Next year, NACD will turn 35. Wow! Since I’ve been here for 25 of those years, that makes me feel…well, seasoned. Recently, one of NACD’s past chapter leaders, Dann Angeloff (honored as one of five founding members at our 25th anniversary), asked our opinion for the main changes in the boardroom over our past three decades. As I pondered Dann’s question, I could see my professional life flash before my eyes!
So here’s my list of “tipping points” in board history—one for every year of service. Of course, it’s tempting to list the many accomplishments of NACD’s many illustrious board members, chapter leaders, and dedicated employees past and present—shout outs to great leaders John Nash, Roger Raber, and Ken Daly—and those who served in interim periods—but I’ll keep this list general. I’ll also resist the temptation—well, maybe not—to tell you a little more about me—in particular about a day in my life in 1978, when I worked briefly at my father’s publication, Directors & Boards. (This was before the visionary Rock family acquired it and the most excellent editor Jim Kristie took the helm.) On that fateful day, a colleague and I decided to spice up our Monday by tracking down Susan Sontag, a famous female intellectual of the era, to see if she might want to write us a little think piece on corporate boards. “Boards?” she responded incredulously. “Boards?” she repeated, adding “How dreadful!” She clearly believed that boards were boring!
Was Ms. Sontag right? Let’s take a journey through time, and you can decide for yourself. Here are 25 top headlines for governance—starting just a bit before my time but continuing to present.
1977: The National Association of Corporate Directors (NACD) launches association and publication. NACD, founded by directors and headed by John Nash for its first 20 years, gave corporate directors an unprecedented way to obtain board-focused education and research, and to engage in networking and advocacy. In its first year the Association faced a significant challenge: implementation of the Foreign Corrupt Practices Act of 1977, which required boards to oversee internal financial controls. That same year, the New York Stock Exchange (NYSE) required its listed companies to have independent audit committees. During NACD’s earliest days, the Securities and Exchange Commission (SEC) was headed by the wise Harold M. Williams, who urged directors to take the lead in governance reforms.
1981: Ira M. Millstein wrote The Limits of Corporate Power (McMillan). This book, explaining such subjects as the duties of loyalty and care, would be the first of many influential Millstein publications.
1982: Martin Lipton invents a new kind of shareholder rights plan – the “poison pill.” This controversial mechanism allowed boards to buy time when facing an unsolicited takeover.
1983: Agency theory comes of age through Michael Jensen’s article on “The Separation of Ownership and Control” (Journal of Law and Economics). This article brought awareness of the issue first raised in 1932 by Adolf Berle and Gardiner Means in The Modern Corporation and Private Property. They noted that in the large modern public corporation, shareholders are widely dispersed and must rely on directors to represent them.
1984: Congress creates the U.S. Sentencing Commission to issue guidelines on corporate sentencing. Eventually published in 1987, these guidelines, applied to “white collar” crimes, among others. They offer reduced sentences to corporations with strong compliance programs. This development put compliance on the map for boards. The same year, the American Bar Association would undertake a major revision of its Model Business Corporation Act, a guide for state corporation law including model statutes for director and officer duties.
1985: The Delaware Supreme Court decides Smith v. Van Gorkom. This decision made it clear that the decision-making processes of directors would be subject to increased scrutiny. This same year saw the founding of the Council of Institutional Investors (CII) and Institutional Shareholder Services (ISS), both of which put more “heat” on boards to perform well on behalf of shareholders. Smith v. Van Gorkom began a long line of Delaware cases exploring the dimensions of fiduciary duties—too numerous to list here.
1986: The Delaware Supreme Court decides Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. This case, involving a hostile bid for the cosmetics giant, put permanent pressures on boards to look for best offers once their company was in play. Similarly that same year, the Sixth Circuit court decided in Edelman v. Fruehof Corp. that directors should not accept a management buyout without considering other offers. The next year, in CTS Corp. vs. Dynamics Corp. of America, the U.S. Supreme Court upheld the rights of states to pass anti-takeover statutes. But the Revlon decision was not the only notable event in 1986. That same year, Congress removed a real estate tax deduction as part of the 1986 Tax Reform Act, triggering the collapse of numerous banks (1000 closed between 1986 and 1991), resulting in numerous lawsuits against their officers and directors. Also in 1986, the Executive Leadership Council (ELC) was formed with the intent of increasing diversity at the board level through facilitating dialogue among African Americans within corporate leadership. Together with Catalyst, a group founded in the 1960s to promote advancement of women, ELC has been a force for diversity in boardrooms.
1987: The National Commission on Fraudulent Financial Reporting releases its report on the subject, sponsored by the Committee of Sponsoring Organizations (COSO). The work of this group, chaired by James Treadway (aka the Treadway report) gave directors their first set of guidance on their role in the detection, prevention, and oversight of fraud. Global contemporaries included the Cadbury Committee report in England (1992, with sequels in 1995 by Greenbury and Hempel), the Dey Report in Canada (1994), the King Report in South Africa (1994), and the Vienot Report in France (1995). Also in 1987, NACD held its first Director of the Year dinner, honoring Juanita Kreps before a packed audience. Unfortunately, the next morning, directors awoke to news of the stock market plunge on Black Monday. The meeting room that had been full the night before was mostly empty, except for John Nash and a few governance diehards.
1988: The Department of Labor issues a set of guidelines, now known as the “Avon Letter.” The Department-directed Employee Retirement Income Security Act (ERISA) required fund managers to vote proxies with the same diligence as they would when making other fiduciary decisions, thus placing more scrutiny on proxies and on boards.
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Great list of tipping points. I would also include the AFSCME v AIG decision, but I’m biased.
Yes, I should have included that – as well as your subsequent letter to the SEC that sparked the agency to take a new look at proxy access. Truly historic events, both of them. I’m looking forward to reading your article about that in the December 2011 issue of NACD Directorship!