The Directorship 100

Magazines tend to make a habit of list making: The Fortune 500, The Forbes 400 Richest People, People's "Most Beautiful." Often they are intended to entertain or play to our voyeuristic tendencies. Some are more subjective than others. When we set out to name the 100 most influential players in corporate governance agenda inside America's boardrooms. The list includes directors, professors, regulators, politicians, advisers, and others who have made a lasting impact. In some cases, it was really the entity that we recognized, such as CalPERS or the SEC, and the relevant individual came after. In other cases it was the individual who took the bow, with accompaniment from colleagues. Also, we thought our list would not be complete if we didn’t mention at least one of the unfortunate catalysts of reform, and our nod went to Jeffrey Skilling, whose actions have helped push corporate governance to the forefront.

We knew the selection process could prove contentious, so we enlisted a panel of 12 experts, along with our readers, to help nominate candidates for consideration. From that list of more than 300, we worked with a finalist committee to winnow it down to 100.

The ranking of CalPERS as number one, for example, reflects the times in which boards have heard, loud and clear, the shareholder lament about corporate governance, executive compensation, and board practices. No other person or institution has had such a continuous and profound effect on the boardroom. After our top 20, we chose to look at the remaining nominees alphabetically, as we found little value in ascribing an 88 versus an 87 to those who may have approached the subject in a different way. We did like the idea of identifying the nominees in terms of their “club,” or specific areas of expertise, and choose to group them that way.

The selection of the Directorship 100 will become an annual exercise for us. As these lists tend to be somewhat “buggy” their first time out, we realize that ours may be subject to some reasonable second guessing as well. In fact, since we know we have likely left off some influential players, it is our hope that you will log onto our  newly relaunched website (www.directorship.com) and join a discussion of who you would have included. Also, in this first year, we purposely decided to focus our selections on those who are influential in America. We plan to publish a global list in an upcoming issue.

“It’s amazing how this area has just exploded,” says Margaret “Peggy” Foran, who landed at 18 for her governance role at Pfizer and her work at the Council of Institutional Investors. “I remember when I used to have corporate governance next to my name and no one knew what it was.” More than anything, the Directorship 100 reflects the rise of corporate governance as the primary duty of board directors.

1. The California Public Employees’ Retirement System
CalPERS wields its influence over the boardrooms of America by way of its $250-billion retirement fund, the largest in the United States, through direct equity investing, seeding funds with a governance focus, and by participating in the debate in very effective ways. It is not afraid to throw its significant weight around, either. CalPERS put executive pay on the agenda and railed against poor governance. (You don’t want to end up on its annual “Focus List” of underperformers.) As the senior portfolio manager in the corporate governance office of CalPERS, Dennis Johnson is responsible for the Focus List, proxy voting, and active investment strategies. Of course Fred Buenrostro, CEO of CalPERS, is responsible for setting the corporate governance tone. Many others, too numerous to name, have massive influence due to the sheer size of CalPERS.

As part of its “Core Principles,” CalPERS advocates director accessibility and supports the idea of “one share, one vote.” It has influenced companies it invests in to keep workers in the U.S., and has led the way to shun companies that do business in the Sudan. More recently, this giant has led the move into alternative investments and has played a significant role as a backer to the private-equity and hedge-fund boom. CalPERS’ activism has not been without its critics who say that its activism borders on interference. The majority of our judges were more tolerant including one who said,  “CalPERS has historically been the leader and they continue to push critical issues.”

2. The Securities and Exchange  Commission
The SEC has been one busy agency over the last few years. The job of implementing the Sarbanes-Oxley Act while presiding over one of the most active investigative environments in the history of American business has been a big task, all while continuing to oversee the financial markets. Chairman Christopher Cox was appointed to the SEC by President Bush in 2005 after a 17-year run in the U.S. House of Representatives. He has made SOX reform the centerpiece of his tenure. Still on his plate, is how to fine-tune some of the weightier provisions of SOX.  “My goal is to make 404 work,” he told Congress last year. He has lots of help in the form of the other four commissioners who are only slightly less influential in the realm of corporate governance. They are Paul Atkins, Roel Campos, Annette Nazareth, and Kathleen Casey.

3. Barney Frank, Congressman
When Democrats took control of the 110th Congress, Barney Frank was appointed chair of the House Financial Services Committee, giving the progressive Congressman oversight responsibility for the SEC, corporate governance, and the Public Company Accounting Oversight Board. Frank sponsored a bill, known as “Say on Pay,” that would give shareholders advisory votes on executive compensation. The bill passed in the House and currently awaits its fate in front of the Senate Banking Committee. Frank views his powerhouse role as giving him the ability to affect policy change like no other position in Congress. During an interview with Directorship earlier this year, he said “I would argue that shareholders don’t have bona fide access to the board.” If boards don’t remedy that situation by themselves, look for him to step in to change it during the next few years.

4. Warren Buffett, Berkshire Hathaway
America’s portfolio manager and sage of Omaha, Buffett has pushed the price of Berkshire Hathaway, his holding company, up more than 14,000 percent during the past 25 years, and his public statements, particularly his annual reports, are read more closely than almost any other document in business. The hugely popular business leader champions honesty and commitment, seeking to invest in companies that are well run, no matter how undervalued. Viewing himself as a capital allocator, he sees his primary responsibility as providing capital to businesses with good economics without interfering with the existing management structure of the company. Another part of Buffett’s management appeal is his ongoing dedication to setting high corporate standards for both managers and shareholders: Deploring the system of compensating top-level executives with stock options, he opposes rewards for quick profits as they undermine shareholder value.  His hands-off approach allows his managers to act as owners of their businesses. This acquisition strategy enables Buffett to buy companies at fair prices because the sellers maintain the ability to operate independently after selling. From his modest Nebraska upbringing, to his current status as the third richest man in the world, to his massive foray into philanthropy, Buffett is an iconic figure who upholds high standards of corporate governance.

5. The Delaware Courts
The Delaware courts, including the Court of Chancery and the State Supreme Court, have often established the tone and legal direction of corporate governance in the United States. The state’s Court of Chancery is frequently called “the chief arbiter of right and wrong in Corporate America.” Headed by Chancellor William B. Chandler III since 1997, he is known for keeping a bicycle in his chambers, and his decisions level-headed.  He blasted former Disney CEO Michael Eisner for ruling the Magic Kingdom as an “infallible monarch,”  but ultimately ruled that Eisner had made his blunders in good faith and should be protected by the business-judgment rule.