Remember Civics? Good. As a director, you’ll need it. Back in school, we all learned about the three branches of government—executive, legislative, and judicial. Those lessons are coming alive—along with calls for greater engagement in public policy. Several new regulatory initiatives require our response.
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