TheCorporateCounsel.net

This recent D&O Diary blog addresses the risks of leaving key management governance roles vacant for extended periods. It notes that when an employee in a governance-related position departs, someone quickly steps in to ensure the visible roles (organizing board materials, preparing minutes, meeting regulatory filing deadlines) are addressed. The blog says that using someone to fill these visible gaps works well in the short term, but that long-term vacancies create some significant risks that may be less obvious:

A prolonged vacancy can fragment responsibility for connecting earlier concerns, unanswered questions, management commitments, and recurring warning signs. The formal process may continue to look orderly while the company’s ability to demonstrate effective board oversight gradually weakens.

A vacancy does not create director liability, and temporary coverage can work perfectly well. The issue is whether the interim arrangement preserves not only the administration of governance, but also the continuity, authority, and follow-through that allow directors to understand emerging problems and show how they responded.

The blog goes on to highlight some specific risks, including the loss of prior work that provides context to current information provided to directors, the inability to continue to see connections between various oversight problems, and the false comfort about the continuity of oversight that may be provided by the continuation of an orderly process. It points out that when there is a failure of oversight, the board’s actions – and failures to act – are viewed with the benefit of hindsight.

The blog also discusses the questions that boards should ask when a governance vacancy becomes prolonged in order to avoid potential discontinuities in the oversight function.

– John Jenkins