author was invited into the boardroom, he saw that it was very formal. There were portraits of past directors on the walls, large mahogany chairs, and dark wood. The author did not observe any use of technology, such as laptops or tablet computers, which is typical in most boardrooms now.

At the board meeting, the author presented 45 recommendations based on his review and discussions with the regulator. A time frame for each recommendation was set out (up to eight months, eight to 12 months, and 12 to 18 months) within the report, along with independent validation and reporting back to the regulator, to ensure execution of the recommendations.

 
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