BulletProofBlog the blog on crisis communications

Each Monday, Bulletproof Blog now features exclusive interviews with thought leaders on issues of critical importance to companies and countries. This week, we interviewed Charles M. Elson, the Edgar S. Woolard, Jr., Chair in Corporate Governance and the Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. He is also "Of Counsel" to the law firm of Holland and Knight. A nationally-recognized expert in corporate governance and securities regulation, he shared his thoughts on corporate leadership in the Era of Accountability with Bulletproof:

How will the recently enacted caps on executive compensation and the resulting SEC rules on Say on Pay play out in 2009?

Charles Elson: I think you' re going to see a lot of companies adopting say on pay as a result. Of course, the companies that are subject to TARP requirements won' t have much choice, but we will likely see other companies adopting say on pay votes as well - for the simple reason that, once a few companies go down that road, others will be forced to follow. The impetus could be SEC regulations, congressional action, or investor demands. No matter what the reason, say on pay is probably going to become standard practice.

Of course, the likelihood that say on pay will be widely adopted doesn' t necessarily make it the right thing to do. In fact, say on pay doesn' t even address the real problem, which is that boards don' t effectively negotiate over pay or represent shareholder interests. If the board gets it right, then the pay is right. Putting investors into the process doesn' t solve the ultimate problem.

What should Boards be doing now regarding corporate governance to help position themselves as good actors, rather than pariahs?

Charles Elson: First, they need to insist on their own independence from management. Second, they need to take a substantial equity stake in their organizations so that they are aligned with the shareholders they represent. And third, they need to open up the election process to create greater accountability to the shareholders through more opportunity for shareholder input.

What' s next with regard to corporate governance? Are there hot button issues that may not be on boards' radar screens just yet, but that could potentially create future reputational issues nonetheless?

Charles Elson: I think the issues on the horizon are all related to the board' s accountability. How effective is the board at evaluating risk? How effective is the board in overseeing compensation? How effective is the board in overseeing managerial response to risk and managerial response to ordinary business situations?

And in the short term, the key is that they continue to effectively monitor management' s response to the current financial crisis and ensure that management acts as effectively and responsibly as possible throughout the crisis.