A Public Watchdog?
Board responsibilities have long been established by state courts, with Delaware as a leader—actually the leader—and in recent years by federal law and regulation. Delaware's Chancery and Supreme Courts have handed down many decisions dealing with director responsibilities in carrying out their duties of loyalty and care, and acting in good faith using the business judgment rule. The resulting case law provides significant insight into effecting those responsibilities.
A few years ago I read with dismay an article in a prestigious board journal taking a different tack, saying a public company's board of directors is a watchdog. This of course immediately brings to mind the 1984 case concerning Arthur Young (now Ernst & Young) where the U.S. Supreme Court said auditors serve a public watchdog function, owing allegiance to a corporation's creditors, stockholders, and the investing public.
But the use of the word watchdog in connection with boards of directors is troubling for several reasons. One is that the word has regulatory oversight implications not appropriate at the board level. Another is use of the word without reference to boards' other responsibilities ignores activities critical to meeting relevant interests of public company shareowners. And another is that the word watchdog carries a further connotation—specifically, it implies an ability to detect any type of wrongdoing and to ward off intruders and thus prevent harm.
While the term may be appropriate ...