The National Association of Corporate Directors (NACD) says its members must do a better job governing corporate America, or risk further alienation of wary shareholders, writes Joann Lublin of the Wall Street Journal.
The NACD yesterday released a detailed report urging boards to overhaul risk oversight, corporate strategy, executive compensation, and investor communications.
“The only folks who can fix corporate America are the directors,” NACD President Kenneth Daly said in an interview with the WSJ. “Boards are really trying to do a good job. But they aren’t all doing a great job in all areas.”
Some governance experts believe that results are what will restore investor confidence. “The public wants to see good results, not just good principles,” said Lucian Bebchuk, a Harvard Law School professor and head of its corporate-governance program.
Not surprisingly, the report suggests boards avoid “exorbitant” compensation by grooming internal candidates for positions such as CEO. Only 36 percent of public companies have a plan for developing internal CEO candidates, according to an NACD survey last year of 703 directors concluded.
The NACD report urges companies to review their size and make up to ensure their company’s strategic direction coincides with the company’s size and makeup.
Barbara Hackman Franklin, chairman of NACD’s board and a director at Aetna and Dow Chemical, said boards in general are functioning more effectively today and are more independent than they were before the Enron and WorldCom scandals. Franklin said boards need to reevaluate themselves amid diminished public confidence in Corporate America.
“We’re not telling boards how to do some of these things,” she told Reuters. “We’re just telling them what the principles ought to be.”