Allan Reich Quoted in the Wall Street Journal

Allan Reich is quoted in the feature article in the October 9 Wall Street Journal Corporate Governance Report. “Move Over, CEO: Here Come the Directors” explores the changing role of corporate directors and the impact it’s having on their relationship with management. Directors are being forced, in part, by new rules and regulations such as Sarbanes-Oxley to change, but they are also embracing the new level of responsibility. Today's higher standards are allowing some directors to enforce practices they've long supported but had little power to implement. As a result, directors are now speaking with shareholders, listening to employees, and becoming more aggressive watchdogs, as they take on responsibilities that once belonged to CEOs, such as nominating new board members. While checks and balances are necessary, however, boards must be careful not to overstep their bounds.

"A board's responsibility is oversight, not management," says Allan J. Reich, a corporate lawyer with the law firm Seyfarth Shaw in Chicago and a board member of mutual-fund company Oakmark Funds. "Today, what you see is boards coming right up to the line" between management and oversight. This is good, "as long as they don't cross the line," he adds.

One of Mr. Reich's corporate clients recently presented a significant business proposal to the board. Once the directors finally approved the project, they didn't just let it drop. Instead, they took steps to keep on top of it. The first move: The nonexecutive chairman made plans to attend a meeting of the project team so he could see how the initiative was developing. "Five years ago, it's unlikely you would find a member of the board attending a meeting of this nature," says Mr. Reich.

Some boards bring in outside consultants for assistance with complex business plans and issues, but they must be careful not to abuse their access and step into management's shoes. With more board members taking an active role, the line between governance and management can seem fuzzier, according to consultants and some directors. Mr. Reich recalls a situation where a board member, who had a lot of accounting knowledge, began questioning the CFO's decisions with the CFO's staff and openly criticizing the CFO's decisions. "The individual was using his knowledge or beliefs to supplant the authority of the CFO," says Mr. Reich.