Professor Colin Coulson-Thomas, Professor of Direction and Leadership at the University of Lincoln and author of ‘Developing Directors’ and ‘Winning Companies: Winning People’, comments on the FBI investigation into US financial institutions.

The flood of emails and telephone calls received by US congressmen and senators in recent days reveals considerable public resentment against Wall Street and the financial establishment. Public reactions to ‘bail out’ proposals reveal a widespread desire for responsible and highly paid experts to be held to account. While decision makers may be the first to feel the glare of the spotlight, others may follow. Human nature being what it is, a first line of defence for some could be to seek to shift the blame onto the advisers and consultants upon whose professional advice they relied.

The FBI fraud investigation at Fannie Mae, Freddie Mac, AIG and Lehman Brothers could be followed by examinations of the behaviour of regulators, bankers, accountants and other professionals on both sides of the Atlantic. In some countries the competence and standing of the whole financial establishment could be questioned. In addition to legal actions and negligence claims from those who have suffered injury or loss, professional bodies may question those who have been involved in developing, authorising, packaging, distributing and valuing the ‘toxic’ products that have caused so much harm.

Various aggrieved parties may feel there is a prima facie case for suggesting that those responsible for the harm suffered by various organisations – and ultimately all taxpayers – have not shown the foresight and competence one might reasonably expect from highly paid professionals and advisers. Their actions, and activities they have supported, do not appear to have been in the best interests of their clients’ or the public. Consultants may be required to produce evidence that they understood the risks involved in areas they advised upon and warned clients of them.

Board members of some companies may come under investigation. To avoid censure directors of UK companies experiencing substantial write offs and bail outs may need to demonstrate that they have acted in accordance with the Companies Act, for example exercising reasonable care, skill and diligence and having regard to the likely consequences of any decision in the long term. Claiming ignorance of corporate exposure to US mortgage loan defaults or that they did not understand the nature of a derivative or the implications of slicing and dicing debt will cut little ice.

The credit crunch has exposed the inadequacy of many directors. The scale of public intervention required to prevent meltdown reflects a failure of boards to question and read the road ahead. Chief executive officers (CEO) and their senior executive teams have not been challenged or held to account. Certain implications and future scenarios should have been foreseen. Directors stood by while huge sums were paid out as bonuses and commissions for bringing what would prove to be time bombs into their organisations.

Long experience of looking the other way and following the herd should no longer be a requirement for further board appointments. Directors who serve as a loyal supporter of the CEO have been in demand, when the emphasis should have been upon curiosity and courage – the curiosity to question and the courage to challenge. A new generation of directors are required, selected from people of integrity who have their feet on the ground and think for themselves.

On occasion people need to be protected from themselves. Those who recognise this value wise and objective counsel from independent advisers.

Some advisers and consultants may feel a sense of unease. They may have been unaware of certain dangers or reluctant to flag them up and rock the boat when lucrative clients have been intent on a course of action that would boost their short term returns and personal bonuses. Are some guilty of sins of omission? Did they remain silent when there was an opportunity to speak up? Could or should they have done more to protect the longer term interests of their clients?

Prof Coulson-Thomas was a speaker at the 9th International Conference on Corporate Governance which was organised by the World Council for Corporate Governance and held at the Royal Overseas League in London on 18 and 19 September 2008. The theme of this year’s conference was making capital markets work through corporate governance.

Directors of over 4,000 organisations from smaller firms to major corporations and public bodies have participated in Prof. Coulson-Thomas’ research programme, which identifies critical success factors and successful approaches to the challenges faced by directors and boards. His books ‘Developing Directors’ and ‘Winning Companies; Winning People’ set out the different approaches of those who are most and least successful. Both are published by Policy Publications and can be ordered from: www.policypublications.com.