info@ceoworld.biz
Saturday, October 24, 2020

Executive Education

Corporate Directors Oversee the World’s Largest Companies — Why Aren’t They Licensed?

Countless industries use certification programs to affirm competency. Accountants are required to prove their capabilities before they make a career evaluating and opining on financial statements. Nurses need to certify their skills prior to taking on medical responsibilities. Even cosmetologists need to pass a licensing exam before they can provide beauty treatments. The requirements for certification differ between professions, but the intention that underpins them is always the same: mandatory certification programs confirm that professionals have completed certain requirements that show competency in a given subject.

For many professions, certification provides consumers with proof of competence. In nursing, for example, certification is all but a necessity. As one writer for the American Association of Critical Care Nurses puts the matter: “As healthcare has become more complex, it has become increasingly vital to assure the public that healthcare professionals are competent. Everyone in the healthcare equation — patients, employers, nurses — benefits from certification as a mark of excellence.”

For corporate directors, however, there is no required license.

Unlike accountants, nurses, and cosmetologists, corporate directors do not need a certification to sit on a company board. Even when directors choose to complete available programs, the programs are both entirely voluntary and focused on improving ability, not testing it.

Consider the National Association of Corporate Directors’ (NACD) Certification of Professional Directorship as an example. The certification program launched earlier this year with the intention of “advancing NACD’s mission to elevate the profession of directorship.” As Peter R. Gleason, NACD president and CEO explained of the program in a press release, “The job of being a director is increasing in complexity […] NACD’s director certification will enable new and prospective board members to enhance their competence and showcase their understanding of key board responsibilities.”

The program’s goal is laudable and, given that the NACD represents over 20,000 board members nationwide and stands as an established voice in matters of corporate governance, it will likely be a valuable educational opportunity for current and aspiring corporate directors. However, the NACD’s initiative is not a certification program, because it is not testing for competence — rather, it assumes it.

The professions that require certifications do so to both confirm competency and reduce the risk of poor practice. Accountants, for example, typically need to have a bachelor’s degree with a set number of credits in accounting and business administration as well as successfully pass an extensive certified public accountant exam and have a certain amount of experience. Given that accountants could, potentially, cause significant financial harm if they do their work poorly, these requirements seem valuable. Certification is in some ways like a driver’s license — it makes the “road” safer for the person with a license and every other person “on the road.”

Ken L. Bishop, CEO of the National Association of State Boards of Accountancy (NASBA), framed the matter in a different way in an article for Accounting Today.  “When a CPA performs an audit of a business or government, the public must have confidence in its accuracy, thoroughness and integrity,” he commented. “The most effective way to maintain this confidence is to continue to have CPAs show rigorous education, examination, and experience for their licensing requirements.

There is an analogy with corporate directors. These people oversee thousands of companies from smaller private companies to the largest public companies in the world. As of 2017, there were 3,671 public companies in the United States alone. Poor directors failing to do their jobs well could contribute to substantial financial losses, including major damage to families, communities, and other constituencies.

Consider the harm caused by executive mismanagement at Enron as an example. The corporation collapsed after its chiefs, Kenneth Lay and Jeffrey Skilling, repeatedly misled their investors and employees about Enron’s financial health. According to reports by NBC, the company ultimately lost more than $60 billion in market value, $2.1 billion in pension plans, and well over 5,000 jobs.

Of course, the vast majority of corporate directors achieve their positions on merit and are very capable. I also do not believe that certification guarantees competency. After all, an uncertified professional can thrive, while a certified colleague can perform poorly. However, certification can provide some additional assurance about a candidate’s competency.

As I mentioned earlier, the NACD’s Certification of Professional Directorship is more a resume-enhancer and opportunity for continued education than an assessment. Other well-respected programs are similar. The Harvard Business School’s Corporate Director Certificate, for example, posits itself as a “meaningful credential that signifies your ongoing dedication to professional development and the breadth of your learning.” Both credentials can be useful for corporate directors. But they do not provide a standard of expected competency as the Uniform CPA Examination does.

I believe that there would be benefits from a national, unified standard for corporate director certification. A new national examination for corporate directors might encompass corporate governance, leadership and organizational structure, accounting and controls, corporate finance, sales and marketing, and ethics, as well as require a set number of hours for continuing education annually.

Director education programs and even certificates are beneficial. They provide continued learning and help directors be more effective. However, these programs do not provide the far-reaching benefits that a nationally-accepted certification process would provide. As accountants, nurses, and even cosmetologists require certification, it seems only logical that directors of public companies be certified.


Written by Jonathan F. Foster. Have you read?
# Largest crude steel-producing countries in the world, 2020.
# Most expensive hotels in the world for high net worth individuals, 2020
# Most traffic-congested cities in the world, 2020
# Cities around the world with the most and least stressed-out employees, 2020
# Countries most and least prepared to deal with an epidemic or pandemic like the Coronavirus

Jonathan F. Foster
Jonathan F. Foster has over 25 years of experience working in top-tier financial services firms as both a mergers and acquisitions advisor and a private equity investor for companies in the industrial service companies. While he currently serves as the co-founder and managing director of the financial services advisory firm Current Capital Partners LLC, he has previously held executive roles for several other private and public companies, including a “Fortune 200” automotive supplier. Beyond Jonathan’s work in executive leadership, he also provides professional insights as an expert witness in complex corporate litigation cases. Jonathan F. Foster is an opinion columnist for the CEOWORLD magazine. Follow him on Twitter or connect on LinkedIn.