More Lawyers and Insurance are Not the Solution for Optimal Risk-Taking by Boards

A New York Times op-ed by corporate lawyer Michael Peregrine argues that attempts to impose accountability for misconduct on top executives and directors may make them too risk-averse. It is not surprising that his suggested solution is consultation with outside lawyers, along with more insurance. He does not address the risks of failure to impose accountability (which was a factor in the financial meltdown) or the better options of allowing shareholders to remove directors and nominate their own candidates.

The law protects directors who are innovative and accept informed risks in their pursuit of corporate strategies. The concept of risk is not antithetical to effective governance, legal compliance and prudent corporate strategy. Indeed, a board’s excessive strategic conservatism may be harmful to the corporation’s long-term sustainability.

Yet in the new enforcement environment, some executives may have a different perspective on risk, at least as it relates to their role in adopting certain corporate strategies.

The primary board concern is that some gatekeepers may engage in self-protective conduct that hampers valid company initiatives.

via Caution by Company Officers Can Create Problems for Boards – The New York Times.

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