Kenneth Daly (photo by David Nicholas/Longview)

Today, everything is new business. Boards are deeply engaged in strategy development and in risk oversight—and both activities look ahead, typically a good three years. So let me ask: Is your board ready for 2012? What about 2015? Whenever I ask directors this question, I usually hear a resounding “yes.”

To be sure, the past matters to directors. After all, it’s the only thing that’s verifiable, as any good accountant can tell you. But increasingly directors see the past as just one part of a vast puzzle that includes an ever-emerging future. As one chapter leader told us recently: “We’re Dodd-Franked out. Help us see what’s around the next corner.”

With this issue of NACD Directorship, we are indeed looking ahead. In her annual State of Corporate Governance address, NACD Chairman Barbara Hackman Franklin cites pay-for-performance, diversity and technology as key issues for boards in 2012.

The importance of these topics becomes clear to me whenever NACD convenes our regular advisory councils in each of the three key committee areas. Our council for compensation committee chairs regularly tackles the challenge of linking pay to performance. The subject of diversity brings out useful insights when we convene nominating/governance committee leaders. Last but not least, technology—especially the shifting risks and rewards of information technology—is always a hot topic for audit committee leaders.

And speaking of IT, check out our website, NACDonline.org. Type in any search term, and you will find literally hundreds of resources—in a nanosecond.

It’s all about the future. See you there!

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

Kenneth Daly

We know that directors are currently placing emphasis on strategy, corporate performance and risk—the top three concerns, according to the NACD Public Company Governance Survey highlighted in this issue. So what is the best way to work with management to develop strategy, enhance performance and mitigate risk going forward?

In his popular song, “Imagine,” John Lennon asks us to suppose for a moment that there are “no countries,” as well as “no religions” and even “no possessions.” As a patriot, a man of faith and a capitalist, I don’t share his enthusiasm for this scenario, but I do like the main point of the song. From time to time, we need to sweep away all the major givens and ask ourselves, “What if…?”

Here are some “imaginings” that directors may find useful.

• Imagine that your board really understood the full strategic implications of your company’s IT.
• Imagine that you spent most of your board time in discussion, rather than reviewing reports.
• Imagine that shareholders knew and appreciated what your committees are doing.
• Imagine that your executive sessions got to the bottom of every thorny issue.
• Imagine that directors could exercise a reasonable degree of skepticism without eroding trust.
• Imagine that directors from different countries could learn universal lessons from one another.

These are just a few of my imaginings. I encourage you to create your own. After all, it’s often said that the most important thing a corporate director can do—other than to select the right CEO—is to ask good questions. This should include the questions we ask ourselves about the way things are and how they can be.

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

Kenneth Daly

Boards hire and develop company leaders. That is what CEO succession is all about. Furthermore, boards and committees have their own leaders. I’m pleased to announce that this month NACD will release two reports on the topic of board leadership. First out will be an entirely new Blue Ribbon Commission report on the Effective Lead Director, explaining how this often-misunderstood role can function best. Shortly after that, we’ll publish an updated edition of our original BRC report on Board Leadership, the first ever to present the board as a “system of leadership.”

Ultimately, beneath titles, roles and systems, leadership comes from within. True leadership requires courage, a quality we see in the profile of Dr. Reatha Clark King (see page 11), who has served as a leader throughout her career—as a college president, founda- tion chair, corporate director and committee chair.

I am proud to say that Dr. King chairs the NACD board’s governance committee as a volunteer director. When asked why she serves on boards, she replied, “Board work fundamentally helps to improve how corporations work, which helps shareholders, employees and the economy—our standing in the world. I can’t think of anything…that can have a greater impact.” She is right—to a point. Even more important than our boards, in my view, is the very spirit of leadership that animates directors like her—and all of you, I hope—to make a positive difference.

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

Kenneth Daly

But this “old school” view doesn’t tell the whole story. We have also seen a great deal of change and self-improvement in the way boards interact with management on behalf of investors. NACD is proud to have played a part in this new wave.

When NACD passed the 11,000-member threshold a short while ago, we were tempted to mark the milestone with a familiar slogan. Yet “11,000 directors served” just didn’t have the right ring. Our senior management team held a strategic retreat to affirm the number we are serving, and how and why. Here’s what we found.

All of our strategic assets—tremendous intellectual capital, research and publishing resources, a world-class conference and educational offering, an in-boardroom consulting organization that can teach and assess key boardroom skills— are vital to our mission, but they are not the key to our value.

Our main asset—what sets us apart from our corporate governance brethren—is the franchise that allows us, among all American institutions, to help our 11,000-plus members achieve better corporate governance. We do this by advocating for the director’s perspective to the broader public and those who influence policy and regulation. In turn, we educate our directors about the challenges and requirements posed by the other constituents. Finally, we convene all the parties together for constructive dialogue. To us that’s very inspiring, and not too complicated.

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

Kenneth Daly

Over the past year, much has been said about the impact that Dodd-Frank will have on banks and other financial institutions, but the legislation goes far beyond Wall Street, bringing us mandates for say on pay, bounties for whistleblowers, and the likely advent of proxy access.

This commentary was originally published as an op-ed in The Hill.

While reasonable minds may debate the value of these rules, there is no debate about the importance of learning what they mean for boards. Dodd-Frank has put director education in the spotlight more than ever. NACD is ready for the challenge, having focused on building the strongest boards and strongest companies for more than thirty years. Every successful director education program, regardless of the company’s type, size or industry, should have a single goal in mind: to develop highly engaged, well-prepared corporate directors who can fulfill their responsibilities to the company, its investors, and its employees and other stakeholders.

As board members, we want to promote stronger directors. As company leaders, we want to promote stronger companies. And as taxpayers with a vested interest in America’s economic growth, we want to promote a strong economy. We believe that these three groups are inextricably linked. NACD has led the way in promoting high-quality director education to make this vision a reality.

To achieve this, we believe that director education programs should meet specific criteria:

• Independence. First, the administrator of the program must be credible and independent, free from bias and self-interest. As directors are expected to be an independent counterweight to the company’s management, so too should be the program that trains them.
• Relevance. Second, the program should be relevant. To be effective, a program should ensure directors maximize awareness of the current environment, implications for boards and trends in leading boardroom practices. These programs should, first and foremost, seek to produce trained, qualified, knowledgeable directors, capable of being informed advocates for the company’s best interests.
• Authority. Finally, the program, whether or not it issues a credit or certificate, should be authoritative. Program quality is only as valuable as its issuer. Directors who undergo NACD’s director education programs, for example, benefit from our 30-plus years of experience, and in return, the credentials they receive carry the weight of our organization.

All of our educational resources are developed with the goal of producing leading, well-prepared directors of the highest quality, and everyone who comes out of our programs is a testament to the materials we offer. We take pride in our ability to produce and implement programs that bring real value to board members, in turn bringing value to everyone involved with the company.

As a result of the critical role that directors play in their companies and in the larger economy, director education programs can and should play a key role on every board.  NACD has been providing these services to directors, board members, and investors throughout our history, and especially given this new post-Dodd-Frank environment, well-educated and highly trained directors are crucial to maintain stability and growth in these tenuous economic times.

As the dust from this legislation continues to settle, and as both sides of the aisle continue the debate in Washington, one thing is guaranteed to remain constant: NACD will continue to provide the true gold standard in director education.

Ken Daly is the president and CEO of the National Association of Corporate Directors (NACD).

But I have to say that Bridging Board Gaps: Report of the Study Group on Corporate Boards , released in late April, contains some new perspectives and some new thinking.

Ken Daly

A New Gathering
The Study Group on Corporate Boards is new in the breadth of its representation across U.S. public company governance and, frankly, the celebrity status of its members. At NACD we take pride in our Blue Ribbon Commission reports, which bring together a diverse group of participants in governance. The Study Group assembled an equally strong group with a wide range of backgrounds and affiliations.

Co-Chairs Charles Elson, University of Delaware; Glenn Hubbard, Columbia Business School; and Vice-Chair Frank Zarb, Hellman and Friedman, currently serve on a total of seven major corporate boards. The Study Group also includes other prominent corporate directors, plus an array of retired chief executives, senior managers, shareholders and professional advisors of note, and also two retired jurists—Chief Justice E. Norman Veasey, retired from the Delaware Supreme Court, and Chancellor William T. Allen, retired from the Delaware Court of Chancery.

Also serving in the Study Group is Arthur Levitt, former chairman of the Securities and Exchange Commission; former Treasury Department Secretary Paul O’Neill; former general counsel of the Securities and Exchange Commission, David Becker; and a representative of organized labor, Damon Silvers, policy director and special counsel of the AFL-CIO. The group even includes Jon Hanson, chairman emeritus of the National Football Foundation and a director of the company that owns the New York Yankees.

New Ideas
So exactly what did the Study Group say that was new? The main message of their report is twofold:

1. There are natural limits to what boards (as part-time nonmanagers), by definition, can do, and we all need to face those limits and adapt to them. Previous reports leave this difficult truth unaddressed.

2. Even given these limits, some boards are falling short of their potential.

The Study Group identified seven gaps: gaps in purpose, culture, leadership, information, advice, debate, and self-renewal. Every member made a significant contribution to the discussion. My own area of focus was the issue of information asymmetry, which I have addressed in a number of NACD publications. Management will always know more than the board about the company; that gap is inevitable, but it can be narrowed.

In my view, however, the truly new message in the report lies in the last three areas: advice, debate and self-renewal. Boards are not investing enough in advisors; their fear of treading on management’s toes leads to serious gaps in knowledge. Also, boards are too deferential in their discussions. Rigorous debate is required and there is also a place for outright dissent (votes need not always be, as they usually are, unanimous). And finally, the third message that to me seems quite new is the suggestion that although obviously evaluation is the best way to refresh board membership, boards should consider term limits—a backstop that fewer than one in ten corporate boards have implemented, according to NACD research.

A New Start
Although as a lifelong auditor, I am constitutionally incapable of being star struck, I must say it was an honor to serve with this distinguished group. Indeed, I can’t imagine any American man or woman of business being uninterested in what this unique and high-caliber team has to say. I commend this report to the attention of every corporate director, and to all who care about free enterprise in America and in our global economy.

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

Kenneth Daly

But there are key constituents, and some who sit in judgment, who may not be totally familiar with the facts on the ground. This, frankly, is the real substance of NACD’s mission: to advocate, educate and collaborate on behalf of board directors with those who exert a profound impact through regulation or legislation. Our mission also requires that we get deeply engaged in the inner workings and fine tuning of how the boardroom is regulated.

I experienced this firsthand when the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises asked NACD to testify on the pros and cons of the whistleblower provisions of Dodd-Frank. I thought you might find the details interesting.

During the hearing, House members entered the testimony room, asked their questions and left, making for a whirlwind of names, faces and activity. Even so, the members were a respectful, attentive audience, and I was able to cover the important points that directors are most concerned about in these provisions, such as having no requirement to report information to the employer before bringing it to the government and the lack of recourse to a company in the event an employee makes false allegations.

This issue of NACD Directorship, like the NACD itself, is more than just what the future holds from Congress, but also covers such important issues and questions as how a board can pull a company out of a tailspin. Should companies disclose political spending? How should boards address succession? Open it up, and I guarantee that you will want to keep on reading and learning—not only this summer, but year round and life long— to carry out your corporate governance duties.

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

Kenneth Daly

But I have to say that Bridging Board Gaps: Report of the Study Group on Corporate Boards, released in late April, contains some new perspectives and some new thinking.

A New Gathering
The Study Group on Corporate Boards is new in the breadth of its representation across U.S. public company governance and, frankly, the celebrity status of its members. At NACD we take pride in our Blue Ribbon Commission reports, which bring together a diverse group of participants in governance. The Study Group assembled an equally strong group with a wide range of backgrounds and affiliations.

Co-Chairs Charles Elson, University of Delaware; Glenn Hubbard, Columbia Business School; and Vice-Chair Frank Zarb, Hellman and Friedman, currently serve on a total of seven major corporate boards. The Study Group also includes other prominent corporate directors, plus an array of retired chief executives, senior managers, shareholders and professional advisors of note, and also two retired jurists—Chief Justice E. Norman Veasey, retired from the Delaware Supreme Court, and Chancellor William T. Allen, retired from the Delaware Court of Chancery.

Also serving in the Study Group is Arthur Levitt, former chairman of the Securities and Exchange Commission; former Treasury Department Secretary Paul O’Neill; former general counsel of the Securities and Exchange Commission, David Becker; and a representative of organized labor, Damon Silvers, policy director and special counsel of the AFL-CIO. The group even includes Jon Hanson, chairman emeritus of the National Football Foundation and a director of the company that owns the New York Yankees.

New Ideas
So exactly what did the Study Group say that was new? The main message of their report is twofold:

1. There are natural limits to what boards (as part-time nonmanagers), by definition, can do, and we all need to face those limits and adapt to them. Previous reports leave this difficult truth unaddressed.

2. Even given these limits, some boards are falling short of their potential.

The Study Group identified seven gaps: gaps in purpose, culture, leadership, information, advice, debate and self-renewal. Every member made a significant contribution to the discussion. My own area of focus was the issue of information asymmetry, which I have addressed in a number of NACD publications. Management will always know more than the board about the company; that gap is inevitable, but it can be narrowed.

In my view, however, the truly new message in the report lies in the last three areas: advice, debate and self-renewal. Boards are not investing enough in advisors; their fear of treading on management’s toes leads to serious gaps in knowledge. Also, boards are too deferential in their discussions. Rigorous debate is required and there is also a place for outright dissent (votes need not always be, as they usually are, unanimous). And finally, the third message that to me seems quite new is the suggestion that although obviously evaluation is the best way to refresh board membership, boards should consider term limits—a backstop that fewer than one in ten corporate boards have implemented, according to NACD research.

A New Start
Although as a lifelong auditor, I am constitutionally incapable of being star struck, I must say it was an honor to serve with this distinguished group. Indeed, I can’t imagine any American man or woman of business being uninterested in what this unique and high-caliber team has to say. I commend this report to the attention of every corporate director, and to all who care about free enterprise in America and in our global economy.

Get the Report and Discuss Its Recommendations with Jon Hanson, Charles Elson and Ken Daly
Ken Daly and Charles Elson will be joined by fellow Study Group member Jon Hanson to discuss the recommendations in their report at the Master Class NACD will conduct in Wilmington, DE, June 7- 8, 2011. The Master Class is open to experienced directors only, and is best suited to lead directors and committee chairs. Check out the full agenda here. To register for the Master Class, where you will receive a complimentary copy of the Study Group report, click here.

Kenneth Daly is the president and CEO of the National Association of Corporate Directors (NACD).

Kenneth Daly

In April 2011, that legendary shot echoes still as ideological battle lines form. Some in this nation favor free markets, some oppose them. Their struggle has put focus on the role of independent directors.

Last month, when USA Today reported a rise in director pay, controversy raged. No matter that the pay reported was only for the very largest companies and included future value that may never actually be. No matter that the average professional experience of these directors was well above the average employee. The reported amounts seemed high to many. Of nearly 400 comments posted to the newspaper’s website within 48 hours of the story’s publication, the vast majority lambasted directors for working fewer hours and earning more dollars than the average worker—and for what?

As one reader of the story commented: “We bleed for the company and all you do is type and talk.” “Cue the class warfare comments,” posted a wry contrarian.

Given Main Street’s low assessment of directors—reflected in the “What Society Thinks” feature in this issue—we directors need to do a better job of explaining our value to the general public. As NACD Chairman Hon. Barbara Hackman Franklin and I noted in a Letter to the Editor of USA Today, “Independent board members are the primary basis of ensuring that the corporate governance system works well, protects investors and supports the economic well being of our society. The system requires experienced leaders with the specific skills, the time and commitment to make it work.” Can a dollar value really be put on this?

The American Revolution was really about finding a balance between freedom and fairness. These same concepts are clashing today. The battle will forge a new spirit of enlightened capitalism—and directors can lead the way.

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

Kenneth Daly

As a new decade gets underway, the new force for reckoning is Main Street. Your CFO may be tracking ticker symbols and your general counsel may be ticking compliance boxes, but as a director, you need to focus on an even bigger picture. Here are the five issues our members are watching most closely, based on what we are hearing around the country.

• Performance metrics: Determine optimal metrics to track and find ways (including pay) to instill throughout the enterprise. As part of this, focus on the business, your customers and deepening your understanding of how your enterprise generates sustained cash flow in a competitively unique, sustainable manner.
• Board composition: The year 2011 may be off for congressional elections, but it’s definitely on when it comes to board elections. Empower your governance committee to find the best members for your board, based on your company’s strategy and related risks.
• Risk oversight: Enterprise risk management is more than a buzzword. Deepen and refine your board’s role in this important area—and make sure you have a rehearsed and drilled crisis response and communication plan.
• Advocacy: Don’t just focus on compliance with regulations; work with NACD to educate policymakers on the value of boards and the realities of how they operate.
• Board-shareowner communications: Shareholders welcome dialogue, so find ways to provide it. Let your investors know what you have done and are doing—especially in the key areas mentioned here.

When you accomplish these five goals, you will not only keep Wall Street and Washington happy, but you will have the kind of “Main Street Mojo” that makes companies—and boards—truly great.

A substantial percentage of NACD’s 10,000-plus members belong to our association as “full board” members, meaning that the entire board of directors belongs—not just as individuals. When a board chair agrees to ongoing education for every single director around the table (as well as key management members) that says “continuous improvement” to me.

This issue captures directors’ determination to improve individually and collectively as the world turns, come what may. Every article underscores our commitment to advancing exemplary board leadership. It’s more than a slogan. It’s our mission.

Some things for 2011 are just as certain: Rulemaking by the SEC (see Mary L. Schapiro’s address to the annual Conference, page 46) the perpetual wisdom of the Delaware courts (see Jeff Cunningham’s interview with Chancellor William Chandler, page 18); the continued need for vigilance from audit committees and boards (see Jack Vance’s advisory on how to detect and prevent fraud and the “Special Report on Risk Intelligence”); the growing enthusiasm directors show for education and networking (see Conference highlights, page 46); and last but not least, the increasing regulatory need to hear from directors as Dodd-Frank moves from law to rules (see “Washington Update,” page 17—and please continue to respond to our pulse surveys).

In closing, I’d like to quote something I heard last fall at a meeting of NACD’s Advisory Council of Governance/Nominating Chairs. Looking around the table, a shareholder activist said bluntly, “If all directors were like you, there would be no problem.” Multiply that by 1,000 boards and you will see why I am so honored to help lead this organization forward into 2011.

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

Over the past decade, there has been a growing federalization of corporate governance—spelled “Sarbanes-Oxley” and “Dodd-Frank.” Federalization means practices that used to be up to the discretion of directors to shape and do are now dictated and mandated. Our Boardroom Confidence Index, which debuts in this issue, indicates glimmers of optimism, but they are faint.

Good corporate governance is our “republic.” Will we keep it in the face of changes? Proxy access is the law of the land. Its champions call it democratic. Its opponents deem it divisive. But all agree on one thing: No matter what happens, proxy access need not destroy the good governance practices boards have built over the decades. NACD can help directors respond constructively to federalization.

Dodd-Frank will only be as effective as the rules it generates. To paraphrase an old saying, betwixt the law and the rule is many a slip—and that concerns us. Reliable sources tell us that the bill has more than 240 rule-making provisions and requires nearly 80 reports—22 of them on a regular basis. NACD is commenting on any new rules or reports that affect the boardroom and we encourage our members to do so as well.

This issue of NACD Directorship focuses on counterpoints to the federalizing trend, including advances in executive and director education and progress in risk assessment. Our Washington Update column summarizes some enlightened comments the SEC is receiving as it turns the law into rules. Turning to the entrepreneurial and nonprofit sectors, readers will be cheered by news of smaller boards getting big talent—and impressed by Kaiser’s tale of proactive self-evaluation.

In my humble opinion, we will keep good governance alive. But only if we continue to find it among us and keep it going. I pledge to try. Will you?

Boards can:

1. Focus on the business, especially during this time of economic stress and volatility
2. Evaluate engagement with stockowners to find ways to improve two-way communications with an emphasis on new technologies and methodologies
3. Focus on corporate board member education—the amount and nature
4. Re-visit board governance processes—especially those that will enhance efficiency and effectiveness—and find ways to increase time for dialogue
5. Look to NACD for information about the progress of the almost 300 new rules that will be required to implement the Dodd-Frank Act and make comments to regulators and others
6. Look at board/committee evaluations with a critical eye towards possible improvements
7. Focus on board composition and requisite stockowner communications
8. Join NACD’s Leading the Way Initiative so we can amplify and advocate your good work

In companies with majority voting policies, individual directors deemed unworthy by shareholders won’t get their votes; enough abstentions and they’ll have to resign. And in the future, investors may be using proxy access to replace unwanted directors with their own individual candidates.

One target may be individuals serving on the compensation committee for companies where pay seems unrelated to performance. Shareholders may use “say on pay” to rebuke them collectively, and majority voting and proxy access to move them off boards.

Another target: audit committee members of boards that failed to anticipate and prevent financial crisis.

As for nominating/governance committee members, they may be targeted if there are overall failures in board performance—for example, perceived failures of oversight in company crises. In any case, they are on the front lines of communication to make sure that shareholders understand fully the value of the candidates they are recommending for the board and for service on key committees.

But there is a bigger picture to be seen. NACD’s resources (see page 79 in this issue) drive home a key point: directors should never be seen solely as individuals.  Even if shareowners are getting more “personal,” we have to help them see beyond individuals to the group. An undue focus on individual directors is the main risk in majority voting and proxy access because investors may hound out a director who possesses a rare expertise or trait that is a critical piece of the puzzle for a board. Conversely, there might be a “rock star” director who really does not add to the board. Only directors know this—and know exactly how boards function as a “whole.”

Boards and directors, long used to working collectively, can rise to this new challenge. Now, it is personal—but it’s also interpersonal. Directors can do a better job communicating who we are both individually and collectively, starting today.

In this fast-changing world, where directors are asked to defend shareholders and stakeholder interests against all foreseeable risks, they need more than the usual array of products and services to help them. They need help that is customized, relevant, comprehensive and, most important, “just in time.”

This is why by September, NACD will announce a new array of significantly increased benefits exclusively for active directors.

Chairmen, lead directors and key committee chairs will be granted an Exclusive Board Leaders Passport. This is a special package of benefits for board leaders, which invites them to participate in chairman’s knowledge exchanges and committee roundtables and forums; provides access to an exclusive research hotline; and provides just-in-time guidance on current and emerging issues, customizable committee guidance and board succession planning.

In addition, these new benefits—available to all active directors—will include an online searchable NACD content library with access to benchmarking analysis, NACD publications and archives, board leader task forces, on-demand research and much more.

We have listened to your comments and understand your needs, and have developed a valuable portfolio of benefits that will help both you and your board set the standard for exemplary board leadership. These benefits are designed to help you do your job more effectively and efficiently on what can be a perilous terrain. See you on the speedway. And drive safely!

Kenneth Daly is president and CEO of the National Association of Corporate Directors

So, now it’s time to suit up and show up, right?

Not quite. There’s more. Gone are the days when the annual meeting was a “circus” for grandstanding on pet causes. Today’s shareholders are more sophisticated than ever, and their queries can be illuminating.

If you chair the board or a committee, you need to be ready to answer some challenging questions. Here are some concerns that are likely to surface.

Board chairs (and CEOs): Get ready for questions about anything under the sun ranging from the changing environment to the specifics of governance policies.

Audit committee chairs: Be ready to explain what you do to keep risk on the board’s discussion agenda. NACD’s recent Blue Ribbon Commission report on risk governance can help.

Compensation committee chairs: Be prepared to talk about pay for performance, as well as say on pay, and risk elements in compensation structures, per the SEC’s new disclosure requirements.

Governance committee chairs: Your focus must be on building a strong board. Be sure to get familiar with all the new disclosure enhancements now required—including how you consider “diversity” as you nominate directors. NACD’s reports and surveys support inclusion of diverse personal characteristics (traits such as race and gender) as well as professional background and competencies in building a strong board.

Effective board-shareholder communications is a governance cornerstone. It’s one of our 10 Key Agreed Principles, and the topic of a past Blue Ribbon Commission report. [Visit www.nacdonline.org.] It’s also the subject of an upcoming NACD tool focused on the new proxy disclosure enhancement rules.

Communication begins with you. Your engaged presence at an annual meeting—even if only as an intelligent listener—is a picture worth a thousand words. Suiting up and showing up is an important beginning. The rest is up to you.

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

NACD’s Leading the Way initiative gives voice to the good work boards are doing to strengthen and restore confidence in corporate America. Participating boards agree to review their practices using the NACD Key Agreed Principles and are recognized for their leadership.

Learn more: Download the Principles at www.nacdonline.org/LeadingtheWay.

About NACD
The National Association of Corporate Directors, a nonprofit organization founded in 1977, is the country’s only membership organization devoted exclusively to improving corporate board performance. NACD conducts educational programs and standard-setting research, and provides information and guidance on a variety of board governance issues and practices. Membership comprises board members from U.S. and overseas companies, ranging from large publicly held corporations to small, private, and closely held businesses. With chapters in many major cities, NACD provides education and peer networking forums for members at both a national and local level. NACD offers the Certificate of Director Education, a voluntary development program for directors, and conducts the annual NACD Corporate Governance Conference convening and honoring exemplary directors.

The new requirements, called “Proxy Disclosure Enhancements,” cover a broad range of topics discussed in detail in this issue. They range from narrative disclosure of the company’s “compensation policies and practices as they relate to risk management” to increased disclosures on “board leadership structure and the board’s role in risk oversight.”
For some directors preparing for proxy season, these new requirements may feel like an albatross around their necks (to borrow an image from Coleridge’s famed The Rime of the Ancient Mariner).  Directors can free themselves by taking action. Here’s how:
Learn the new requirements (See stories this issue).

- Assign responsibility for each of the new requirements by identifying a point person on the board and a point person in management to work with an appropriate advisor.

- If you realize you need to change your practices, then do so —and make this improvement part of what you explain.

- Be straightforward about what you are doing and what you plan to do (i.e., no boiler plate).

- After making disclosures, follow up to see if shareholders and regulators find them to be clear and compelling.

Above all, don’t get bogged down in wordsmithing. It may be tempting to spend time playing to the crowd, but directors don’t need to please everybody. Boards need to focus on the goal they share with management—building sustainable corporate value.

Kenneth Daly is president and CEO of the National Association of Corporate Directors.

This is no mere slogan: It is really happening. I saw it this past October, when more than 700 directors gathered in Washington, D.C., to exchange governance practices and boardroom knowledge at the 2009 NACD Corporate Governance Conference [visit www.nacdonline.org/conference09].

These directors and others are truly leading the way. Here’s how it works. NACD provides a tool—the “Key Agreed Principles to Strengthen Corporate Governance for U.S. Publicly Traded Companies.” This unique document distills points of governance agreement from management, directors, and shareholders, so boards can use them as a framework with confidence. (See page 51 of this issue for the full list.) We ask each board to evaluate its practices against 10 principles—and where it needs to strengthen its practices, do so—and then repeat the evaluation process every year.

The effort has been a success: Hundreds of companies—including Aetna, Home Depot, UnitedHealth, Dow Chemical, Whirlpool, and Becton Dickinson—are participating in the campaign and urging other companies to do the same; nearly 3,000 individuals have downloaded the Key Agreed Principles; NACD now provides useful tools and examples of how other boards have conducted their reviews; thought-leadership forums are taking place in our 22 chapters to explore ways to apply the principles, and shareholders and government leaders are following our campaign.

On behalf of the director community, NACD has been meeting with policymakers and members of the administration to ensure they understand what is happening in the boardroom and to raise awareness for what the director community is doing to strengthen corporate governance:

Is what we’ve done enough? Not yet. If you are not engaged in the campaign to strengthen corporate governance—coined Leading the Way—please join us as soon as possible. Check out the campaign at www.nacdonline.org.

Ken Daly
kennethdaly@nacdonline.org

The answer is yes, and the reason is that serving as a fiduciary is one of the most important causes an individual can take on in a lifetime. By building corporate wealth, directors contribute to the prosperity of our nation and of the world. And, at this time of economic stress, the guidance provided by directors is more important than ever before.

I am reminded of John F. Kennedy’s 1961 inaugural address in which he said that America “would bear any burden…to assure the survival and success of liberty.” Certainly the directors I know are bearing many burdens to assure the survival and success of the companies they serve as fiduciaries.

By pledging a duty of care, directors promise to be vigilant on behalf of an enterprise. (When people ask directors, “What risks keep you up at night?” they mean that literally!) By pledging a duty of loyalty, directors in essence say that they will put their own interests behind those of the corporation and its stakeholders.

But rest assured, although directors give, give, give, they also receive—yes, in the form of compensation, but also in the form of intellectual satisfaction as they work with corporate leaders to solve thorny issues in strategy, risk management, and corporate growth, among other activities. For people who like a challenge, no job could be more attractive. The good director can help heal a stressed enterprise, guide it through difficult times, fight fires of crisis, help eliminate fraud and waste, mentor leaders, and help develop thriving organizations, among many other contributions.

The board members listed in this issue’s Directorship 100 do all this and more.

NACD exists to help directors and boards do their work well. We are proud of our calling, and prouder still of the dedicated professionals we serve.

In the executive branch, President Obama continues to speak in favor of shareholder say on pay, a cause he championed while in the Senate. And over at the Securities and Exchange Commission, several landmark rules are pending. (See nacdonline.org for latest developments, or visit www.sec.gov and click on “Proposed Rules.”)

Meanwhile, in the legislative branch, a bill sponsored by Sen. Charles Schumer (D-NY) could federalize a number of governance practices that have been voluntary heretofore—namely staggered board terms, say on pay, majority voting, and separate chairman and CEO roles—as well as proxy access (unless already required). We have also heard from a reliable source that a provision mandating a risk committee of the board could be tacked on to legislation and pass rapidly in the House.

The judicial branch has been equally active. In this case, though, it’s state courts rather than federal courts that are setting the governance world on fire. A technicality slowed the impact of the amicus curiae letter NACD wrote in Schoon v. Troy, but our efforts did help to foster changes to the Delaware General Corporation Law. Now it’s clear that, when it comes to indemnification protection, once a director, always a director—among other positive changes.

Directors should seriously consider how and where they want these issues to be resolved. In my view, the most effective rules are set by those who know how they will work. So directors, managers, and investors—not legislators—should have the greatest say in rules pertaining to boards and their oversight areas. This is the theme of NACD’s national campaign, “Directors Leading the Way to Strengthen Corporate Governance,” a call to action for boards of directors to take five steps in the boardroom to help restore public and investor confidence—a key ingredient in our economic recovery. Visit www.nacdonline.org/directorchallenge to get those materials and get started.

This nation’s founders knew what they were doing when they separated the three branches of government and called people to self-governance. Let us heed that call.

Ken Daly
kennethdaly@nacdonline.org