Reuters

In driving Apple where no tech company has gone before, Jobs employs a very simple paradigm: he carefully guards those few people in the organization who, like himself, possess unerring creative skill, whether dealing with products, people or systems, and he nurtures them and their ideas. Then he looks to a larger but still select group of problem solvers who enjoy finding the challenges in the new products and working them out. Finally, there is that faceless class of critics that gets a kick out of tearing things apart; Jobs lets them go to work to toughen the idea to meet the market. The key in the development of a new business idea is to make sure the process is staged in that order. Don’t bring in the critics too early; they can be idea killers.

Warning: Truth Spoken Here
Jamie Dimon, CEO of JPMorgan Chase, demonstrates Trumanesque plainspoken wisdom in his 2010 shareholders letter, a 32-page classic that is crystal clear, far seeing, insightful and about as subtle as a baseball bat.

Jeff Cunningham

Here are some examples from the letter:

The U.S. legal system: “Actions against big companies, justified or not, have the potential to deliver large payoffs. This lack of balance and fairness too often results in outrageous claims.”

Dealing with regulation: “Our ability to compete may be hampered in some instances but actually helped in others. For example, the cost and complexity of all the recent regulations, ironically, could create greater barriers for new entrants and new competitors.”

Mistakes: “Unfortunately, we make mistakes. And unfortunately, and infrequently, sometimes someone in our company knowingly does something wrong. And when it does happen, we take immediate and firm action.”

Regulation: “The Durbin amendment is a terrible mistake— price fixing at its worst. It is arbitrary and discriminatory.”

Bank failure: “Banks should pay for the failure of banks.”

Group think: “We need to beware backward-looking models and ‘group think’ and suspect of what will happen when all market participants essentially are using the same models.”

Optimism about the future: “I remain, perhaps naively, optimistic. As Winston Churchill once said, ‘You can always count on Americans to do the right thing—after they’ve tried everything else.’”

It’s the Economist, Stupid
They don’t call him the Oracle of Omaha for nothing. At the recent Berkshire Hathaway annual meeting, Warren Buffett’s quip about the uncertainty of global financial markets providing a good reason to keep cash on hand proves the point. He closed with “Who knows what can happen, maybe Ben Bernanke will run away with Paris Hilton tomorrow.” Even as humor, some may have thought that was a reach. This was one week prior to the downfall of former IMF Chairman Dominique Strauss-Kahn.

Jeffrey M. Cunningham is a frequent speaker and writer on governance topics and the boardroom. He is managing director and senior advisor to NACD and has served as a director or chairman of 10 public company boards.

Gary Hourihan

Berkshire is far from an isolated case. In the month following Mark Hurd’s resignation from Hewlett-Packard, again without a clearly designated successor, HP stock fell about 11 percent relative to the Dow and S&P and has yet to regain the loss. In fact, it currently stands at a relative loss of close to 30 percent since Hurd’s departure. Similarly, Apple’s stock price has lagged the S&P ever since Steve Jobs announced his intention to play a less prominent role due to health issues. And, in the aftermath of AIG CEO Robert Benmosche’s cancer diagnosis and lack of an obvious successor, the price of AIG stock has declined close to 40 percent despite a rise in the Dow of nearly eight percent. Benmosche had doubled AIG’s shareholder value in his first 17 months on the job. Are these cases all coincidences? Maybe, but doubtful.

While the adverse market reactions of Berkshire Hathaway, HP, Apple and AIG may be extreme examples due to the high-profile nature of their CEOs, they provide evidence that succession planning does matter in the eyes of investors. What is particularly disturbing about these situations is that the vast majority of companies do not appear to take succession planning seriously. As evidence, the National Association of Corporate Directors recently cited a study by David Larcker and Stanford’s Rock Center for Corporate Governance indicating that 46 percent of executives say their companies are not actively grooming CEO successors.

This being said, all isn’t gloom and doom. According to Wards Auto Week, Ford CEO Alan Mulally claims that Ford is devoting considerable attention to succession planning (arguably a very good idea since Mulally is widely credited with Ford’s recent success). To quote Mulally, “In every position, we didn’t try to have one plan, but to identify all the talent so we could go in multiple ways.” In January, The Men’s Wearhouse announced a succession plan for the orderly transition of executive leadership in fiscal 2011, including founder, Chairman and CEO George Zimmer.

Other examples that provide hope include CVS Caremark, which in January announced the next stage of its transition plan for CEO Thomas Ryan; eBay, whose proxy discloses that “the company conducts an annual review process that includes succession plans for our senior leadership positions”; and U.S. Bancorp, whose proxy reports “a defined board process for succession with respect to the chairman and CEO roles as well as other senior positions.”

Interestingly, in direct contrast to the negative market reaction to CEO succession issues, the stocks of both Men’s Wearhouse and CVS Caremark have performed well since their CEO succession plans were announced. The prices of both stocks have slightly outperformed the Dow since the announcements, giving additional credence to a recent comment by Stephen Mills, vice chairman of the executive search firm Heidrick & Struggles. In reference to AIG’s succession issues, Mills said, “The company needs to demonstrate to investors that it has the processes in place to find the next CEO when the time comes.”

So where are we heading? Are the surveys that find effective succession planning sorely lacking a cause for concern, or is the tide turning in the right direction? An important question is whether compensation committees can structure executive compensation packages that encourage and support proactive succession planning practices for the company. As the Dodd-Frank Act focuses investor attention on pay and performance alignment, executive reward design has an important role to play in succession planning. In this regard, the following example is illuminating. It demonstrates both what I believe to be trends in succession planning as well as best practices.

The board of a Fortune 500 firm not typically associated with progressive leadership planning undertook a process to assess its entire senior management team in response to the CEO’s expected transition in two to three years. The process encompassed the development of a “success profile” that incorporated the behaviors, values and skills considered by management and the board to be essential to the company’s strategy, culture and the demands of the role. In turn, the success profile was to serve as the basis for candidate evaluation. Once this profile was in place, an assessment of each executive’s behavioral characteristics, values, background and experience was conducted through interviews and a 360-degree assessment completed by the executive’s boss, peers and subordinates. The work resulted in the identification of internal and external candidates. The company decided that the two internal candidates should be mentored by the current CEO and “groomed” through assignments to address gaps in their experience. The company also identified candidates who would be able to fill the current roles of the two potential CEO successors.

Jeff Cunningham

They don’t call him the Oracle of Omaha for nothing. At the recent Berkshire Hathaway annual meeting, Warren Buffett’s quip about the uncertainty of global financial markets providing a good reason to keep cash on hand proves the point. He closed with “Who knows what can happen, maybe Ben Bernanke will run away with Paris Hilton tomorrow.” Even as humor, some may have thought that was a reach. This was one week prior to the downfall of former IMF Chairman Dominique Strauss-Kahn.

Jeffrey M. Cunningham is a frequent speaker and writer on governance topics and the boardroom. He is managing director and senior advisor to NACD and has served as a director or chairman of 10 public company boards.

William B. Chandler III

The process of choosing Chandler’s successor got underway in May when the Delaware Judicial Nominating Commission, chaired by Andre G. Bouchard, managing partner at Bouchard Margules & Friedlander, issued a public notice soliciting candidates. The court is required by the state constitution to be bipartisan, and all candidates must be Delaware residents. Following interviews, the JNC would refer any finalists to Gov. Jack Markell, who would then recommend one candidate to the state Senate for approval.

The 60-year-old Chandler, the subject of a cover story in NACD Directorship (December 2010/January 2011), notified the Delaware governor in April he planned to resign to seek opportunities in the private sector. His last day on the court was expected to be June 17.

Franklin, Hockaday to Co-Chair BRC on Lead Directors
A group of more than 20 corporate directors and governance thought leaders convened this spring to initiate the 2011 Report of the NACD Blue Ribbon Commission on the Lead Director. Hosted by the NACD, the commissioners will leverage their years of experience to develop recommendations that will define and clarify the role of the lead director in the boardroom. The commission is co-chaired by Barbara Hackman Franklin, former U.S. Secretary of Commerce, and currently a director for Aetna and the Dow Chemical Company and chairman of the board for NACD; and Irvine Hockaday, director for Ford Motor Company, Estée Lauder and Crown Media Holdings. Holly Gregory, corporate partner at Weil, Gotshal & Manges, will serve as governance counsel to the commission.

“As boards rise in accountability and visibility, the role of the lead director has become increasingly important. Lead directors play a critical role in ensuring independence of thought and oversight, and help build consensus in the decision-making process,” said Ken Daly, president and CEO of NACD. “The diversity and depth of experience represented on this year’s commission provide a unique opportunity to study leading practices for the lead director position.”

The new commissioners will meet once more in June as they continue to collaborate on their recommendations. The report is scheduled for release at the NACD Annual Board Leadership Conference on October 2-4 in Washington, D.C.

Delaware VC Cuts Plaintiff Lawyer Fee
What did shareholder plaintiffs lawyers achieve in their litigation over an abandoned tender offer for shares of Sauer-Danfoss? Not much, according to a recent decision by Delaware Vice Chancellor J. Travis Laster. In fact, Laster found that the plaintiffs lawyers did so little of value that he slashed their fee request by 95 percent and awarded them just $75,000 of the $790,000 they asked for, according to Morris James’ Delaware Business Litigation Report. Wrote Laster: “Plaintiffs never engaged in meaningful litigation activity.”

Heidrick Study Finds Number of Directorships in Decline
New director appointments decreased 22 percent from 2009 to 2010, according to the new Heidrick & Struggles Board Monitor Fortune 500 quarterly trend report, with 279 new directors at the studied companies in 2010, down from 356 in 2009. In addition, only one-third of these appointees had non-CEO or –CFO backgrounds, reflecting the growing post-Dodd-Frank disclosure requirements. “The ongoing economic uncertainty is causing companies to lean towards those with top-job experience when they do make an appointment,” said Bonnie Gwin, the leadership advisory firm’s vice chairman and head of the North American Board Practice. Average director age remained at 57, and female placements increased slightly from 17.9 percent to 19.3 percent.

Outside CEOs Cost More, Perform Worse
CEOs promoted from within are more cost-effective and outperform their external counterparts, according to a study conducted by The Kelley School of Business at Indiana University in conjunction with A.T. Kearney, that examined 36 companies that had promoted internally between 1988 and 2007. It compared their performance with other S&P 500 companies that had chosen external candidates. The study found that none of the external CEOs’ companies performed better than the 36 identified companies, and the external CEOs commanded salaries that were 65 percent higher than those of CEOs recruited from within.

Transocean Execs Donate Safety Bonuses to Victims’ Families
After sparking public ire by rewarding executives with safety bonuses, five Transocean senior executives will donate $250,000 collectively to a fund for the families of victims of last year’s Deepwater Horizon explosion in the Gulf of Mexico. Transocean had given safety bonuses because the company had reached two-thirds of its safety target, despite the deaths of 11 workers in the explosion and the subsequent massive oil spill. Overall, the five executives received about $900,000 in incentive bonuses; 25 percent of the bonus equation is determined by safety performance. Transocean reported that 2010 was its “best year in safety performance.”

Judge Orders Borders Bonus Plan Changes
Bankrupt bookseller Borders Group was ordered by U.S. Bankruptcy Judge Martin Glenn to revise its executive bonus plan after the lawyer representing unsecured creditors, Bruce Buechler, notified the judge that the plan rewarded executives for staying with the company though its bankruptcy. The plan had proposed giving the top five executives $4.9 million if unsecured creditors were paid at least $95 million, and a $1.8 million bonus if creditors received $73 million. Glenn instructed the retailer to include a provision that would apply if less than $73 million were returned to creditors.

Basel Establishes Criteria for Globally Essential Banks
The Basel Committee on Banking has established criteria designating banks that must maintain extra capital reserves because they are essential to global financial stability. The international regulatory committee did not compile a list of firms that these rules would affect. Banks will be evaluated based on “size, interconnectedness, substitutability, global activity and complexity,” said the committee’s secretary general, Stefan Walter, who noted that the Basel committee would monitor hedge funds, money market mutual funds and other securitization structures to help prevent another financial crisis.

Class Actions Lose, Arbitrators Win in Supreme Court Ruling
In a ruling expected to provide businesses with significant protections against class-action lawsuits, the Supreme Court ruled that state laws couldn’t override contract clauses that require customers to present complaints to private arbitrators individually. The case in question, AT&T Mobility v. Concepcion, fought over a $30.22 sales tax charge on phones that AT&T had advertised as “free.” The ruling makes arbitration clauses more attractive to companies in consumer contracts, and is expected to apply to employers in employee contracts under the Federal Arbitration Act of 2001.

Geronzi Resigns, Faces Ruling
Cesare Geronzi resigned as chairman of Italian insurer Assicurazioni Generali after the board threatened a vote of no confidence. He was awarded a payoff of 16.6 million euros ($24.3 million) upon leaving Europe’s No.3 insurer, according to Reuters. The controversial Italian financier has in succession chaired three of the country’s most important financial institutions: Capitalia; Mediobanca, which is Generali’s top shareholder; and Generali itself. Separately, a Rome court is due to rule on whether Geronzi contributed to the 2003 bankruptcy of Italian food group Cirio. Prosecutors are seeking an eight-year sentence for Geronzi, who has denied any wrongdoing.

Wall Street Banker Pay Falling
An unnamed Wall Street paymaster told The Wall Street Journal recently that the median banker pretax salary is currently $1.6 million, down from $2.2 million before the financial crisis hit. The pre-crisis pay was approximately 60 percent cash payments, with bankers taking home about $700,000 a year after taxes. Now, however, more bankers receive deferred compensation rewards, which brings their median aftertax take-home pay to about $380,000.

Director Shortage
Despite median director compensation increasing from $45,000 in 2001 to $119,500 in 2010, Canadian companies are having increasing difficulty finding directors to fill their boards. Spencer Stuart found “a definite increase in the number of first-timers joining boards,” said Andrew MacDougall, president of Spencer Stuart Canada. Over the past three years, almost 25 percent of all directors appointed were joining their first board. One-third of the newly appointed directors in 2010 were from the United States—the highest proportion since Spencer Stuart began tracking Canadian directorship trends. In addition, female board members increased to 20 percent in 2010, from 13 percent in 2009.

Top Paid CEOs in 2010
1. Philippe P. Dauman – Viacom
2. Lawrence J. Ellison – Oracle
3. Leslie Moonves – CBS
4. Martin E. Franklin – Jarden
5. Michael White – DirecTV
6. John F. Lundgren – Stanley Black & Decker
7. Richard C. Adkerson – Freeport-McMoRan Copper & Gold
8. Robert A. Iger – Disney
9. Donald J. Stebbins – Visteon
10. Jeffrey L. Bewkes – Time Warner
11. Alan Mulally – Ford Motor
12. Brian L. Roberts – Comcast
13. John H. Hammergren – McKesson
14. Samuel J. Palmisano – IBM
15. David M. Cote – Honeywell
16. Laurence D. Fink – BlackRock
17. James Dimon – JPMorgan Chase
18. David N. Farr – Emerson Electric
19. Thomas M. Ryan – CVS Caremark
20. Rex W. Tillerson – ExxonMobil
Source: The Wall Street Journal Survey of CEO Compensation

Corporate Reputations
Best:
1. Google
2. Johnson & Johnson
3. 3M Company
4. Berkshire Hathaway
5. Apple
6. Intel Corporation
7. Kraft Foods
8. Amazon.com
9. General Mills
10. The Walt Disney Company

Worst:
11. AIG
12. BP
13. Goldman Sachs
14. Citigroup
15. Chrysler
16. Bank of America
17. General Motors
18. ExxonMobil
19. JPMorgan Chase
20. Delta Airlines
Source: 2011 Harris Interactive

Boardroom Etiquette
The Berkshire Annual Meeting will be open, provocative and orderly. Unlike other public companies’ AGM, there will be no gadflies or noisy activists. Nor will there be protestors unless you consider those spouses who skipped the chance to buy jewelry directly from Warren Buffett at Borsheim’s. Why aren’t protestors and activist rabble-rousers here? Because Berkshire’s shareholders would rally for the company. Courtesy prevails, aided by the fact that no other company is so focused on ethical behavior and corporate performance, and so not focused on personal enrichment or compensation, yet is so very rich and very well compensated.

No other company is so transparent— even on issues such as executive compensation, scandal and succession. Yet it is notoriously private. Therein lies the irony. For Berkshire shareholders, irony is preferable to the agony that greets so many public company annual meetings.

What makes the Berkshire meeting so riveting is the chance to watch Buffett and Munger spend as many as nine hours answering unrehearsed questions from shareholders that have been selected by three outstanding financial journalists— Carol Loomis of Fortune magazine, Andrew Ross Sorkin of The New York Times and Becky Quick of CNBC. The meeting and its full-day questionand- answer format requires the Berkshire leaders to have unfathomable resources of energy for one purpose: to demonstrate their total commitment to the shareholder. There is a reason why See’s Peanut Brittle shares the dais with their microphones.

What’s in it for these two billionaires? It’s how they learn. The prodding and questioning sharpen them and focus their attention. Nothing is opaque and transparency rules. Finally, Buffett has an unshakable faith that telling the complete truth is the only way to ensure you won’t be testifying against someone else’s version years later.

Opening Lines
“Good morning, I’m Warren, he’s Charlie. I can see, he can hear, that’s why we work together.” And so we have the basic requirements for a visionary and his sounding board.

Who Will Succeed Buffett?

Then Buffett makes a short announcement: “We ask that you not use any devices to record this meeting. Participants in our film [Steve Carell and the cast of The Office] have contributed their time as individuals—without pay, of course— and we want to respect their rights to their work. If you happen to see anyone making a recording, please ask them to stop.”

He is pure Old Testament, relies on the rule of law and respect for ownership. He’s a bit cynical, too. And, like the rest of us, he likes things for free.

Sokol and Other Questions
After his opening remarks, Buffett launches into the Q&A focused on the one thing on everyone’s mind: David Sokol. The media have been circling the wagons and shareholders are wondering: Could this be the iceberg that dents, if not sinks, the Berkshire succession plan?

David Sokol, once thought to be a possible successor to Warren Buffett, talks to a shareholder at the 2010 annual meeting.

Buffett reveals his hand by playing a clip from the Salomon Brothers testimony he gave before Congress in 1991. His words then echo his belief today. In his testimony then, Buffett promised “full cooperation” to the committee and offered a fig leaf as well as a sharp-edged sword to his new employees: “Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.” As the clip ends, the shareholder audience cheers. They, like their chairman, want to do the right thing. This is what their company stands for. This is how their CEO thinks and lives. This is their annual meeting.

‘Inexplicable and Inexcusable’
Buffett gets down to the details of the Sokol story—he takes it as his duty to explain how psychology and executive behavior could lead a Berkshire executive to violate the company’s code of ethics, although he admits the matter is still incomprehensible to him. And with that, Buffett moves closer to the microphone and relates the details of the matter to his shareholders, skipping none of the embarrassing facts, and not without some sadness (which he then posts verbatim on the Berkshire website).

“In looking at what happened a few months ago with Dave Sokol’s failure to notify me at all that he’d had any kind of contact with Citigroup, in fact, he directed my attention to the fact that they represented Lubrizol and never said a word about any contact with them, and then the purchase of stock immediately prior to recommending Lubrizol to Berkshire…I don’t think there’s any question about the inexcusable part. The inexplicable part is somewhat—well, it’s inexplicable, but I’d like to talk about it a little bit because I will tell you what goes through my mind.

Brendan Sheehan

In a stunning reflection of its CEO’s famed contrarian investment style, Berkshire Hathaway defies this trend. As you will read in this issue’s cover story, Berkshire’s recent annual meeting attracted some 40,000 people, who gathered to listen, learn, question and be entertained by Berkshire’s Charles Munger and Warren Buffett. The fact that so many people attend the event is as much an indication of how the company views its shareholders, as it is the way investors and the public view Berkshire and its iconic leader.

While we are not suggesting that filling a stadium with shareholders is the only way to go about producing an annual meeting— it is expensive and time consuming and the only other company that comes close is Walmart, which each June attracts approximately 27,000 shareholders to its meeting—there are lessons that other corporate directors and CEOs can glean from the Berkshire example. Investors appreciate the accessibility and opportunity to meet the company leadership and for their part, the leaders seem to enjoy it too. As with everything related to corporate governance, it’s a two-way street.

One inevitable question that comes about when discussing Berkshire is how long Buffett it likely to stay at the helm. CEO succession is an issue that vexes many boards. There are several emerging best practices in the area that you can read about in our Boardroom Guide to CEO Succession. It is becoming clear that effective talent management, not just with the CEO but all executive leaders, is among the most important things a director must do, and many are not well equipped. That is until now.

Brendan Sheehan is the editorial director of NACD Directorship and Directorship.com.

The overall NACD Board Confidence Index (BCI) rose to 64.9 in Q1 2011, showing a slight improvement over last quarter’s overall index of 64.4. This score reflects the fact that directors continue to exhibit feelings of restrained optimism, a trend that began emerging last winter. While directors no longer show the hesitancy seen in the autumn of 2010, current business conditions have not yet improved to a point as to encourage outright enthusiasm.

When asked to characterize the current state of the economy compared to one year ago, directors registered a confidence index of 73 in Q1 2011. This compares to a level of 69 in Q4 2010. Taking a shorter timeframe and looking at changes in conditions from the previous quarter, as opposed to the previous year, directors also felt more confident, although to a lesser degree—61 in Q1 2011 versus 59 in the previous quarter. Despite this growing confidence, directors’ optimism about the progress made during the past year and past quarter is tempered by a slight decline in expectations of future economic conditions.

With proxy season on the horizon, the Securities and Exchange Commission is yet to finalize rules regarding shareholder voting and transparency, proxy access or new whistleblower programs. This uncertainty about the future corporate environment is reflected in boardroom index data. It appears as though these concerns may be relatively short-lived, however. Looking ahead, directors are less confident about the future in the short run, as opposed to a year out. Boardroom expectations for the next quarter dropped to 57 from 60 in Q4 2010. Expectations for the next year dropped to 69 from 71 the previous quarter.

The survey also asked respondents several questions regarding the hiring practices of their primary company. In Q1 2011, 48 percent of directors responded that their hiring remained the same, while a third said their companies’ hiring practices resulted in a net gain. Looking forward, just 8.6 percent indicated their companies planned to reduce the workforce in the next quarter—more than half responded that their hiring practices would remain the same. —Kate Iannelli

BP Chief Bob Dudley Apologizes for Gulf Oil Spill
In his first public address to oil industry executives since becoming BP chief executive, Bob Dudley apologized in London for the 2010 Gulf of Mexico disaster that caused the biggest offshore oil spill in history and killed 11 people. Touting his record since taking the top job, Dudley said that BP would not sign contracts with drillers whose rigs do not meet BP standards “and there are a number of cases where we have either turned away rigs or are negotiating for modifications which could bring the rig up to our standards.” The London Telegraph reported that the past year’s events have affected compensation at the company. While two of BP’s most senior directors “have taken bonus payments for their work in the year of the Gulf of Mexico oil spill,” the newspaper notes, “Dudley waived his reward.”

Dudley believes the entire industry needs to change to prevent another deepwater oil spill on the scale of the one BP suffered a year ago. The New York Times pointed out that his comments “were in sharp contrast to the statements of other senior oil executives who said their companies would have designed wells differently” from BP’s ill-fated Macondo well. They assert that the accident would not have occurred had rig workers and their supervisors conducted adequate testing, followed industry procedures and been properly trained.

Americans Want Less Corporate Political Influence
Major corporations should have less influence on politics, say 62 percent of respondents to a recent Gallup poll. This is down from 68 percent of respondents who wanted less corporate involvement in 2008, but a marked increase from 52 percent 10 years ago. Twenty-four percent of respondents want about the same level of influence, while 12 percent want to see influence increase. An equal number of respondents want influence levels to stay consistent in 2011 as compared with 2008, a decrease from 36 percent in 2001. Democrats were more likely to call for less influence (73%) than Republicans (49%).

Shareholders Seek More Disclosure on Succession
Pressure is building on publicly traded companies to give details about their succession planning, as evidenced by an increase in the number of shareholder proposals asking boards to disclose such details. The situation can be especially troublesome at a company such as Ford Motors, whose recent success appears to be closely tied to 65-year-old President and CEO Alan Mulally. “Given that his employment agreement has no formal term,” the Detroit Free Press reported, “it’s only natural that investors have been asking questions about Ford’s succession plan, which remains private.”

Gupta Resigns Board Positions
Potential jurors in the insider-trading trial of Galleon Group founder Raj Rajaratnam, now underway, were questioned about whether their feelings about Wall Street executives and the financial crisis in the United States would affect their ability to fairly consider the evidence at trial, The Wall Street Journal reports. Rajaratnam is charged with making improper trades at his hedge fund based on alleged tips about publicly traded firms obtained from company insiders. U.S. District Judge Richard Holwell made available a copy of the questions he will ask potential jurors to determine if they might be biased. One section will focus on their experiences as investors and their views on insider-trading laws. Federal prosecutors have said former Goldman Sachs Group and Procter & Gamble Co. director Rajat Gupta was an unindicted co-conspirator who shared inside information with Rajaratnam. The SEC promptly filed a civil administrative action against Gupta for allegedly tipping off Rajaratnam when Gupta was a member of Goldman Sach’s and P&G’s boards.

More Companies Consider Risk in Compensation Decisions
Risk management has become more prominent in financial firms’ overall performance goals and compensation decisions, with a new Deloitte survey finding that 37 percent of institutions have placed more weight on risk. Companies plan to continue integrating risk management in incentive compensation, with 64 percent of firms looking to balance the emphasis on shortterm versus long-term incentives. Fifty-seven percent of companies paid incentives in company stock and 52 percent deferred payouts based on future performance.

The “Navigating in a Changed World,” survey, which queried chief risk officers at 131 financial institutions worldwide, also found that four out of five institutions require that a portion of the annual incentive be tied to overall corporate results, but less than one-third matched senior executive payout timings to the risk term at hand.

“While we saw an uptick in risk-based compensation practices, it was mostly at the senior management level,” said Deloitte’s Edward Hida, who edited the report. “It is even more important that financial institutions take risk management into account in performance evaluations and incentive compensation across the organization.”

More Auditor Changes Seen
With companies looking to save money wherever possible after the recent financial crisis, more companies are changing auditing firms and taking more time to make their choice. The Big Four—Deloitte, Ernst & Young, KPMG and PwC—still cover more than 90 percent of the market capitalization of U.S. public companies. Recent major auditor switches have occurred at Apple and Tyson Foods. Apple exercised a new policy of reviewing its auditor every five years, with an option to change firms after 12 years of being a client at the same firm.

Bribery Act Delayed Indefinitely
Following businesses’ concern about ambiguities in a new anti-bribery law, the British government has delayed its implementation. The law has been compared to the Foreign Corrupt Practices Act in the United States, but would be more restrictive, banning bribes between private businessmen, in addition to foreign officials. The law also would be enforceable even if the offender did not realize a transaction was a bribe. The pending rule currently has no limits on fines and would increase the maximum bribery penalty to 10 years in prison. Scheduled to take effect in April, the law was delayed pending government guidance on corporate compliance.

CFOs Expected to Do More More
CFOs are being called upon to evaluate corporate strategy and information technology plans, among others. An Accenture survey found that 43 percent of CFOs had assumed information technology roles in the past 18 months, while 41 percent got more involved in business development and 39 percent in human resources planning. Eighty percent of senior finance executives reported an expansion of responsibilities. The study surveyed 1,054 senior finance executives across North and South America, Asia and Europe.

Some CEOs Getting Higher-Value Health Plans
Companies appear to be offering executives high-value health care plans, an issue of growing importance in light of Apple CEO Steve Jobs’ health concerns and subsequent speculations on how it will affect the company. In both 2009 and 2010, 32 Fortune 100 companies reportedly paid for their CEOs to have extensive executive physicals, which include collecting a medical history, blood tests, X-rays, eye exams and nutrition counseling at Baltimore’s Johns Hopkins Hospital. Companies such as McCormick & Co. are offering free preventative care and encouraging gym membership, according to The Baltimore Sun.

Wall Street Lawyers Help SEC Funding Campaign
Forty-one Wall Street securities lawyers and professionals appealed to Congress to allow the SEC to become a “self-budgeting” agency, meaning it would set its own annual budget. A provision to make the agency self-budgeting was removed from the Dodd-Frank Act in the final hours, with some senators still wary of fully trusting the SEC without the regular performance review required by budget evaluations.

Fed Works to Define Systemically Important Nonbanks
The Federal Reserve is working to utilize powers it was given under the Dodd-Frank Act to establish terms to identify those financial firms that are not banks and risky enough to necessitate additional regulatory measures. Under the proposed rules, a firm would be considered systemically important if 85 percent or more of its revenue was related to activities that are financial in nature, have at least $50 billion in assets or already are designated by regulators as systemically important.

Top and Bottom
For its annual 50 most admired companies overall, Fortune asked businesspeople to vote for the companies that they admired most from any industry. Here are the top 10:

1. Apple
2. Google
3. Berkshire Hathaway
4. Southwest Airlines
5. Procter & Gamble
6. Coca-Cola
7. Amazon.com
8. FedEx
9. Microsoft
10. McDonald’s

Least Admired

1. Kirin Holdings
2. Carlsberg
3. Asahi Breweries
4. Heineken
5. China South Industries Group
6. Dongfeng Motor
7. Pernod Ricard
8. China FAW Group
9. Shanghai Automotive
10. AbitibiBowater

Jeff Cunningham

In a personal announcement last night, Buffett said Sokol’s resignation followed revelations his lieutenant had purchased roughly $10 million in shares of Lubrizol, a chemicals company that Berkshire recently agreed to buy at Sokol’s suggestion. Buffett, who is Berkshire’s chairman and chief executive, said the purchases weren’t a factor in Sokol’s decision to leave. In a March 28 resignation letter, Sokol cited his desire to spend more time investing his “family’s resources.”

Why is it that families all grow in importance after we stumble whereas before they are not worth throwing our careers away for? Maybe it would be more candid and less inviting of scrutiny if we would just simply say, “I goofed, I am leaving and I am rich enough and confident enough to say so.”

But I digress. So what really happened?

For one, given Buffett’s reputation for candor and honesty (I guess if you have one by definition you get the other) it is unlikely that something nefarious will come out of this. The sage from Omaha just doesn’t operate that way. He once said to me, in reference to a question about taking financial shortcuts, that “Marrying for money is pretty dumb, but if you’re already rich it’s plain stupid.”

One can surmise that it is possible Sokol trades stocks occasionally. He came across Lubrizol before he made the recommendation to Berkshire that it acquire the company. Perhaps even before he had an inkling to do so. Then, of course, Lubrizol sounded like such a good buy that the Berkshire acquisition team of Buffett and Munger thought they should bring it into the portfolio – and Sokol dutifully told Buffett about his previous trading. So far nothing illegal or even untoward, so why the fuss?

Because someone in as sensitive a position as the heir to Warren Buffett probably should not be trading for his own account. The news fallout is always worst-case scenario (it sells newspapers, after all). There are so many effective and above-board methods for trading in equities: mutual funds, hedge funds, private equity or ETFs all provide the savvy trader with ways to be long in the market without having to identify a particular company that may throw up complications down the road. That is where I come out. Berkshire policy should prohibit senior officers from trading in stock for their own accounts. Besides, we want them owning Berkshire anyway.

Jeff Cunningham is managing director and senior advisor to NACD. He is nationally known for his views on boards and corporate governance. Prior to starting Directorship magazine, he was publisher of Forbes and managing partner of the U.K. private equity firm Schroders. He has served as an independent board chair or director of 10 public companies.

Our gain in net worth during 2009 was $21.8 billion, which increased the per-share book value of both our Class A and Class B stock by 19.8%. Over the last 45 years (that is, since present management took over) book value has grown from $19 to $84,487, a rate of 20.3% compounded annually.

Berkshire Hathaway CEO Warren Buffett addressed shareholders in his 2010 annual letter.

Berkshire’s recent acquisition of Burlington Northern Santa Fe (BNSF) has added at least 65,000 shareholders to the 500,000 or so already on our books. It’s important to Charlie Munger, my long-time partner, and me that all of our owners understand Berkshire’s operations, goals, limitations and culture. In each annual report, consequently, we restate the economic principles that guide us. This year these principles appear on pages 89-94 and I urge all of you – but particularly our new shareholders – to read them. Berkshire has adhered to these principles for decades and will continue to do so long after I’m gone.

How We Measure Ourselves
Our metrics for evaluating our managerial performance are displayed on the facing page. From the start, Charlie and I have believed in having a rational and unbending standard for measuring what we have – or have not – accomplished. That keeps us from the temptation of seeing where the arrow of performance lands and then painting the bull’s eye around it.

Selecting the S&P 500 as our bogey was an easy choice because our shareholders, at virtually no cost, can
match its performance by holding an index fund. Why should they pay us for merely duplicating that result?

A more difficult decision for us was how to measure the progress of Berkshire versus the S&P. There are
good arguments for simply using the change in our stock price. Over an extended period of time, in fact, that is
the best test. But year-to-year market prices can be extraordinarily erratic. Even evaluations covering as long as a
decade can be greatly distorted by foolishly high or low prices at the beginning or end of the measurement
period. Steve Ballmer, of Microsoft, and Jeff Immelt, of GE, can tell you about that problem, suffering as they do
from the nosebleed prices at which their stocks traded when they were handed the managerial baton.

The ideal standard for measuring our yearly progress would be the change in Berkshire’s per-share intrinsic
value. Alas, that value cannot be calculated with anything close to precision, so we instead use a crude proxy for
it: per-share book value. Relying on this yardstick has its shortcomings, which we discuss on pages 92 and 93.
Additionally, book value at most companies understates intrinsic value, and that is certainly the case at
Berkshire. In aggregate, our businesses are worth considerably more than the values at which they are carried on
our books. In our all-important insurance business, moreover, the difference is huge. Even so, Charlie and I
believe that our book value – understated though it is – supplies the most useful tracking device for changes in
intrinsic value. By this measurement, as the opening paragraph of this letter states, our book value since the start
of fiscal 1965 has grown at a rate of 20.3% compounded annually.

We should note that had we instead chosen market prices as our yardstick, Berkshire’s results would
look better, showing a gain since the start of fiscal 1965 of 22% compounded annually. Surprisingly, this modest
difference in annual compounding rate leads to an 801,516% market-value gain for the entire 45-year period
compared to the book-value gain of 434,057% (shown on page 2). Our market gain is better because in 1965
Berkshire shares sold at an appropriate discount to the book value of its underearning textile assets, whereas
today Berkshire shares regularly sell at a premium to the accounting values of its first-class businesses.

Summed up, the table on page 2 conveys three messages, two positive and one hugely negative. First,
we have never had any five-year period beginning with 1965-69 and ending with 2005-09 – and there have been
41 of these – during which our gain in book value did not exceed the S&P’s gain. Second, though we have lagged
the S&P in some years that were positive for the market, we have consistently done better than the S&P in the
eleven years during which it delivered negative results. In other words, our defense has been better than our
offense, and that’s likely to continue.

The big minus is that our performance advantage has shrunk dramatically as our size has grown, an
unpleasant trend that is certain to continue. To be sure, Berkshire has many outstanding businesses and a cadre of
truly great managers, operating within an unusual corporate culture that lets them maximize their talents. Charlie
and I believe these factors will continue to produce better-than-average results over time. But huge sums forge
their own anchor and our future advantage, if any, will be a small fraction of our historical edge.

What We Don’t Do
Long ago, Charlie laid out his strongest ambition: “All I want to know is where I’m going to die, so I’ll
never go there.” That bit of wisdom was inspired by Jacobi, the great Prussian mathematician, who counseled
“Invert, always invert” as an aid to solving difficult problems. (I can report as well that this inversion approach
works on a less lofty level: Sing a country song in reverse, and you will quickly recover your car, house and
wife.)

Here are a few examples of how we apply Charlie’s thinking at Berkshire:

• Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth  that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But  the future then also included competitive dynamics that would decimate almost all of the  companies entering those industries. Even the survivors tended to come away bleeding.Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean  we can judge what its profit margins and returns on capital will be as a host of competitors battle  for supremacy. At Berkshire we will stick with businesses whose profit picture for decades to  come seems reasonably predictable. Even then, we will make plenty of mistakes.

• We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash  we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be  constantly refreshed by a gusher of earnings from our many and diverse businesses.

- Wrote Berkshire Hathaway CEO
Warren Buffett in his 2010 annual
letter to shareholders.

Sometimes Buffett emerges from behind his desk and shows a side of himself that’s far less familiar. When he sees something he doesn’t like in a company whose shares he owns, the famously passive investor can swing into action to protect his investment—jawboning behind the scenes, scolding, cutting opportunistic deals, even hiring and firing CEOs. For some of those on the receiving end of his activism, it can feel a bit like being attacked by Santa Claus.

Buffett’s virtues and philosophy are well known, and at 79, his ability to spread them throughout the business world has never been greater. In mid-February, his holding company, Berkshire Hathaway, (BRK.A) was listed for the first time on the Standard & Poor’s 500-stock index, and the stock price and volume jumped as investors rushed in. His annual letter to shareholders, to be released on Feb. 27, is always one of the most parsed memos of the year. Berkshire’s purchase of Burlington Northern (BNI) in November 2009—a self-described all-in bet on America—and its $5 billion stake in Goldman Sachs (GS) make Buffett a major stakeholder in the global economic recovery, with tentacles that span from coal to collateralized debt obligations. And his now infamous dressing down of Kraft (KFT) CEO Irene Rosenfeld over Kraft’s purchase of Cadbury (CBY) proved that behind that Cherry Coke smile, there’s still plenty of bite.

In speaking with CEOS for this story, and in writing the 2008 biography The Snowball with Buffett’s cooperation, I learned a great deal about the way he manages the people he counts on to make money for him and his shareholders. He is, in many cases, just as genial and supportive as his persona would lead you to believe. “First my mother and then I have been able to call and ask his advice on matters affecting the company, large and small,” says Donald E. Graham, CEO of Washington Post Co (WPO). “His advice has been worth billions to our not-so-large company.”

During the credit crunch of March 2008, American Express (AXP) CEO Kenneth I. Chenault had to ask for help from Buffett at a moment when Berkshire’s stake in American Express had lost $8billion because of credit losses and concerns the company could not borrow to fund its operations. One might think Chenault had reason to fear the call. Instead, he knew Buffett, whose company owns 13 percent of American Express, would be his “confidence booster.” Even in the highly charged atmosphere of a financial meltdown, his style is unwavering—”objective, direct, and he knows what he believes,” Chenault says. The CEO felt fortunate that Buffett was indifferent to the market pressure on American Express.

At the time, Chenault faced intense pressure to cut the company’s payout to investors, as his peers had done. Buffett “understood the reputational reasons why American Express should not cut the dividend,” he says, and backed the decision to maintain it. Since the crisis, Berkshire’s investment has recovered $4 billion of its value.

When other CEO friends got into trouble during the downturn, Buffett offered them more than advice. William C. Foote, head of wallboard and gypsum product maker USG (USG), first met the investor before Berkshire backstopped a USG stock offering in 2006, buying a 17 percent stake in the company. Foote tried to impress his new shareholder by reciting housing statistics from the 1960s to the 1980s—and was shocked when Buffett immediately responded with data from the 1940s and 1950s.

Although USG was struggling through bankruptcy, Buffett treated Foote with the benevolent neglect he generally displays toward managers whose companies are cruising. Foote would call occasionally and traveled to Omaha two or three times a year, spending a couple of hours chatting in Buffett’s office before eating a steak at one of his favorite restaurants. He “doesn’t offer suggestions as much as answer questions and provide perspective,” Foote said.

The USG chief found the advice valuable and enjoyed the feeling that Buffett had enough confidence in him not to meddle. Then the housing market imploded and demand for wallboard collapsed. Buffett leaped into the fray in a way that benefited both Berkshire and USG. Berkshire took $300 million of a $400 million issuance of 10 percent notes convertible until 2018 at Berkshire’s discretion into stock at $11.40 per share. (USG was trading at around $5.66 before the deal and is now at about $13.40, meaning the conversion feature is in the money). The equity sweetener effectively raised the cost of the notes, while limiting the impact on USG’s income statement to its $30 million annual cash interest tithe to Berkshire, helpful at a time when USG is losing hundreds of millions of dollars a year.

When Buffett is unhappy with a CEO, you can tell mostly from what he doesn’t say. “He criticizes by omission and faint praise,” says former Wells Fargo (WFC) Chairman Richard M. “Dick” Kovacevich, a longtime friend and world-class manager whom Buffett has compared to Wal-Mart (WMT) founder Sam Walton. “If you are a close observer of him, it’s not hard to figure out.”

To be publicly criticized by Buffett, even subtly, might send a shiver through any executive who does business with him. It happened to Irene Rosenfeld on Jan. 21, after Kraft agreed to buy the iconic British candy company Cadbury for $13.17 a share. Berkshire is Kraft’s biggest shareholder, with a 9.4 percent stake. Buffett had opposed an earlier version of the deal but said if Kraft put up more cash in a revised deal that didn’t “destroy value,” he would approve.

Kraft’s share price rose because the remarks seemed to indicate that a modestly higher bid could meet his terms as long as it contained less stock. When Rosenfeld carried out a version of the plan, agreeing to pay $7.74 in cash and offer 0.1874 new Kraft shares for each share of Cadbury, investors assumed the two had worked out a deal. On the day it was announced, William Ackman of hedge fund Pershing Square Capital Management appeared on CNBC and predicted the investor would support it.

Instead, minutes later, Buffett turned up on CNBC and called Rosenfeld’s agreement with Cadbury a “bad deal” for Kraft shareholders and a “big mistake.” His televised griping stunned observers because it was so uncharacteristic. “You would think he would have been happy—she did what he wanted,” says a major shareholder who asked not to be named because he values his relationship with both CEOs. “He reversed himself.”

Buffett made it clear he thought the revised bid “destroys value.” He seemed especially irate that Kraft had sold its profitable frozen pizza business to Nestlé (NSRGY) to raise cash for the Cadbury acquisition (and take its rival out of the bidding for the confectioner). He described the sale price of the pizza business as a cheap nine times earnings (a good deal for a unit that reported significant margin and sales growth during the recession). To avoid a $1billion tax bill, he argued that Rosenfeld should have spun the unit off tax-free instead. Buffett also seemed to covet the business himself, saying, “I wish I would have bought the pizza business at nine times pretax earnings.”

Kraft Senior Vice-President Perry Yeatman says the company respects Buffett and expects him to see the wisdom of the deal someday. Other defenders of Rosenfeld say Buffett’s TV appearance was mainly to distance himself from the deal because he didn’t get his way. Asked twice by CNBC whether he would sell his Kraft stock, he ducked the question.

Brian Moynihan’s appointment  after a search process covered almost daily by the press, raised speculation about how the board reached its    decision. “There were [board members] who could have stepped in and become interim CEO,” opines Behan.

Gregory Carrott, a partner at Cavoure, a Chicago-based executive recruitment firm, says boards’ choices may be limited as a result of the search firm: “The board chose Russell Reynolds for the search—they probably have the largest pool of potential candidates than any of the other search firms.” Depending on its clientele, certain candidates may have been off limits, he says.

“I think BofA was shooting to get an experienced CEO,” says James J. Drury, chairman and CEO of James Drury Partners. “You’ve got x number of clients available…and their decision    depends on how many clients are ‘reserved’ by other firms.”

While the selection process may not have portrayed the company in the best light, choosing a BofA insider has its advantages. Moynihan first joined the bank when it acquired Boston’s Fleet Bank in 2004. “He’s ‘inside’ with some ‘outside’ perspective,” says Behan.

“Leaving a legacy, making a real difference—that seems to be lost,” reflects Carrott. “You’ve got one of the world’s largest banks [to lead]; if you do a good enough job, you’re going to be remembered in business schools for years. How many bankers ever get that chance?”

But there are exceptions – and thereby hangs quite a tale. That even in today’s world certain reputations somehow survive undiminished suggests, not just that these particular business leaders acted shrewdly while the rest of the world crumbled, but that something in their very DNA assures long-term immunity and an abiding, almost mystical, connection to an otherwise disillusioned populace.

Atop that list is, of course, Warren Buffett. His leadership “style” has been much discussed as have the equally durable reputations of contemporaries such as Bill Gates and past exemplars like Sam Walton. One common explanation for this enduring prestige is that they create jobs. In so doing, they garner the persistent gratitude of people who, for whatever reason, cannot understand that, say, Goldman Sachs does so too.

Yet some of those same people may likely know next to nothing about Berkshire Hathaway or the actual work that Buffett does. They have no more concrete reason to associate him with job-creation than Lloyd Blankfein. No, there are stronger forces at play and, perhaps, a few cautionary lessons for officers and directors amid the continuing decline in corporate credibility.

Main Street isn’t Wall Street. Buffett is from Nebraska, Walton Arkansas, and Gates indelibly West Coast. No matter how savvy these men are with respect to the financial markets, they are not perceived to occupy the same private and secretive New York world where the Wall Street mainstays reside.

Work is its own reward. The Buffett and Walton (if not the Gates) mythologies eschew the trappings of success. Buffett drives an old car and lives in a house he bought decades ago. Walton drove a pick-up truck at the height of his success while his office in Bentonville was small and unadorned. Such Spartan habits do more than simply establish a “we’re just plain folks” basis for a relationship with the public. They also minimize the burden of envy that people feel toward jetsetters. Absent envy, what’s left is admiration.

But it goes further than that by underscoring the value of work for its own sake, i.e., the Protestant Ethic. If these men are not working in order to live opulently, they must have less selfish motives. Austerity further inspires confidence because it shows that success has not changed them; they still share our values and are just as trustworthy as when they first opened modest little businesses.

They help others succeed. There’s a common perception that success on Wall Street requires mastering an arcane financial language unique to the financial services industry. It is a language with which many people cannot imagine themselves likewise conversant. Instead, the public reveres those from whom it can learn. No matter how bad the economy, Buffett and Walton earn allegiance because they sincerely explain their success in terms anyone can understand. One post on youngentrpreneur.com says it all:  “I love Warren Buffet! Not because he’s extremely wealthy but he creates his choice of words in a simple fashion.”

They foresee the future. Bill Gates does not live humbly or proffer simple wisdom. Unlike Buffett, some abhor him for his ruthlessness. Unlike Walton–still admired despite Wal-Mart controversies since his death–Gates’ reputation is tied to Microsoft’s.

But Gates shares one quality, at least with Buffett, which bedazzles and continues to generate loyal admiration. He seems to know what’s coming next before anyone else does. The word “visionary” is typically used to characterize his command of the technological future but, on the larger stage, people listen just as intently to his pronouncements on other industries or the economy in general. (His 1996 best-seller was called The Road Ahead.)

Especially during crises, the gift of prophecy is at a premium as crises by definition raise alarming questions about the future. Gates earned his prophet’s stripes by spearheading American technology at a time when it seemed the Japanese owned the future. For those who lived through it, such leadership is remembered and can still cover a multitude of purported sins.

Don’t tread on me. The public will stay loyal longer to fighting spirits who are also underdogs. Buffett and Walton remain underdogs because of their humble beginnings; the brand, reinforced by austere lifestyles, bespeaks courage. In this regard, the Microsoft antitrust case ultimately worked very much in Gates’ favor. First, he took on IBM. Then he went toe to toe with the U.S. government. People warmed to his cause who didn’t know what that cause actually was. 

No one virtue or ingredient can possibly enable a business leader to maintain heroic stature in an environment like today. The key is in the combination. With heartland roots reinforced by conspicuous modesty, they are purveyors of life’s lessons, scrappy combatants against formidable odds, and sympathetic guides who know what problems loom on the horizon for all of us.

Such leaders survive the Great Flood and barely get wet.

Richard S. Levick, Esq., is the president and chief executive officer of Levick Strategic Communications www.levick.com, a crisis communications firm. He is the co-author of Stop the Presses: The Crisis & Litigation PR Desk Reference and writes for www.bulletproofblog.com. Reach him at rlevick@levick.com.

Hence, the Nifty Fifty of our era—Directorship’s “Best Performing, Best Governed Companies in the Fortune 500.” We took on the challenge of identifying those spectacular companies whose leadership both in the market and the boardroom is worthy of emulation. We then listed them based on raw data and weighted them for various disparities in size, sector, and circumstance, including overall economic stress factors that have prevailed, board director qualifications, and a new factor, limited outside board memberships by the CEO. We feel that CEO time is the most valuable commodity for the shareholder.

Of the total, we recognized one company in the 50 that managed to succeed against challeges beyond anyone’s expectations—that company is Goldman Sachs, and its chief executive, Lloyd Blankfein, is our CEO of the Year for 2009. The top 50 were chosen from the Fortune 500 based on measures of size, shareholder return, admiration, and corporate governance. Private companies, foreign companies, and companies that have a CEO appointed after the end of 2008 were not considered.

The top 50 were then reranked based on the above criteria. (Since return to shareholders is such a critical measure, it was weighted at 2X the other measures). Because we believe both performance and corporate governance are more difficult to achieve in the large-company setting, we felt a special premium should be placed on the largest. Finally, we brought the entire list to our Advisory Council for review and comment and noted the additional qualitative factors aforementioned.

What we came up with was a list—the only list that has attempted to place performance and governance together in one calculation —of great companies by anyone’s measure. In future years, with even more data and more measures, we hope to refine, if not improve, the methodology. Our conclusion: governance and performance are merely two sides of the same coin.

SOURCE: 1 Fortune 500 2009 rank based on revenue 2 Three-year average annual return to shareholders (June 30, 2006 to June 30, 2009) 3 Based on Fortune’s 2009 ranking of World’s Most Admired Companies 4 Based on RiskMetric’s Corporate Governance Quotient plus a bonus for ranking on CRO’s Corporate Citizenship rankings

The main constituents for Salomon then, as they are now for Bank of America as it ponders its own urgent succession, were regulators, politicians, the media, investors, and employees, including management.

As the story goes, Gutfreund called Buffett the morning after more damaging news broke regarding the illegal trading practices of Paul Mozer, and asked Buffett to step in. Buffett agreed to take on the role of CEO at $1 per year, perhaps out of concern for his investment as well as his friendship at the time with Gutfreund, and some angst about the American economy.

Buffett sent a clear message–to employees: “We want people to get rich through the firm and not off the firm. If you damage the reputation of the firm, I will be ruthless.” And to regulators: Before Buffett had a chance to formally accept the offer to the board, he received a call from Treasury that Salomon was going to be dropped from bidding at auction. Buffett placed a call to the Treasury Secretary and said if so, then he was out, and the domino effect on the bond trading industry would be palpable and disastrous. Treasury called off the witch-hunt.

The Bank of America board is dealing with a succession scenario that has some remarkable similarities. The selection of a new chief will either enhance the company’s stature in the minds of regulators, investors, and employees or may undermine it. The problem is that few of the constituencies will agree on the same choice. Team players argue for someone who knows the culture and can lead the firm but carry out the tradition. Others argue for an outsider with stature and political pedigree, someone who can calm the regulatory waters. No one wants Bank of America to fail. But everyone wants to win their way and with their “guy.” Who is right?

There really is only one choice. As Buffett proved, what is needed is the right character, experience, otherwise known as …Leadership. We rally around a leader who makes it clear that his or her selection is in the company’s and the nation’s best interests.  Warren, are you interested?

What we also discovered in putting the list together was that in some instances, it became impossible to separate the captain from the team. This year’s D100 is a case in point: Our editors and board of advisors were nearly unanimous in our selection of President Barack Obama as this year’s most powerful corporate governance influence. And yet, to do justice to the seismic shift his policies have brought about in the boardroom, we also had to recognize the many other  “New Voices” in the Administration who are now leading the greatest financial reform of American business since the 1930s.

So, we ask that in the pages ahead you pay more attention to who counts, and less to how we count, in arriving at our final selection of individuals and institutions that have met the requirement to be “most influential.” We think you’ll agree it’s an intricate and impressive mosaic where the whole equals much more than the sum of its parts, which may or may not be greater than 100.

Regulators & Rulemakers

Team Obama
It is often written that reasonable people may disagree, and with Americans and their Presidents, it is practically a way of life. But even an unreasonable person could only conclude that this President and his Administration are having a profound and lasting influence over the boardroom. President Barack Obama has demonstrated an enormous capacity for calm in uncertain times. His relative youth leads to frequent comparisons to John F. Kennedy and his communications skills to those of Ronald Reagan. But it is his aggressive response to the unparalleled economic challenges that greeted him at the dawn of his young presidency that harkens back to an earlier figure of towering influence,  Franklin D. Roosevelt.

FDR’s massive social and financial reform programs—the creation of Social Security as part of the New Deal, the establishment of the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Company (FDIC)—helped restore confidence in the nation’s banking system coming out of the Great Depression. One could plausibly take major portions of FDR’s New Deal and substitute his name with President Obama’s.  The implementation of the $787-billion American Economic Recovery Act one month after Obama took office, coupled with his handling of the Troubled Asset Relief Program (TARP), which sought to strengthen the financial sector by buying up the assets and equity from troubled banks, has clearly helped the nation avoid further financial disaster and put the economy on the path to recovery.

And finally, turning again to the FDR playbook, Obama assembled a team of wise men and women, formidable economic and business minds, whose decisions are having a lasting effect on the role of the corporate director. Preeminent among them was the choice of Rahm Emanuel as chief of staff. Described as a veritable “influence machine,” within the Administration and Congress, the former Congressman from Obama’s home state of Illinois is known as a hard-charging, brutally candid, sometimes combative, acutely intelligent man who can get things done and knows the ways of the Capitol and the boardroom.

The Enforcers
Perhaps second only to Obama in terms of her influence on boards and corporate governance, career regulator Mary Schapiro heads up the 75-year-old SEC. Before the crisis, the agency’s very existence was in question: “Obsolete,” “out of touch,” and “behind the times” were just some of the many terms uttered by detractors. The Commission, under former chairman Christopher Cox, was pilloried for missing the Madoff scandal.

As former SEC chairman and Directorship 100 Hall of Famer, Arthur Levitt described her: “She has the skills, the intellect, and the character to be a superb SEC chair.” But Schapiro will face a new kind of challenge in the role, not just that of proving her own qualifications, but also instituting a significant remodeling of the SEC itself, as she works to bring it into the new regulatory era.

Moving swiftly to address regulatory concerns in the wake of the financial crisis, the SEC has rolled out a series of proposals that could embody the biggest change to the rules of the game for directors in some time. Schapiro, who is no stranger to the boardroom, having served on the boards of Duke Energy and Kraft Foods, has overseen proposed rule changes on proxy access, broker voting, say on pay, and new requirements for disclosure on executive compensation and director qualifications. It’s now up to her and fellow commissioners Kathleen Casey, Elisse Walter, Luis Aguilar, and Troy Paredes to determine the final regulations that emerge from the proposals.

Other key players Schapiro has brought into the SEC include Senior Advisor Kayla Gillan, Chief Accountant James Kroeker, and Director of Enforcement Robert Khuzami. Gillan was a founding board member of the Public Company Accounting Oversight Board (PCAOB) and former general counsel to CalPERS. Kroeker joined the SEC as deputy chief accountant in 2007 from Deloitte and Touche where he had been a partner in the firm’s national accounting services group. Kroeker recently said that the proposed road map for the convergence of International Financial Reporting Standards,pushed to the back burner amid the larger issues of market reform, would be restored as another top priority. Khuzami is a former federal prosecutor, has pledged to improve the SEC’s enforcement performance by creating specialized units to provide “structure and resources for staff to ‘get smart’ about certain products, markets, regulatory regimes, practices and transactions.”

TARP Overseers
Another example of Obama’s preference for brains over politics was his reappointment of Sheila Bair to chair the FDIC. Another fiscally conservative Republican, on Bair’s watch alone this year, 94 banks have failed, creating a new challenge:  how to replenish the fund. Bair has also been an integral part of the team overseeing TARP. Neil Barofsky is a former New York assistant attorney general confirmed by the Senate in December as special inspector general. Dubbed the “TARP Cop,” his job is to figure out how and where the $700-billion TARP funds are spent, reporting directly to the President and providing updates to the Congressional Oversight Panel chaired by bankruptcy expert and Harvard Law School professor, Elizabeth Warren. COP’s first report, released in February, casti-  gated then-Treasury Secretary Henry Paulson for his performance and lack of transparency, reporting that the Treasury Department  had overpaid by $78 billion for the assets it bought from banks.

Interestingly, while Obama sponsored and was a strong proponent of  “say on pay” legislation while a senator, since appointing Kenneth Feinberg special master of compensation, he has appeared unwilling to make the issue a top priority. Feinberg, who has immersed himself in some of the country’s most troublesome and high-profile cases, is considered a superb choice, both in terms of skill and temperament, by Capitol Hill insiders. His most noteworthy case was the 33 months of pro-bono work he did following the 2001 terrorist attacks to determine how much each victim would receive from the federal government’s September 11th Victim Compensation Fund.

Feinberg may in fact be perfectly suited for a job that most compensation specialists see as thankless, and possibly as a “no win” situation. As the Obama Administration’s comp expert, Feinberg was called on to monitor the compensation of executives in what were once some of America’s most prestigious corporations, now TARP recipients, including American International Group (AIG), Bank of America, Citibank, Chrysler, GMAC, and General Motors.

Fed to the Rescue
To prevent American capitalism from spiraling deeper into the abyss, nine months after President Obama made his first Cabinet announcement, he re-nominated Ben Bernanke as Federal Reserve chairman. The former Princeton economics professor was selected by Bush in 2005 to succeed Alan Greenspan. In 2008 after the market crashed, Bernanke invoked emergency powers, slashed interest rates, and spent trillions of dollars to right the financial system. Just last month, he declared the recession “likely over.” Though he seldom gives interviews, Bernanke is never far from the public eye and has been a stalwart in the transition between presidential administrations and in the effort to stem the economic slide.

When then President-elect Obama named his economics team, it included players who, like Bernanke, were already steeped in the crisis details, demonstrated a studied understanding of Depression-era economics, or some combination of both. Enter Treasury Secretary Timothy Geithner and Chief White House Economic Advisor Lawrence H. Summers. Geithner, who is currently pushing legislation to provide more systematic regulation of financial institutions, including new limits on executive compensation, recently told one interviewer that he is optimistic major reforms will be passed.

Prior to his appointment replacing Henry Paulson, Geithner was president of the Federal Reserve Bank of New York and part of the team central to the critical negotiations that resulted in Bear Stearns being tucked into JPMorgan Chase, Merrill Lynch going to Bank of America, Lehman Bros. disappearing, and Citigroup and other struggling banks getting a lifeline.

Summers, the former Harvard University economist who became its president following his tenure as Treasury Secretary to President Clinton, is director of the Cabinet’s National Economic Council. The group was established in 1993 to coordinate and ensure that the President’s economic policy agenda is carried out.

Rounding out the team, Paul Volcker, the former Fed chief under Clinton, was selected to chair the president’s economic recovery advisory board. And Christina Romer, a former UC Berkeley economist, who administration sources suggest is well- regarded by both parties, chairs the Council of Economic Advisers. Her appointment was seen as a further triumph of brain over politics in Obama’s approach to talent recruitment.