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03 Feb. 2010 | Comments (0)

If you are a director or a provider of director education programs, like The Conference Board Governance Center, The Directors’ Network or the NACD’s Corporate Directors Institute, you may be trying to figure out what to make of RiskMetrics’ decision to discontinue its director education accreditation program as of March 1. For director education program providers, the move may not be surprising given RiskMetrics reported decision to put itself up for sale (See Wall Street Journal article) but it does spark a debate about the quality of such programs. Both the Governance Center and The Directors’ Network were among the first “holistic” directors education programs to be accredited by the then ISS, before it merged with RiskMetrics. “I certainly think directors need to participate in continuing education programs,” Paul DeNicola, Governance Center director, said. “And I also think there needs to be an independent body that ensures the quality and substance of these programs. I believe directors should not view participation as a necessary evil, but as another part of keeping themselves informed so that they can do their jobs.” Stephanie Joseph, president of The Directors’ Network she founded in 1994, said the “carrots” she used to market her programs were a benefit on their D&O insurance and a higher ISS Corporate Governance Quotient (CGQ) score. “Because of ISS, many boards were exposed to education for the first time,” she said. “Education is now recognized as a board requirement. I believe that the experience of participating in a custom board program that explores the issues that are topmost in the minds of the board is more important than the gold star received for attending the session.” She questions the need for accreditation at this point: “While accreditation may be a positive inducement that is attractive to many, it is an artificial tool.  It would be more to the credit of the boards themselves, if the desire for education was driven by the pure need to excel.” In The Board Blog, TK Kerstetter, president and CEO of Board Member Inc., pointed out that directors may both relieved and sad at the news. As for his personal reaction: “To RiskMetrics and ISS, its predecessor, I say thanks for the moving the snowball down the hill for the last nine years and we’ll do our best to take it from here. At the same time, I know you’re not just walking away from the importance of board education, even if it is not a direct part of your new Governance Risk Indicators [which replaces CGQ]. Good or bad… you just weren’t created to act that way!” At a time when new SEC proxy disclosure rules will put a focus on director qualifications, diversity, director liability and compensation policies (See Jan. 27 Governance Center blog post), the need for good director education programs couldn’t be any higher. Accreditation, which RiskMetrics has provided since 2001, has been a necessary part of the director education program process. But, as RiskMetrics said in its announcement last month, maybe “in light of the increased professionalism and specialization in director education…there is no longer a need for us [RiskMetrics] to accredit such programs.” RiskMetrics made the announcement as part of a decision to replace its Corporate Governance Quotient rating system with something called Governance Risk Indicators. The change reflects the overall focus on risk governance in corporate America. However, the new ratings methodology does not include a factor related to director education. In its statement, RiskMetrics pointed to the evolution of director education in the past decade as one of the reasons for pulling out of that particular business. “Over the past several years, we have seen tremendous improvements in the quality and quantity of such programs,” according to the statement. “Director education programs are also becoming more specialized, looking at finance, risk oversight and other aspects of the director’s job in addition to corporate governance. Recent changes in disclosure requirements will provide investors with more detailed information about the qualifications and backgrounds of board members.” RiskMetrics’ accreditation program was more than just a gold star for director education programs. While its program wasn’t as in-depth as a school accreditation program, it did have a formal process set up where applicants would send along a course curriculum and lists of faculty and regular updates of director participants. In order to qualify for the RiskMetrics seal of approval, such programs had to meet certain standards. Now the ultimate question for director education program providers, directors, stock exchanges and the SEC itself is: how will that void be filled? “Whether the stock exchanges or the SEC steps in to fill the gap left by ISS is unknown,” Joseph said. “But I do not believe that anyone other that the boards themselves can know what they need to know better and that education should be something that is desired for its own value.”
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

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