We start the new year in a new place—one dramatically different from where we have ever been. Expectations for board performance are higher than ever, and our work as directors—our wisdom, good judgment and integrity—is more vital than I can remember in the 30 years that I have been serving on corporate boards.
Barbara Hackman Franklin
One main reason is the extreme uncertainty and volatility of the current time. The U.S. is recovering from the recession and the economy is growing, though not robustly. The euro zone has sovereign debt problems. Japan has suffered severe natural disasters. World economic growth has slowed, and global stock markets go up and down seemingly on a whim.
Add to this mix the passage of the Wall Street Reform and Consumer Protection Act (a.k.a. Dodd- Frank)—the most sweeping financial reform legislation in 50 years— which requires federal agencies to craft 400 new rules. Nearly a quarter of these were assigned to the Securities and Exchange Commission, including some directly aimed at greater transparency into the workings of the boardroom and the qualifications of directors.
There are a several specific challenges to keep in mind for the year ahead—challenges that have been dogging boards for quite some time.
The Issues
Executive compensation is a continuing challenge. Public concern about “excessive” CEO compensation just won’t go away. “Say on pay,” the nonbinding advisory shareholder vote on executive compensation, went into effect for the 2011 proxy season. And even though the say-on-pay votes were overwhelmingly positive, we shouldn’t take much comfort in that. I believe there will be closer scrutiny of executive compensation in the year ahead. As long as the U.S economy is soft and unemployment remains too high, there is the risk that another scandal or other spark could ignite yet another big wildfire around executive compensation. That would extend an invitation to government to once again step into the boardroom. As directors, it’s imperative that we endeavor to pay for performance—not nonperformance— and really mean it.
The second issue is diversity. Broadly speaking, this includes diversity of thought, experience, skills, gender and race. The NACD co-hosted two events last year with governance and governance-related experts and experienced officers and directors to try to better understand the dynamics of diversity. A key challenge: What is holding women back? I spoke at a session in New York aimed at promoting more women on boards and finding ways to crack the 15 percent barrier. That’s the percentage of board seats held by women on Fortune 500 boards. (The percentage is even lower for the boards of smaller companies, according to NACD’s Public Company Governance survey, released in November.) That 15 percent figure has remained pretty much unchanged for the better part of the last decade. The challenge is to understand why and then to do something about it.
I’m a fervent believer in the power of diversity, broadly defined, because I have seen the results first-hand. A more diverse group can bring new ideas to the board table as well as new ways of looking at old ideas and old problems. This, together with enlightened leadership, can bring more value not only to the board but also to the company.
In the year ahead, I look forward to continuing NACD’s mission to “move the needle.” One key to this movement is annual board and director self-assessments. Clearly, these are essential elements in ensuring board renewal. Such assessments can illuminate any gaps in experience and expertise that changes in strategy may make desirable.
The third issue is new technology—mobile, social, the cloud, plus emerging technologies whose names we do not yet know. There are young people in my company, the 20-somethings, who think I am “out to lunch” on these technologies and their growing influence. They have challenged me to get up to speed, and I’m working hard to better understand, for example, how social media can be used to communicate with and listen to shareholders, customers and employees. That’s the positive side of these wonderful new discoveries.
There is the other side, though, and that’s the risk side. It means that a company’s internal control structure must run constantly to keep up with the advances. We as directors need to run to keep up with what is going on, too, if we are to do a proper IT oversight job. We must help companies guard against the cybercrimes that can result in the theft of identity or intellectual property—or entire system meltdowns. It’s a tall order for those of us over 30, but it is well worth reaching for.
Working Together
Please consider NACD your partner as you work to meet the challenges of today’s corporate environment— to understand fully the businesses you serve, how they make money, their strategies and risks— and as you continue to build strong, diverse boards whose members work well together in a culture of openness and candor. NACD is committed to keeping you at the forefront of knowledge by giving you the tools you need to be the best you can be.
The NACD is the only membership organization for public company directors—now more than 11,000 strong—that is operated as a not-for-profit 501(c)(3). Ken Daly is our energetic president and CEO, and the NACD staff is eager to be of service. The NACD board is strong, independent, diverse and as committed a group as I have ever served with in the not-for-profit sector. NACD will celebrate 35 years of service to directors in 2012. It’s a record we are proud of, and will continue to build on.
NACD offers:
Educational experiences, which include courses, webcasts and webinars on substantive areas, such as doing in business in China, as well as on leading practices in governance. Many experienced directors are qualifying to become NACD Board Leadership Fellows, showing their commitment to continuing education.
Resources through the NACD library, which has the best collection of governance publications and other resources on the planet, assembled and embellished over the past 35 years. When you’re a member, these resources are only a phone call or a few clicks away. The daily emailed news summary is one of my favorites.
Peer-to-peer convocations nationally and within our 22 chapters allow directors to network, share experiences and learn from each other.
Advisory Councils were convened nationally last year to bring board audit, compensation and nominating and governance committee chairs together with key institutional shareholder representatives and regulators. Each of these three sessions sought to foster a more productive dialogue around such complex issues as risk oversight, executive pay and transparency.
The Voice of the Director Initiative brings the views of directors to the public policy process where otherwise directors have no voice at all. In 2011, for example, on behalf of our membership, the NACD’s Ken Daly testified before a congressional subcommittee on the consequences of the SEC’s whistleblower proposal. We provided written comment on that issue and on the Public Company Accounting Oversight Board’s (PCOAB) concept releases about mandatory audit firm rotation and revisions to the audit report. And we commented for the first time on a non-U.S. proposal—the European Commission’s “green paper” on audit policy.
Using technology, we can tap into what you, our members, think about issues. So, if you get survey questions via email, please answer them. They help NACD formulate positions on your behalf. Let me conclude with a last thought from the American philosopher Yogi Berra: “If you don’t know where you’re going, you might not get there.” Well, I think we know where we’re going. We know as directors that the work we are doing is essential—for our companies, our shareholders, our stakeholders, our countries’ economies, as well as the global free market system of capitalism. We will carry on with this vital work. Let’s pledge to be the best we can be.
The Honorable Barbara Hackman Franklin is chairman of the board of NACD, former U.S. Secretary of Commerce, and president and CEO of Barbara Franklin Enterprises in Washington, D.C. She serves as an independent director of Aetna and Dow Chemical Co., and as a director of three funds in the American family of mutual funds.