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Corporate America, Police Yourself

By Jack Quinn and Suzanne Rich Folsom

NEW YORK ( TheStreet) -- A Big Four senior auditor passes on inside information to a friend who trades on those secrets. Banks conspire to rig LIBOR rates. A trader in an overseas office engages in unauthorized derivatives trades that cause enormous losses and lasting reputational damage to a widely admired financial institution. The Department of Justice continues to ferret out and prosecute violations of U.S. anti-bribery laws.

Where are the directors of these companies?

More than ever, good governance means more than just ensuring efficiency and profitability; it demands as well that systems be in place -- at the board level -- to ensure compliance with the laws and rules that apply to the company's activities.

Corporate America operates at warp speed; the damage that can be wrought by a rogue employee is phenomenal.

Nothing, however, has made this risk greater than the ever-escalating array of complex legal and regulatory demands that have grown proportionately with the expansion of opportunity in new fields of endeavor, new technologies and new geographies.

"A popular theme in recent years has been that 'Directors should assume the responsibility of directing and if their manifold activities make real directing impossible, they should be held responsible to the unsuspecting public for their neglect.' "

Sound familiar? Actually it's the opening of William O. Douglas's 1934 Harvard Law Review article, "Directors Who Do Not Direct."

Later, of course, Douglas would become chairman of the Securities and Exchange Commision and then a U.S. Supreme Court justice. His plea to directors to be good stewards not only still applies, but has never been more critical for companies, their boards, management and shareholders.

The attendant responsibility of directors in the area of corporate compliance has grown -- witness the adoption of SEC Rule SK 407 regarding the board's role in risk management, the enactment of Sarbanes-Oxley and Dodd-Frank and the promulgation of the U.S. Sentencing Guidelines.

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