Governance’s role in the sustainability profile
How do we define the differences between justified risks and irresponsibility? Boards of Directors (BODs) have responsibilities but, are they exercising their proper fiduciary role in monitoring enterprise development, risk definition and shareholder interests?The financial crisis has heightened the issues of sustainability. BODs of small cap companies are now subject to even more risks associated with …
their industry, development stage, financial structure, business model and operating history. Early stage healthcare company’s ability to continue operating depend on successfully develop technologies for human applications which could have limited human applications as they struggle to survive regulatory constraints, clinical trials and burn-rates. Almost all companies require substantial funds usually with multiple rounds to continue operating which may – NOT – be available and if they are … on – WHAT – terms. How much debt, losses and negative cash flows from operations and substantial stockholders’ deficits should be sustain until a timely or proper decision to elect strategic options is realized?
Understanding priorities of time and participation for BODs; shouldn’t emphasis be put upon applying – TOOLS – for outcome scenarios, risks as well as probabilities analysis that are focused to present conditions, comparable/peer analysis and future trends layered against upside and negative implications to define – the decisions of a going forward or an asset sale. BODs should protect themselves with the right – TOOLS – to define and validate, measure and update their on-going participation? Unfortunately, oversight usually lacks incentive for many BODs to spend the requisite time validating operational initiatives and their inherent risk.
Development strategies must be measured on an on-going basis and focused on industry, regulatory and operational burn rates, valuation, share price and accountability. In this challenged economy, these tools define the issues of sustainability. The independence of BODs is sacrosanct but more participation and conflict resolution must be devoted to their roles. Boards have D&O insurance, one protective valve; but, in this litigious society, many have come under extreme scrutiny related to the current market turbulence. Board packages are prepared pre the meetings and still most board members are not truly prepared to understand the issues as related to this market condition.
Bottom-line, BODs need benchmarked and metric – TOOLS – to fulfill their roles; they should not come from management but, if they do – they must be overlaid against an independent version sourced for individual board member’s continued participation.
