Jenne K. Britell
United Rentals, Quest Diagnostics, Crown Holdings

Jenne K. Britell

NACD’s Public Company Director of the Year and United Rentals chairman of the board, Jenne K. Britell is former GE Capital executive vice president of Global Consumer Finance and president of Global Mortgage and Commercial Banking. She is credited with the turnaround of GE Capital Mortgage Services when she served as its CEO. Her GE Capital experience spans multiple continents, with leadership positions in Austria, Switzerland and Germany. She uses this international experience in her service on the boards of the U.S. Russia Investment Fund and the U.S. Russia Foundation for Entrepreneurship and the Rule of Law. Britell currently holds directorships on the boards of Quest Diagnostics and Crown Holdings, and previously served on the boards of West Pharmaceuticals, Lincoln National and Aames Investment, where she was lead director. Prior to joining GE Capital, she was chief lending officer and general manager of mortgage banking at Dime Bancorp, and is also credited with leading that firm’s mortgage business turnaround.

The NACD Directorship 100:

Introduction

Directors and Officers

Governance Professionals and Institutions

Corporate Governance Hall of Fame Class of 2011

People to Watch

B. Kenneth West Lifetime Achievement Award Winner

Jon F. Hanson
HealthSouth Corp.

Jon F. Hanson

NACD B. Kenneth West Lifetime Achievement Award Winner Jon F. Hanson is known in the business community “as a quiet leader who works collaboratively with other board members and management to promote decision-making through healthy debate and collaboration,” describes one nominator. Since becoming independent chairman of HealthSouth in 2005, he is credited with working long hours behind-thescenes to rebuild the company with a new CEO, CFO and general counsel and bringing the rehabilitation facility operator back from the brink of bankruptcy following a $2.7 billion fraudulent accounting scandal surrounding its former CEO and CFOs. Hanson founded the Hampshire Real Estate Companies, which evolved from a regional real estate developer in 1976 into a fund manager with a portfolio valued at more than $2.5 billion. He serves on a number of private investment companies and banks, and is former lead director at Prudential Financial, where he still serves on the board. Hanson is chairman emeritus of the National Football Foundation and College Hall of Fame, where he served as chairman from 1994 to 2005. He is also a director of Yankee Global Enterprises, the principal owner of the New York Yankees, and Pascack Community Bank.

To register for the NACD Directorship 100 gala dinner and forum, please click here.

David W. Anderson: President, The Anderson Group

Donna Anderson: Global Corporate Governance Specialist, T. Rowe Price

Bruce E. Aust: EVP, Global Corporate Client Group, Nasdaq OMX Group

Henry (Hank) Boerner: Chairman, Governance & Accountability Institute

Larry Burton: Executive Director, Business Roundtable

David C. Chavern: EVP, COO, U.S. Chamber of Commerce

Peter T. Chingos: Senior Partner, Compensation Advisory Partners

The NACD Directorship 100:

Introduction

Directors and Officers

Governance Professionals and Institutions

Corporate Governance Hall of Fame Class of 2011

NACD 2011 Public Company Director of the Year and B. Kenneth West Lifetime Achievement Award Winners

John (Sean) P. Coffey: Founder, Managing Director, BlackRobe Capital

Roger Coffin: Associate Director, Weinberg Center for Corporate Governance, University of Delaware

Scott Cutler: EVP, Co-Head of U.S. Listings and Cash Equities, NYSE Euronext

Fay Feeney: Founder, CEO, Risk for Good

Amy L. Goodman: Partner, Gibson, Dunn & Crutcher

Martin J. Gruenberg: Acting Chair, Federal Deposit Insurance Corp.

Keir D. Gumbs: Partner, Covington & Burling

Todd G. Hartman: Associate General Counsel, Corporate Secretary, Best Buy Enterprise Services

R. Glenn Hubbard: Dean, Columbia University Graduate School of Business

Eric Jackson: Founder, Managing Member, Ironfire Capital

Charles E.M. Kolb: President, Committee for Economic Development

Richard W. Leblanc: Adjunct Professor, Osgoode Hall Law School York University

Lucy P. Marcus: Founder, CEO Marcus Ventures

Sean McKessy: Chief, Office of the Whistleblower, SEC Division of Enforcement

James McRitchie: Founder, Publisher Corpgov.net

Denise M. Morrison: President, CEO Campbell’s Soup Co.

John P. Napoli: Partner, Seyfarth Shaw

Nels Olson: Vice Chairman, Co-Leader Board & CEO Services, Korn/Ferry International

Jonathan Oviatt: Chief Legal Officer, Secretary Mayo Clinic

Eugene Scalia: Partner, Gibson, Dunn & Crutcher

Maura Abeln Smith: EVP, Government Affairs; General Counsel; Corporate Secretary, PepsiCo

Jonathan S. Sokobin: Deputy Director, Managing Executive Division of Risk, Strategy and Financial Innovation, SEC

Christine A. Varney: Partner, Cravath, Swaine & Moore

To register for the NACD Directorship 100 gala dinner and forum, please click here.

Edward W. Barnholt
KLA-Tencor
The retired president and CEO of Agilent Technologies, Edward W. Barnholt chairs the nominating and governance committee and sits on the compensation committee at KLA-Tencor. Barnholt also serves as a director for eBay and Adobe Systems.

Ann C. Berzin
Constellation Energy, Ingersoll-Rand, Kindred
A director of Constellation Energy since 2008, Ann C. Berzin retired as chairman and CEO of Financial Guaranty Insurance Co., an insurer of municipal bonds and structured finance obligations in 2001. Berzin is now a director of Ingersoll-Rand and Kindred Healthcare, where she serves on the audit committees.

Francis (Frank) S. Blake
Home Depot
Named chairman and CEO of Home Depot in 2007, Francis (Frank) S. Blake previously served as deputy secretary for the U.S. Department of Energy and in a variety of executive roles at General Electric. He also held the position of general counsel at GE Power Systems. Blake’s public sector experience also includes having served as general counsel for the U.S. Environmental Protection Agency, deputy counsel to Vice President George H. W. Bush and law clerk to U.S. Supreme Court Justice John P. Stevens.

Samuel W. Bodman III
AES, Hess, Weatherford Intl.
The former U.S. Secretary of Energy under President George W. Bush, Samuel W. Bodman III also served as deputy secretary of the Treasury and deputy secretary of Commerce. Prior to entering government service, he was chairman, CEO and a director of Cabot Corp., a global producer of specialty chemicals and materials. He is now an independent director of AES Corp., Hess Corp. and Weatherford International.

The NACD Directorship 100:

Introduction

Governance Professionals and Institutions

Corporate Governance Hall of Fame Class of 2011

NACD 2011 Public Company Director of the Year and B. Kenneth West Lifetime Achievement Award Winners

People to Watch

Angela F. Braly
Wellpoint, Procter & Gamble
Angela F. Braly is one of only 12 female CEOs to lead a Fortune 500 company. Named president and CEO of Wellpoint in 2007, she ascended to chairman in 2010. Prior to becoming CEO, she served as general counsel. Braly also serves on the boards of Procter & Gamble, the Blue Cross Blue Shield Association and the National Institute for Health Care Management. In addition, she is a member of the Business Roundtable.

Edward D. Breen
Tyco International Ltd.
Chairman and CEO of Tyco International since 2002, Edward D. Breen has led the company’s turnaround. Prior to joining Tyco, Breen was president and COO of Motorola; chairman, president and CEO of General Instrument Corp.; and president of General Instrument’s Broadband Networks Group.

Jeffrey (Jeff) H. Brotman
Costco Wholesale Corp.
A native of the Pacific Northwest who received both his undergraduate and law degrees from the University of Washington, Jeffrey (Jeff) H. Brotman, Costco cofounder, has been chairman since the first store opened in 1983. Costco’s six-member board features Berkshire Hathaway’s Charles Munger, who chairs the audit committee, and William H. Gates Sr., who chairs the nominating and governance committee. Brotman is a former director of Starbucks.

To register for the NACD Directorship 100 gala dinner and forum, please click here.

Ann M. Fudge
Ann M. Fudge’s rise through the corporate ranks made her one of the most influential— and one of the youngest— decision makers in American business. Her unique blend of business intelligence and respect for her personal life made her a mentor. Fudge began her career at General-Mills as a marketing assistant in 1977 and was a director of marketing by 1983. Moving to Kraft in 1986, she became known for reviving older brands. Fudge was promoted to executive vice president of the company, but retired in 2000 to devote more time to her family. Three years later, she returned to work as chairman and CEO of Young and Rubicam Brands before retiring in 2005. She now serves as an independent director on the boards of General Electric, Novartis AG and Unilever PLC and is an independent non-executive director of Unilever NV. She is slated to join the board of Infosys in October.

The NACD Directorship 100:

Introduction

Directors and Officers

Governance Professionals and Institutions

NACD 2011 Public Company Director of the Year and B. Kenneth West Lifetime Achievement Award Winners

People to Watch

Norman (Norm) R. Augustine
To say that Norman (Norm) R. Augustine has made his mark would be a vast understatement. The retired chairman and CEO of Lockheed Martin Corp., the nation’s largest defense contractor, and a former under secretary of the Army, Augustine is recognized for his national leadership in technology. He also served as chairman and principal officer of the American Red Cross for nine years in addition to being on many boards of directors. Augustine has received more than 20 honorary degrees and was awarded the National Medal of Technology and the U.S. Department of Defense’s highest civilian award, the Distinguished Service Medal, which was given to him five times. In addition to Lockheed Martin, his current and former board service includes ConocoPhillips, Black & Decker and Procter & Gamble, and in the nonprofit sector, the NACD, and others too many to list.

Harvey L. Pitt
Now the founder and CEO of Kalorama & Partners, an international business advisory practice, and Kalorama Legal Services, Harvey L. Pitt served as the 26th chairman of the Securities and Exchange Commission from 2001-2003. During his tenure, he led the SEC in restoring the U.S. securities markets to full operations after the terrorist attacks of September 11th. Pitt also instituted a policy of “real-time enforcement” to make the SEC’s enforcements efforts more effective. He worked to reconcile the demands of accountants, financial services firms, public companies, institutional shareholders, legislators and stockholders with legislation such as the Sarbanes-Oxley Act. Prior to his tenure as chairman, he was a partner of Fried, Frank, Harris, Shriver & Jacobson.

John (Jack) F. Welch Jr.
Known for his unique and effective leadership style, John (Jack) F. Welch Jr. the legendary chairman and CEO of General Electric, began his career at GE as a junior chemical engineer in 1960, the same year he finished his PhD. He worked his way up the ranks to become CEO in 1981. Welch was known for firing the bottom 10 percent of his managers annually, while greatly rewarding the top 20 percent. During his tenure, the number of GE employees greatly decreased while annual revenue increased immensely. In 1986, with the acquirement of RCA, Welch shifted GE’s business from manufacturing to financial services through numerous acquisitions. When Welch left GE, the company’s recorded revenues were more than $410 billion, making it at the time the most valuable and largest company in the world. Now a bestselling author and special partner at Clayton Dubilier & Rice, Welch tweets and blogs about business and sports at The Welch Way, the website developed by he and his wife, Suzy Welch.

Warren E. Buffett, Charles (Charlie) T. Munger
Warren E. Buffett is a legend for his self-made success. The “Oracle of Omaha” showed interest in the stock market and making money from a young age. Shortly after graduating from Columbia where he was taught by the venerated value investor, Benjamin Graham, he founded the Buffett Partnership and his investment success, particularly in buying undervalued companies whose stocks began to rise, made him extremely wealthy. He later converted his fund into a public stock corporation and created one of the most established records of out-performing the S&P 500. Buffet is respected for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth. In 2006, he announced that he would give 99 percent of his fortune to philanthropic causes, mostly to the Bill and Melinda Gates Foundation.

Charles (Charlie) T. Munger, the vice-chairman of Berkshire Hathaway, has been described by Buffett as “my partner.” Although Munger is better known for his work with Buffett, he ran an investment partnership of his own from 1962-1965. As the chairman of Wesco Financial Corp., now a wholly owned subsidiary of Berkshire Hathaway, he controls an equity portfolio of more than $1.5 billion. Munger is known as a generalist for whom investment is only one of a broad range of interests and does not involve himself in the day-to-day operations of Berkshire. An avid philanthropist, he also writes and speaks about business philosophy.

Class of 2010
H. Rodgin Cohen
Edward A. Kangas
Alan G. Lafley
Carol J. Loomis
Paul A. Volcker

Class of 2009
Jay W. Lorsch
Martin Lipton
Pearl Meyer
Thomas J. Neff

Class of 2008
John C. Bogle
William G. Donaldson
Arthur Levitt
Ira M. Millstein
Robert A. G. Monks
Paul Sarbanes
Michael Oxley

To register for the NACD Directorship 100 gala dinner and forum, please click here.

Delaware Court of Chancery
The new chief judge of the Delaware Court of Chancery is, like his predecessors, expected to adhere to tradition. “The court’s role is traditional,” Leo E. Strine Jr. told a New York Times reporter in June shortly after he was sworn in as chancellor of the most powerful business court in the United States. “The core concept of the Delaware court is, what are the fiduciary duties that directors owe to shareholders? Markets are dynamic, the core concept is constant.”

Strine is the 21st chancellor since the court was established in Delaware in 1792 to provide a more balanced judgment for equity cases than less-sophisticated common-law courts—previously the state’s only alternative to its courts of statutory law. (Common plea and equity courts apply principles, while statutory courts apply laws.) Today, Delaware’s Court of Chancery is a rarity. All states have courts of law, but only a few—Arkansas, Delaware, Mississippi, New Jersey and Tennessee— have chancery courts as well.

No other state court impacts business law to such a profound degree. While Delaware’s size is disproportionate to its dominance of American business law, in fact, Delaware was a latterday convert to the chancery model. Other states formed equity courts in the pre-Revolutionary period under the supervision of royal governors, which later led to questions about their independence. Delaware’s timing just three years after ratification of the U.S. Constitution and the election of President George Washington assured that its court would be seen as independent, and it thrived while other chancery courts were abandoned. As a result, the Delaware Chancery Court is based on a unique body of law dating back 200 or more years in corporate dealings and disputes. For other states looking longingly at Delaware’s dominance in business law, there appears to be no catching up.

Prior to being confirmed as chancellor, Strine had served as a vice chancellor since 1998. He graduated magna cum laude from the University of Pennsylvania Law School, and received his bachelor’s degree summa cum laude from the University of Delaware.

The NACD Directorship 100:

Introduction

Directors and Officers

Corporate Governance Hall of Fame Class of 2011

NACD 2011 Public Company Director of the Year and B. Kenneth West Lifetime Achievement Award Winners

People to Watch

Sam Glasscock III was sworn in as vice chancellor in August after having served as master in chancery for 12 years. Glasscock was appointed to fill the vacancy created by the ascension of Strine to chancellor. He received a BA in history from the University of Delaware in 1979, a JD from Duke University in 1983 and a master’s degree in marine policy from the University of Delaware in 1989.

J. Travis Laster was sworn in as vice chancellor in 2009. Laster received his AB summa cum laude from Princeton University and his JD and MA from the University of Virginia, where he served on the Virginia Law Review and was a member of the Order of the Coif.

Donald F. Parsons became a vice chancellor in 2003. He is a 1977 graduate of the Georgetown University Law Center and received a BS in electrical engineering from Lehigh University.

A vice chancellor since 2000, John W. Noble holds a BS magna cum laude in chemical engineering from Bucknell University and a JD cum laude from the University of Pennsylvania Law School. He served as a federal district court law clerk and then practiced with Parkowski, Noble & Guerke in Dover, Del.

The Delaware Supreme Court
Like the Chancery Court, the Delaware Supreme Court has a worldwide reputation for rendering concise opinions concerning corporate law, which generally (but not always) grant broad discretion to corporate boards of directors and officers. The Supreme Court consists of a chief justice and four justices who are nominated by the governor and confirmed by the Delaware State Senate. Justices are appointed for 12-year terms. Myron T. Steele is the seventh Chief Justice of the Delaware Supreme Court. His term ends May 26, 2016. He presides with Justices Carolyn Berger (July 2018), Randy J. Holland (May 27, 2023), Jack B. Jacobs (June 4, 2015) and Henry duPont Ridgely (July 22, 2016).

Before his appointment as Chief Justice, Steele was a Supreme Court Justice from 2000 to 2004 and a vice chancellor of the Court of Chancery from 1994 to 2000. Steele graduated from the University of Virginia (BA, foreign affairs, 1967) and the University of Virginia School of Law (JD, 1970; LLM, 2005). He served on active duty in the U.S. Army and retired as a colonel in the Delaware Army National Guard. Before being appointed to the bench, he was a litigation partner in Prickett, Jones & Elliott of Wilmington and Dover. He also served as outside counsel, director and chairman of the Central Delaware Health Care Corp. In addition to his judicial activities, Steele has been appointed to the Judicial Conference Committee on Federal-State Jurisdiction by U.S. Supreme Court Chief Justice John Roberts.

To register for the NACD Directorship 100 gala dinner and forum, please click here.

Despite growing attention on succession planning among investors, regulators, and other constituencies, only 39 percent of all U.S. public companies have a formal succession plan for CEOs and senior executives set forth in corporate disclosure documents, according to preliminary data from the 2011 NACD Public Company Governance Survey. The survey includes responses from 1,281 directors, senior managers, general counsels and corporate secretaries at U.S. public companies.

The issue of CEO succession has been among the hottest topics of 2011 with a large number of shareholder proxy proposals filed at annual meetings seeking disclosure of succession planning strategies. For their part, board members are well aware of their responsibilities in this important area, highlighting it as one of the most important functions of the board in the annual NACD Directorship “What Society Thinks?” survey, although in the survey of public company directors, 26 percent of respondents listed executive development and talent management as a major priority.

While less than half of the companies in the Public Company Governance Survey reported having formally defined succession plans, some 52 percent of directors attest to having general discussions on the topic of CEO succession throughout the year. These conversations typically center on replacing the CEO in an emergency and identifying potential internal successors. Perhaps surprisingly, nine percent of respondents say their board has no plans at all for CEO succession.

In addition to succession planning, directors face a broad array of issues, and with the enactment of many Dodd-Frank provisions, such as say on pay and enhanced d

irector qualification disclosure requirements, the duties and concerns of board directors have become more onerous. Despite the shifting landscape and the changes forced upon corporations in the aftermath of the global financial crisis, in excess of 90 percent of directors report they are comfortable with the composition and structure of their boards and suggest that current governance structures enhance their ability to do their jobs.

While issues such as succession planning and say on pay have been the focus of media attention, those inside the boardroom point to strategic planning and oversight, corporate performance and valuation, and risk and crisis oversight as the most important issues facing boards and companies this year.

Most boards continue to operate under a similar structure to 2010, with a majority having a combined CEO and chairman position, especially at companies with larger market capitalizations. Of those companies with combined leadership positions, 65 percent have a designated lead director. It is widely considered to be a best practice to appoint a lead director to represent the voice of independent directors and to lead executive sessions of the board. A majority of those surveyed by NACD who represent public company boards with a combined CEO/chair and a lead director on board believe that having a lead director enhances the effectiveness of the board. A mere 29 percent of companies surveyed have an independent chairman.

For companies with independent lead directors, 50 percent have tenure of one year, while almost 16 percent have tenure of six years or more. The level of shareholder activism around this issue saw an unexpected decline in 2011 with only 24 proposals added to proxy statements calling for the establishment of an independent board chair. This represents a decrease of more than 38 percent from 2010 and 2009 levels, according to ISS data.

Attendees at a recent roundtable hosted by NACD Directorship in Chicago argued that for a lead director to have any significant impact he or she must control the board meeting agenda and lead—not just the executive session—but also the board meeting. Failure to do so creates the position in name only and does not have any significant impact on the structure or functioning of board governance. To this point, a full 81 percent of public company survey respondents who serve on boards with a lead director declared that the “lead” either sets or assists in setting the board agenda and determining the board’s informational needs.

Boards and management typically share a collaborative relationship and, in most cases, management has ownership of corporate strategy while there are some elements of strategy and function that are more likely to be the sole purview of the board. Slightly more than 28 percent of those surveyed said that the establishment of nonfinancial goals for the CEO was the sole responsibility of the board, whereas only two percent said development of a long-term strategy is solely the board’s responsibility.

Compensation is increasingly becoming part of the conversation with regards to corporate strategy and performance. Most directors—80 percent, in fact—said they believe that the company’s compensation program has improved corporate performance. Furthermore, 76 percent believe that CEO performance is commensurate with compensation. In order to have that conversation, it is necessary to measure performance, a task that can be among the most vexing and confusing for directors and outside experts alike. There are many different elements that must be taken into account when assessing performance. The most common measure among activist shareholders and the media is share price, but directors weight this metric less heavily than other factors when measuring overall performance. For directors, profits appear to be the most relevant measure followed by revenue.

Of course, it is not possible to measure performance without a time frame. Most compensation commentators discuss long-term performance but don’t necessarily define “long term.” In the NACD survey, 65 percent of public company board members define long term as three years or less while only 19 percent define it as five years or greater.

More results from the 2011 NACD Public Company Governance Survey will be featured in upcoming issues. NACD members will receive an electronic copy of the full report. Nonmembers may buy the report at NACDonline.org.

Ira M. Millstein

What are your impressions of your students’ reactions to the financial crisis?
My students are incredulous. Until two years ago, if you asked my class at the Yale School of Management how many were planning to work in the financial sector, almost all the hands would go up. Today, maybe 30 percent. It has changed their vision of the world. What I have heard in virtually every class since the crisis is, “How could this happen and no one gets blamed?” They ask, “Where were the board, auditors, rating agencies and regulators? Where was everybody else who was in the game?

“Why,” they ask, “is no one penalized?”

Who was most responsible for the financial crisis?
Each of us has reasons why our respective sector is not at fault, and is ready with a standard response for why boards didn’t do anything “bad” and why professionals did not call it as fast as they should have, instead of going along for the ride. Maybe we did see things, but we did not become overly concerned about it because we were all doing “well.” Looking back, I think that everyone in this bubble was complicit. There’s an important story yet to be written as to what came over all of us.

How do you describe “the new normal?”
Briefly, a still-struggling economy, a regime of federally mandated corporate governance and a shift in the balance of corporate power in favor of owners. On the macro side, there is high unemployment, with little chance of change anytime soon, and slow consumer growth. Closer to home, in the boardroom, Dodd-Frank is an attempted overhaul of the entire United States financial system to mitigate systemic risk and, among numerous other things, afford shareholders new powers. Due to these and other corporate governance reforms, the balance of power has shifted to shareholders. It is yet to be seen if shareholders can or will use their new rights constructively.

What are the consequences of Dodd-Frank?
Dodd-Frank is a broad-scale effort to create “financial stability” by dealing with several potential causes of systemic risk. Currently, there are nearly 400 explicit regulations that must be written within the first 18 to 24 months after enactment by over 11 separate regulatory agencies, in addition to over 60 one-time reports and studies. Those related to systemic risk are to be coordinated by the Financial Stability Oversight Council (FSOC). How will this get done? Can the SEC do its job within 24 months? One of the causes of the crisis was regulatory neglect caused in part by a shift in macroeconomic theories and draconian cuts in the regulators’ budgets. Yet today there are calls to further defund regulatory agencies based on the same thinking that got us here.

Moreover, FSOC, which is supposed to be the overall stability board overseeing everything, is primarily composed of regulators who didn’t get it right the first time. And it will be difficult, if not impossible, for FSOC to force other regulatory agencies to coordinate and get it right. Therefore, I am wary about Dodd-Frank.

You have stated that executive compensation “is out of control.”
We need to change our way of thinking about compensation. Instead of tying executive compensation to the company’s stock performance, we need to align compensation to the company’s long-term performance and those internal drivers unique to the company’s sustainability. This would encourage boards to shift their focus from short-term results at the expense of long-term sustainability, including research and development. International bodies are at work on this issue, but I believe only boards can ultimately get compensation properly aligned with performance.

Has the consolidation in the banking sector created more companies that are “too big to fail”?
Both Democrats and Republicans have publicly said so. The six largest bank holding companies in the United States had asset values of 64 percent of the U.S. gross domestic product (GDP) at the end of the third quarter in 2010. In 1995, it was 17 percent of the GDP. The response of the government to the financial crisis, including TARP, had the effect of consolidating banks and thereby creating companies that are, as many say, still “too big to fail.” The rating agencies seem to agree.

Is this an antitrust issue?
Justice Louis Brandeis said it when he wrote Other People’s Money and How the Bankers Use It in 1914. Justice Brandeis worried about the thengrowing power of big banks, and advocated against bank consolidation. Of course we want an efficient, competitive banking sector, but we need to remember a time when the country was concerned with size, when Glass-Steagall dealt with the power of banks, without sacrificing efficiency. Our banking institutions and investment banks thrived quite well without becoming so large and diverse. Dodd-Frank is unlikely to be used by regulators to implement structural reform, but that may be considered should other means of dealing with systemic risk not work, assuming there’s a political will to do something else.

Can you describe the little-known part of Dodd- Frank referred to as the “living will” and its implications?
Section 165(d) of Dodd-Frank requires systemically important financial institutions to submit an annual resolution plan (aka “living will”). The annual living will must provide a road map for the rapid and orderly resolution of a company in a manner that avoids causing systemic risk. If regulators deem that the road map is not credible, then they are empowered ultimately to force divestiture and asset sales so as to avoid contagion. The banks now must report to regulators their ownership structure, assets, liabilities, contractual obligations, core business lines, critical operations, material entities, major counter parties, hedging and other derivatives transactions, international operations and corporate governance. Because of the potential consequences, boards of directors should be monitoring closely and proactively to protect their shareholders.

Has the dynamic changed between shareholders and CEOs?
With shareholders now having a more powerful voice, the dynamic is changing. CEOs and boards must be more cognizant of shareholder needs and work with them to cultivate relationships. Communication is critical.

“Women and men have differing points of view as to the reason why there are fewer women – both nominated and sitting on active corporate boards today,” said Bonnie Gwin, vice chairman and managing partner of Heidrick & Struggles’ North American Board of Directors Practice. “About one third of women directors globally believe that closed off traditional networks are the primary reason women aren’t considered for director positions, whereas men believe there are fewer women currently in executive leadership roles, creating a smaller talent pipeline for entrance into the board room.”

The study, now in its second year, includes responses from 721 male and female board members in 26 countries and provides insight into how women and men view board composition worldwide. “Not only do women and men disagree about the reasons why fewer women serve on boards and if quotas are effective, but they also hold disparate views on whether increasing the number of women in the boardroom will actually improve overall board performance,” Dr. Groysberg said.

Additional study findings are available for review upon request. A topline overview of key 2011 board findings includes the following:

Diversity on Boards

• (41 percent) of women vs. (13 percent) of men personally supported quotas.
• (53 percent) of women vs. (18 percent) of men thought quotas are effective for increasing board diversity.

Overall Board Effectiveness

• (55 percent) of female directors vs. (16 percent) of male directors agreed three or more women on any board make it a more effective board.
• (59 percent) of women vs. (74 percent) of men said their board had an effective CEO succession plan.
• (40 percent) of women vs. (54 percent) of men said their board had an effective director succession plan.
• (72 percent) of women vs. (85 percent) of men agreed that their board effectively evaluates the CEO.
• (48 percent) of women vs. (60 percent) of men agreed that their board provides effective training for new directors.

Board Governance & Trust

• There is low confidence among both female and male directors (25 percent) and (17 percent) respectively, that the Dodd-Frank bill will create better corporate governance.
• Women and men agreed – risk management is imperative, with women  at 74 percent and men at 75 percent in 2011. An increase from 2010, women (40 percent) and men at (1 percent).
• Slightly more than three quarters (76 percent) of women believe ncreased board diversity will be effective in rebuilding trust in boards, compared with less than half (42 percent) of men surveyed.
• (70 percent) outside U.S. directors vs. (39 percent) U.S. directors agreed that professional directors would be an effective way to rebuild trust in corporate boards.

Click here to view the embedded video.

Click here to view the embedded video.

Click here to view the embedded video.

Click here to view the embedded video.

Click here to view the embedded video.

Click here to view the embedded video.

Click here to view the embedded video.

How does a company classify, compensate and define employees? According to Robert J. Nobile, a partner at Seyfarth Shaw, and Kathleen M. Connell, PhD, director of the Corporate Directors Enterprise at UC Berkeley Haas School of Business, a board’s assessment of a company’s risk profile should include due diligence on litigation as it relates to workplace issues.

Robert J. Nobile: The greatest concern of corporations today—and I can see this in dealings with my clients—is the enhanced enforcement that is occurring, certainly at the federal level. The Department of Labor, Occupational Safety and Health Administration (OSHA), Office of Federal Contract Compliance Programs (OFCCP) and the Equal Employment Opportunity Commission (EEOC), have all been literally doing the circuit, speaking nationally about increased enforcement of the equal opportunity, wage and hour, and health and safety laws. In the past, these agencies might have turned the other cheek and been willing to settle more quickly. Today, they are feeling—and I will say this from first-hand experience—very empowered with the authority they now have, and more brazen in pushing matters to litigation that probably would have settled in the past.

Kathleen M. Connell: The heightened exposure for employers is a result of both the stronger regulatory mentality of the Obama Administration and its commitment of necessary resources for enforcement actions. Corporate boards need to become increasingly sophisticated in their understanding of issues in the arena of workplace litigation and employment-related class-action lawsuits.

A proactive director should reframe the board’s discussion of employment matters as a risk- management concern. Boards tend to receive bottom-line employee cost-savings data from the CFO and compensation materials from human resources departments. Neither provides the integrated perspective a board requires to determine the potential “risk exposure” of employment practices. It’s the board’s responsibility to discuss a company’s employment policies in the context of a regulatory environment—understanding that the way a company classifies employees, compensates them and defines their status as full, part-time or contractor must meet stringent national labor standards.

Nobile: In my experience, what boards need to be concerned about is that perhaps a lot of companies are playing a numbers game. Former President Bush used to call it “fuzzy math.” I advise clients they should look very closely at the issue of who is an employee, versus who is a consultant or an independent contractor. The resistance that companies always get—and I hear this from human resources executives—is that the financial officers, the CFOs, the controllers and so on, are very concerned about head count. So, in effect, CFOs will refuse to give human resources the authority to add to head count, while at the same time authorizing thousands and thousands of dollars on independent contractors and consultants doing the work of employees, and are, in effect, misclassified.

There’s real concern everywhere, even at the federal level with the IRS and with many state agencies, about revenue. The government and the states are losing revenue when individuals are misclassified, because taxes are not being withheld and reported appropriately. Consultants take deductions that would be impermissible for an employee to take, such as commuting, meals and other business-related expenses. Quite frankly, it’s a revenue numbers game for the federal and state tax agencies—and when they see an apparent misclassification, they will be aggressive.

Many corporations misuse independent con­tractors. It’s a major issue in terms of potential liability for boards. I’ll give you a real-life example. Several years ago, Arch Financial Services got a call from the head of human resources, who had a lawyer’s letter. The lawyer was representing an “independent contractor” who had been working for this company for about seven years. The contractor’s child became seriously ill. The contractor had a very poor employee-benefits program and most of the expenses were not covered. The contractor sought advice from a private attorney about filing for bankruptcy because he couldn’t pay the medical expenses. The bankruptcy attorney asked him, “Why aren’t these expenses covered? These seem like expenses that would be covered under any normal group health-insurance program.” The contractor explained, “Well, I don’t have group health insurance because I’m not an employee; I’m an independent contractor.”

The lawyer’s letter to the company stated that the employee for the last seven years had been misclassified as an independent contractor. Such misclassification resulted in his not receiving pension benefits or health insurance. The medical bills for the contractor’s child at that point in time were about a quarter of a million dollars. His lawyer presented two options. Make him an employee, put him into the benefit programs, and make sure it’s retroactive so that his expenses are covered; or prepare to defend against a class action on his behalf and everyone else in a similar situation. The company chose to settle, wrote out a nice check, put him into their plans, and then audited and reclassified about 75 other individuals as well. There was potential major liability for this corporation because of the misclassification.

Connell: You’ve identified a perfect example in today’s “new normal” economy, in which companies are reluctant to make a long-term commitment to new employees, rather choosing to make a commitment to a job position. The company seeks flexibility, not knowing the certainty of its future business growth, and chooses a contract employee, avoiding the benefit responsibilities normally attached to a company employee. Utilizing contractor status to avoid issues of overtime, benefits and bonuses may well trigger legal issues leading to litigation and financial exposure.

Misclassification of employees was an issue for one company where I served as a director because it had both employees and contractors performing similar duties. The contracted “employees” did not receive overtime or bonuses. They would have been better compensated had they been salaried employees and been paid overtime for their weekends, evenings and holiday employment. In their minds, they were being “abused” because they were compensated at a fixed rate with no inclusion in the company’s benefits or bonus programs.

Yet, they were working excessive hours, well beyond 40 hours a week. Such an arrangement was attractive to the contract employees as a temporary position, but as the contract employees became personally integrated into the culture of the company, the compensation arrangement became contentious. Eventually, the company—under pressure from state regulatory offices—ended the contractor relationship and added additional employee positions.

Many employment practices once viewed as temporary and implemented in a recessionary period have morphed into permanent changes in attitude towards full-time employment. I urge directors to request an employment audit from their human resources department, accompanied by a risk analysis from the general counsel. Such reports would review current classifications of employees and determine whether such classifications and employment practices represent a long-term strategy that is both beneficial to the company’s growth and in compliance with regulatory standards. Perhaps it would be advisable for boards to retain outside legal counsel with specialty in employment law to review the company’s overall employment practices, and to determine whether they’re compliant with existing laws. It’s vital boards of directors understand that utilization of outside consultants, annuitants, part-time employees and even interns carries exposure that they may not anticipate, given the obligations of companies to provide training, healthcare and pension benefits, and to protect such employees against any type of liability that might occur in a workplace environment.

Nobile: If the board, for example, is going to conduct or commission an audit, one of the first things it should certainly do—and you mentioned getting the general counsel involved, and I think it’s an important point to highlight—is make sure whatever audit that’s done is a privileged and confidential audit to the maximum extent practicable. Getting the general counsel involved, perhaps with either internal counsel or outside counsel, could help privilege the report or study, and perhaps prevent it from being discoverable in litigation, which is obviously a critical point. If you’re going forward and conducting an audit, you better be prepared to implement whatever findings the auditor comes out with at the end. If the auditor states that jobs are misclassified—someone is classified as exempt when they should be nonexempt, or is classified as an independent contractor when they should be an employee, or someone is classified as an intern and should be an employee—the company wants to be in a position to argue that the study is a privileged study and, thus, not discoverable. The last thing you would want to see is a class-action lawsuit being filed, based on an audit report, the results of which were not implemented.

Connell: That raises the role of boards in terms of corrective actions. It is generally assumed that human resources practices are the responsibility of management. Boards adopt a hands-off attitude, becoming unwilling to consider modifying personnel policies and then delegate that responsibility to the human resources department.

Boards should be advised to focus serious attention on risk-management responsibilities. Their risk-analysis radar should be broad enough to recognize the potential red flag of poorly defined or executed personnel practices. The plaintiffs’ bar is becoming more sophisticated, as they look at this whole new arena of employee benefits and compensation.

Boards of directors may also choose to define a process for considering their company’s obligations under the new healthcare legislation. Both “best practices” for employment policies and effective healthcare implementation are worthwhile topics for board retreats where more extended discussion is possible.

Nobile: There is no more heavily regulated area of business than the HR side of the business. At the federal level alone in the United States, we have in excess of two dozen statutes that govern every decision that an employer makes, from inception and recruitment through termination of employment. We also have state and local laws in every jurisdiction as well that compound the problems that employers have in terms of compliance.

Quite frankly, I think education is much needed, to show board members some of the trends that are occurring out there. When you look at litigation, right now, wage and hour cases are probably number one in the United States. There are literally hundreds of class actions that are filed against every major corporation, and there have been some phenomenal settlements. Wal-Mart, for example, recently had a $172-million verdict in a wage and hour case. Merrill Lynch had a $37-million settlement in a wage and hour case. But the reality is, no employer is immune from these types of actions, and board members should be aware of the trends and what is happening with other similarly situated companies. What’s going on in industry? What are the plaintiffs’ lawyers focusing on these days?

Connell: As boards report to the Securities and Exchange Commission on their risk-management policies, citing areas where the company might have long-term exposure, potential employment litigation should be included, given the increase in litigation, and the impact that it has on the perception of a company’s brand. As employment litigation exposure increases for companies, it’s vital for boards to become better educated on employment issues—not to micromanage this issue, but to be proactive in defining strategies that are protective of the company’s interests.

It’s important that a company seeks to create a culture where best employment practices are upheld and present, and future employees are respected. Well-formulated employment practices will reduce the likelihood of costly employment litigation and enhance a company’s brand and reputation.

Female directors were also more critical of their board’s performance and competitive compensation practices, but had greater faith that executive compensation and proxy access regulations would have positive effects. The study also found that it takes more education and time for a woman to be placed on a board, with the average woman obtaining her seat after 2.4 years, as compared with the men’s average of 1.4 years.  More females, at 87 percent, had advanced degrees, with men coming in at 74 percent.

“Women directors, more than men, seem open to challenging the status quo,” said Susan Stautberg, co-founder and co-chair of WCD, the only global community of women corporate directors. “The issue of diversity, in particular, elicited a sharp division among the men and women we surveyed, especially around the topic of quotas in the boardroom and how regulatory changes will affect diverse representation on boards.”

“Our survey suggests that there are still a lot of challenges as well as opportunities to improve effectiveness, truly leverage diversity, and carefully think through regulations directed at boards,” said Dr. Groysberg.

The survey was conducted in the spring of 2010, and included 294 WCD members and 104 male directors.

Perhaps more than ever, the passion that today’s public boards bring to their roles intersects with shareholder scrutiny and regulatory reform at the increasingly transparent corner of corporate excellence—clearly seen through the prism of ROI, values and ethics.

Bottom line: This only works with the right board;  success continues by keeping the board’s mission aligned with corporate strategy.

“A board is a great gift on behalf of the shareholders,’’ says Theodore L. Dysart, a managing partner with Heidrick & Struggles, where he is a leader in the Global Board of Directors Practice. “These directors really want the best for the company.”

Sometimes, however, what’s best for the company is for a single director, or several, to step away to ensure the highest performing board possible.

Replacing directors is an evolving art laced with essences of traditional organizational skills, robust team building and effective leadership roles grounded in solid management science. The resulting best practice is the evolution of “relationship” boards into “skills and experience” boards.  This evolution also supports thoughtful, meaningful board-succession planning to support future strategic plans.

This requires a variety of new approaches to board composition, such as “recruiting skill sets versus recruiting names,” says Peter R. Gleason, managing director and CFO of the National Association of Corporate Directors (NACD). Other requirements include reducing experiential overlaps and closing professional gaps. “You have to constantly look at what you need and what you have” both in terms of immediate assessments and the changes and challenges forecast for the next two or three years for the corporation, Gleason says.

Since most boards have some latitude regarding their size, they don’t need to wait for a pending term limit to expire or the looming retirement of a current member to recruit the strategic expertise necessary for critical, long-term success. These boards also don’t need to be bound by a multi-month, if not multi-year, recruitment cycle for new board members.

“By staffing up, say from 12 to 15, a board may increase short term to get the skill sets necessary for the future,” explains Gleason. “Let’s say the corporation wants to expand into India next year. The board is going to want someone with multi-national experience. Planning for that ahead of time means going after a strategic expert in global management, knowing that someone else on the board, like a banker, will be retiring in a year or two.”

As executive compensation both in and out of the C-Suite continues to garner regulatory and shareholder interest, recruiting board members with extensive human-resources expertise is another key area of consideration. Directors who have HR experience “with internal performance metrics are critical moving forward,” Gleason says, especially as the Securities and Exchange Commission spotlights pay-for-performance and other executive compensation risks as mandatory reporting metrics.

With the SEC focusing more on disclosure rather than criteria of public board members, diversity is the hot-button issue when openings for directors occur, according to Edward H. Pendergast, president of Pendergast & Co., board chair of PLC Medical Systems, and an NACD faculty member.

“Diversity in the boardroom is looked at differently than diversity in the public,” where it usually refers to race, gender or ethnic backgrounds, says Pendergast, who serves on several public, private and non-profit boards. “In the boardroom, it is beyond that. It is about not having people from the same background. It used to be there would be seven CEOs on the board. No one from HR. No one from Techno-logy. No one from R&D. We need to look at diversity in every way. The ‘thinking’ boards are spending more time to find a director to fit their needs; someone who is honest, ethical and willing to take a contrarian position.”

This “patience vs. balance approach” gives the organization—whether a $2-million or a $2-billion corporation—the correct corporate governance model, bypassing short-term gain in favor of embedded fiduciary and risk oversight tied to individuals who foster an aggressive, value-driven and performance-oriented culture, and are knowledgeable and responsive to market forces.

So, given the “new normal” of the post-recession recovery, if it’s necessary to replace the entire board of a public company over the next three to four years, is it also possible?

Yes, according to Robert M. Galford, managing partner of the Center for Leading Organizations and chair of the compensation committee of Forrester Research. But it does take time to bring new members up to speed. What Galford suggests is that board chairs exercise a bit of creativity to rejuvenate current members while actively recruiting new members for the future.

“Boards get into patterns and into assigned roles,” Galford said. He urges directors to be bold and brave: “Ask the C-Suite what it would like to see from its board.”

Galford also recommends occasionally ditching the C-Suite to allow board members direct contact with middle managers and other high-potential employees in an informal setting. One way of accomplishing this, he says, is to politely disinvite the C-level—except maybe the chief counsel, as lawyers like to say, out of an abundance of caution—from the dinners that are often held the night before a quarterly board meeting. Then invite the “skip-down” crowd to meet with the board.

“Don’t have the ‘highfalutin’ there. Invite two to five employees per board member so the board sees more of the organization. This way, board members get a great deal of value unfiltered,” Galford says.

He also advocates that even experienced directors should participate in continuing education and executive leadership programs for public-board members.

“It’s very invigorating. [These programs] are surprisingly helpful. First, they calibrate your own point of view. Second, it gives you the ability to gain perspective on what’s on the horizon for boards in general. And, third, it is an opportunity to formally and informally hear from others about the issues that they are grappling with,” says Galford, who has more than a dozen years of public-board experience and is a faculty member for NACD’s customized education programs.

Over those 12 years, Galford says, board service has become “harder work, more work, more serious, more consequential. It may take awhile for board members to re-energize [as a result of educational and leadership programs] but once it works, the results are better returns for stakeholders and shareholders. It’s a fairly high return of investment…[a] tremendous return on costs that provide significant improvements. There’s very high ROI in this.”

This emphasis on board leadership demonstrates that boards are pro-actively refreshing and recruiting by considering individual skills and evaluating experience against corporate strategy. The results of these “skills and experience” boards: directors and managers are working together to achieve “constructive interaction” with a focus on activities that help the company maximize shareholder value.

On May 6th, how did your day start, and how did it end?
I got back from a three-day trip to the West Coast very late the night of May 5th, and May 6th was a pretty normal day until about 2:30. I was in a meeting and my assistant slipped me a note very calmly that read: “The market’s down just over 1,000. The first circuit breakers are about to be hit.” I calmly got up and walked over to my desk, and in the short time it took me to get from my chair to behind my desk, the market was now down 600. It was obvious something had happened. Jim Cramer, a friend of mine, had reported on the news that it must have been a technology problem at the NYSE, because the most noticeable evidence was in NYSE stocks. Let’s just say that I did not expect, even at 2:30, to end the day by appearing on CNBC with Maria [Bartiromo] and explaining what I thought had happened, and that we hadn’t had any technology issues.

Is it a one-off, or is it something we can prevent?
I wish I could tell all of you that someone meant to sell 10 million and sold 10 billion and it was the so-called “fat finger” trade. It wasn’t. It exposed a weakness in market structure in the United States that is really a direct result of the fragmented markets that we’ve lived with for a while. That’s not a pitch from us to have our monopoly status reinstated. Competition is here to stay. But we believe that having speed bumps in the market in times of aberrant volatility is right. It’s been a part of our market. No one is going to convince me to take it out because I think it’s the right thing for issuers and investors.

Tell us about the impact of more government regulation and involvement in business, and what’s going to be our relationship to risk taking going forward?
The challenge is if you go back a couple of years, the issues were limited to the financial services industry. Do they need to be governed slightly differently, or do they need a risk committee? I would go to Washington and ask, why am I supposed to go around to the other 99.5 percent of the companies that did absolutely nothing wrong, and say to them, “even though you did nothing wrong, Washington has decided you need to govern your companies in a different way”? It’s completely inappropriate. We could come up with all the anecdotes that we want, but if the government wants to get more involved, that’s fine. I’m all for some of the reforms, such as a central clearing of over-the-counter derivatives and other opaque instruments. If we want to federalize the boardroom, however, I’m not for that. None of us should be. I think we have to fight that pretty hard.

Can you give us some insight, either in your days as a banker or as the CEO of the NYSE Euronext, what should CEOs be doing and thinking about in regard to their own compensation?
Look, I was a rookie CEO when I got this job. My view on this was pretty simple. I felt that the executive team’s compensation was not aligned properly with the shareholder. So first, we put metrics around the bonus. We made more of the bonus long-term stock and we set up a long-term incentive plan that the earliest you get the stock is three years out. Our view was that if most of the executive team’s compensation is in long-dated stock that got us closer to the target. Secondly, we disclosed in our proxy our compensation philosophy, how it works, and how we derive the bonus pool—way more information than we’ve ever given before.

Speaking of getting closer to home, can you tell us about your board?
We had to go from not being nearly independent enough to where we made sure no one would ever question us about that again. So we went to the
other end of the spectrum, where everybody had to be totally independent. I’ll just give you a list of the people who were disqualified for potential conflict: anyone who works in the industry and any sitting executive of a publicly listed company—NYSE or Nasdaq. That rules out an awful lot of qualified people. Is our board terrific? Yes. But I’m not even
allowed to talk to 10,000 really qualified people about being on the board until I can try to get that rule changed. The other mistake we made—and look, hindsight’s 20/20—is that we moved no people off the board when we merged with Euronext in 2007, and both boards were a CEO plus 10. When I got this job, I inherited a 22-person board. Just think about trying to manage a public company with a 22-person board.
Now the board is down to 16. We’ve had some good turnover. Our business has gotten a lot more complicated. And if you get too independent, the danger is that you don’t have people who are really close enough to what you’re trying to accomplish. You want people who can challenge, challenge, challenge.

Is this a tough period to be a CEO? Does the anti-business sentiment get to you?
I think I have one of the best jobs in the world, so I wake up every morning at five o’clock, and I can’t wait to get to work. I grew up having my dad teach me, that’s the American dream, and now some people want to say, “Well, it’s not the American dream anymore.” My view is no one’s going to take that away from me and no one should take it away from anyone in this room. A lot of us are self-made. We should be proud of that. Look back in history, folks. Revlon and Hewlett-Packard started in the depression. Companies like Microsoft and Intel started in a recession. That’s where the job creations come from at every recovery in this country, and yet, you haven’t seen one piece of legislation that encourages that. You haven’t seen the banks really step up and lend money to these institutions. I think that’s the bigger issue than is it a tough time to be a CEO. I mean, I think I’m one of the luckiest people that I know.