CEO-Board Connectedness and Fraud
Posted on Mar 17, 2011
[Editor's note: This article is archived from November 5, 2010.]
Professors from Fordham University, Rutgers University and the University of Maryland have written a working paper discussing the relationship between CEO-Board connectedness and the commission of financial fraud. As the paper discusses, social connections have significant relevance with fraud, as do shared prior service as executives. The authors suggest that the results support a “collaborative” board concept over one where the board simply keeps tabs on management in an oversight role.
The working paper covers a subject relevant in corporate governance since Dodd-Frank. Among the many provisions of the act, the SEC may issue rules requiring a company to explain why its CEO also serves as the chair of its board of directors. As the working paper discusses, such interlinking with positions on the board and in management raise concerns; should the board be a rubber stamp for management or should the board advise and counsel management. As the SEC moves forward on this issue, corporate governance may have a relevant new aspect moving forward.
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