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Article

Abstract

Directors of public companies are responsible for overseeing complex organizations in a rapidly changing business environment, but they are not required to engage in continuing education. This creates a danger that directors will not have the knowledge they need to meet the significant demands of overseeing public companies. To address this, public companies should adopt mandatory continuing education policies for their boards, and the Securities and Exchange Commission should require public companies to disclose basic information about their continuing education programs in their proxy statements. This is the first scholarly article to address the issue of mandatory continuing education for directors of public companies. Public company boards have always needed continuing education. In this Article, I demonstrate that the need for continuing education is especially critical today. The responsibilities of the public company board have expanded dramatically over the last ten years. At the same time, the composition of public company boards has transformed, with less experienced individuals more likely to join public company boards than in the past. One would have expected public companies to respond to these two trends by adopting mandatory continuing education policies for their boards. However, they have not. I surveyed the organizational documents and proxy statements of sixty public companies, and I discovered that 93% of the surveyed companies do not require ongoing education for their directors; most public companies merely “encourage” directors to do so. In addition, many public companies currently claim to provide continuing education to directors on a voluntary basis, but they do not provide the necessary information to determine whether the programs are effective. Therefore, I recommend that the SEC promulgate rules requiring public companies to disclose (1) whether they have adopted a mandatory continuing education policy for their directors, and, if not, why not; and (2) basic information about their continuing education programs, including the content of the program, the amount of education provided to directors, and the identities of directors who participated in continuing education during the previous year. If adopted, these proposed rules will encourage public companies to provide effective continuing education to their boards, ensuring that directors will have the knowledge needed to meet their oversight responsibilities.

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