Scandals Spawn Industry in Corporate Oversight
Corporate governance consulting has mushroomed after last year’s outbreak of accounting scandals led to a crackdown on executive behavior, but experts now question the need for such a cottage industry.
Barely a day goes by without a new seminar, research report or measurement tool to comply with a new law or run a better boardroom.
This has some veteran specialists wondering if it is all necessary when a dose of common sense might do just as well.
“Everybody knows what they are supposed to do, and they should just go do it,” said Ira Millstein, an attorney and corporate governance specialist. “This is not rocket science.”
Fortune 1000 spending on regulatory compliance is expected to reach $2.5 billion this year, according to AMR Research, and experts say the figure could grow as more firms jump on the governance bandwagon.
The whistle-blower provisions of a new corporate reform law brought in last year and related proposals by the New York Stock Exchange and Nasdaq are examples of new regulations that have created opportunities for niche players.
The rules require public companies to set up confidential means for employees to report accounting irregularities. As a result, anonymous hotline providers and call centers, such as Tell the Board, have set up shop over the last year.
Though some experts question the validity of such services, they say the public relations value of focusing on governance is leading companies to spend on consultants and training.
Robert Half International Inc., the largest U.S. staffing company, reported that the only bright spot in its otherwise dismal second-quarter earnings came from its Protiviti unit, which provides consulting on corporate governance.
More established consulting firms have a different approach. Rather than focusing on specific compliance issues, strategy firms such as McKinsey & Co. work with boards on new governance models.
But because “all the oxygen in the boardroom” went to better corporate governance, such firms have not received many calls, McKinsey’s Robert Felton said.
