Classical & Corporate Ombudsman in Corporate Governance: Conflict of Interest Case Overview

This is probably one of my primary areas of interest in the Ombudsman profession.  Why?  From my experience corporate & non-profit board governance with relation to conflicts of interest has been the “root cause” of many “fraud and corruption” problems that has impacted individuals and communities in America for many decades.  I personally in my career “bumped” into situations where CEOs and Executive Directors were also the founding director and chairman of the board for their entity and ” exclusively controlled” their business in violation of state and federal laws to the detriment of the corporate entity, their employees, stakeholders, investors, contracted partners, “customers” and broader community.  The most common “fault” is “self dealing” and in non-profits and SMB/SME (Small and Medium sized Business & Small and Medium sized Entity) entities, it goes unchecked forever.  Specifically in one case I’m familiar with, the Chairman of the Board in an LLC ordered the Corporate Secretary to disregard placing a matter on the board’s monthly agenda for a formal resolution and vote.  This was  regarding a corporate level “partner supply chain”  contract and instead he asked her to “draw up” the formal resolution, that they then both signed as if it had been passed by the BoD.  It was then “sealed” and sent to the “partner” entity to complete due diligence.  The historical and current trends in the media, with regards Enron forward to the financial services industry, are just the tip of the iceberg.  While “we” can all get upset and write our congressional representatives about disclosures and transparency of public companies and the ongoing fraud, we must ask the question, “is our house in order?”

A possible solution is to have a “government ordered” or “voluntary” internally positioned Independent Director in an “ombudsmanship” role (which is what Google appears to be in the process of adopting as we speak instead of a full Ombudsman role) or a Corporate Ombudsman fully integrated and providing true independent  “oversight” at ALL levels of the enterprise including the BoD and Corporate Officers.  Very often a corporate ombudsman only works on behalf of the board of directors down through the business levels of the corporation.  Lately, a new trend called “board balancing” is making headway where the bylaws of a company are “amended” making Independent Directors a mandatory part of the BoD with the specific role of “best practice governance, oversight and compliance” as activities and meetings unfold.  This is an “ombudsmanship” style role directly linked to SARBOX “trickle down” from public companies into the private industry sector and that also affects non-profits.  This proposed “ombudsmanship” role is better than nothing at all, but what about actually bringing an external ombudsman, classical or organizational, onto the board as a part of “balancing” and “best practice governance”?

It isn’t very often we get a glimpse in the media of this specific type of issue, but here is a case from the UK that provides for a view from both the corporate company side of the table and the actual classical ombudsman in their role under the “authority” of the government.  While I’ve presented the case for an ombudsman role on the corporate or company side in the above paragraphs, this is the external and “top authority down” model and it’s valid.  The UK Pensions Ombudsman made the determination, correctly in my opinion, that a “conflicted” trustee of a pension fund was also in position as a Director of a client company and could participate in a vote to “award or withhold pension benefits” to her ex-husband and his new “partner”.  The directors moved early on in the process to “exclude” the “conflicted dual role director/trustee” from the oversight process and therefore the “award was administered fairly and without prejudice” as determined properly by the Pension Ombudsman.  In this model, The Pension Regulator in the UK, had previously identified the potential for the conflict at at earlier time and made provisions for the Pension Ombudsman to move externally to provide oversight to the process thus demonstrating very good foresight and planning.  They most likely did this realizing, from their side, that their trustees also had “interest” as directors on public and private company boards.

It is very important, if we are to progress as a society, that government provide a “pristine and proactive regulatory environment” to assure that the potential for conflict of interest is removed.  As we speak, President Obama is moving to halt “no bid” contracting for federal services where an “appointed” person can go back to their private industry contacts and simply “plug them in” to contracts (D. Cheney & Halliburton).  After all, if we cannot trust and believe our government holds to their fiduciary obligation with every single citizen, what other “higher authority” is there to appeal to?

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