In 2002, Congress passed the Sarbanes Oxley (SOX) to prevent a repetition of the corporate governance debacles at Enron and WorldCom. All boards of public companies as well as their important committees would be comprised mainly of independent directors. A public company’s executives would conduct a yearly assessment of internal controls, subject to a special report by its external auditors.

Six years later, many of the largest financial institutions in the US had to be rescued by massive injections of federal assistance. Yet all these institutions were SOX compliant. Most members of their boards as well as all members of their important committees were independent. They all had evaluated their internal controls and the reports of their auditors showed no material weaknesses in 2007.

So why were the SOX reforms so ineffective? This article will identify the main deficiencies of current corporate boards — too many directors and too few experts with too much emphasis on procedures. Then this article will present a new model for boards of complex global companies — a small group of professional directors with enough relevant experience and sufficient time to hold management accountable.

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