“Women and men have differing points of view as to the reason why there are fewer women – both nominated and sitting on active corporate boards today,” said Bonnie Gwin, vice chairman and managing partner of Heidrick & Struggles’ North American Board of Directors Practice. “About one third of women directors globally believe that closed off traditional networks are the primary reason women aren’t considered for director positions, whereas men believe there are fewer women currently in executive leadership roles, creating a smaller talent pipeline for entrance into the board room.”

The study, now in its second year, includes responses from 721 male and female board members in 26 countries and provides insight into how women and men view board composition worldwide. “Not only do women and men disagree about the reasons why fewer women serve on boards and if quotas are effective, but they also hold disparate views on whether increasing the number of women in the boardroom will actually improve overall board performance,” Dr. Groysberg said.

Additional study findings are available for review upon request. A topline overview of key 2011 board findings includes the following:

Diversity on Boards

• (41 percent) of women vs. (13 percent) of men personally supported quotas.
• (53 percent) of women vs. (18 percent) of men thought quotas are effective for increasing board diversity.

Overall Board Effectiveness

• (55 percent) of female directors vs. (16 percent) of male directors agreed three or more women on any board make it a more effective board.
• (59 percent) of women vs. (74 percent) of men said their board had an effective CEO succession plan.
• (40 percent) of women vs. (54 percent) of men said their board had an effective director succession plan.
• (72 percent) of women vs. (85 percent) of men agreed that their board effectively evaluates the CEO.
• (48 percent) of women vs. (60 percent) of men agreed that their board provides effective training for new directors.

Board Governance & Trust

• There is low confidence among both female and male directors (25 percent) and (17 percent) respectively, that the Dodd-Frank bill will create better corporate governance.
• Women and men agreed – risk management is imperative, with women  at 74 percent and men at 75 percent in 2011. An increase from 2010, women (40 percent) and men at (1 percent).
• Slightly more than three quarters (76 percent) of women believe ncreased board diversity will be effective in rebuilding trust in boards, compared with less than half (42 percent) of men surveyed.
• (70 percent) outside U.S. directors vs. (39 percent) U.S. directors agreed that professional directors would be an effective way to rebuild trust in corporate boards.

First, we need to define “great.”  The definition is somewhat unique to every situation but great directors are the “go-to” board leaders; the ones whom everyone listens to and wants to know what they think in a certain situation.  Great directors may not be in a formal leadership role (though often are) but they are most definitely leaders in the truest sense.

What do great directors bring to a board?  What is their ‘secret sauce’?  In our observation of hundreds of boards over many years, we can highlight a handful of characteristics:

1. Breadth – the best directors use every experience and skill in their repertoire to apply breadth of thinking in any given situation.  They never refer to a narrow frame of reference – in fact, they are intellectually curious; well-read; are problem-solvers; and flexible thinkers.  They ideally have broad career experience but that is not necessary if they view the world through a wide angle lens.
2. Judgment – the best directors have excellent judgment.  They can be wise and seasoned or early in their career – but if they have sound instincts and listen to those in the boardroom, they will make a difference.
3. People skills – strong directors relate well to people but the best directors build relationships – wellsprings of trust that allow for candid dialogue.  This does NOT mean going along to get along.  Rather, building relationships is about genuinely wanting to know your fellow board members and understanding the social dynamic of a group.  This is what a great board member does.
4. Courage – the best directors are unafraid to speak up and share a point of view.  It can be intimidating to sit on a board with strong personalities and extraordinary resumes.  However, a great director brings his/her own thinking to the table and does not hesitate to take a contrary view when needed.  This is essential, especially today.
5. Integrity – Finally, and most importantly, a great director never compromises when it counts.  We always ask references about ethics and values – and, at the end of the day, boards tell us that is one of the most important criteria in selecting a director.  It is hard to measure or quantify in the course of several interviews with a potential director.  But when you speak with his/her work and board colleagues from over the years, integrity (or lack thereof) is crystal clear.  It must be part of every director’s DNA.

Bonnie W. Gwin is managing partner, North America, for Heidrick & Struggles’ board of directors practice.

Perhaps more than ever, the passion that today’s public boards bring to their roles intersects with shareholder scrutiny and regulatory reform at the increasingly transparent corner of corporate excellence—clearly seen through the prism of ROI, values and ethics.

Bottom line: This only works with the right board;  success continues by keeping the board’s mission aligned with corporate strategy.

“A board is a great gift on behalf of the shareholders,’’ says Theodore L. Dysart, a managing partner with Heidrick & Struggles, where he is a leader in the Global Board of Directors Practice. “These directors really want the best for the company.”

Sometimes, however, what’s best for the company is for a single director, or several, to step away to ensure the highest performing board possible.

Replacing directors is an evolving art laced with essences of traditional organizational skills, robust team building and effective leadership roles grounded in solid management science. The resulting best practice is the evolution of “relationship” boards into “skills and experience” boards.  This evolution also supports thoughtful, meaningful board-succession planning to support future strategic plans.

This requires a variety of new approaches to board composition, such as “recruiting skill sets versus recruiting names,” says Peter R. Gleason, managing director and CFO of the National Association of Corporate Directors (NACD). Other requirements include reducing experiential overlaps and closing professional gaps. “You have to constantly look at what you need and what you have” both in terms of immediate assessments and the changes and challenges forecast for the next two or three years for the corporation, Gleason says.

Since most boards have some latitude regarding their size, they don’t need to wait for a pending term limit to expire or the looming retirement of a current member to recruit the strategic expertise necessary for critical, long-term success. These boards also don’t need to be bound by a multi-month, if not multi-year, recruitment cycle for new board members.

“By staffing up, say from 12 to 15, a board may increase short term to get the skill sets necessary for the future,” explains Gleason. “Let’s say the corporation wants to expand into India next year. The board is going to want someone with multi-national experience. Planning for that ahead of time means going after a strategic expert in global management, knowing that someone else on the board, like a banker, will be retiring in a year or two.”

As executive compensation both in and out of the C-Suite continues to garner regulatory and shareholder interest, recruiting board members with extensive human-resources expertise is another key area of consideration. Directors who have HR experience “with internal performance metrics are critical moving forward,” Gleason says, especially as the Securities and Exchange Commission spotlights pay-for-performance and other executive compensation risks as mandatory reporting metrics.

With the SEC focusing more on disclosure rather than criteria of public board members, diversity is the hot-button issue when openings for directors occur, according to Edward H. Pendergast, president of Pendergast & Co., board chair of PLC Medical Systems, and an NACD faculty member.

“Diversity in the boardroom is looked at differently than diversity in the public,” where it usually refers to race, gender or ethnic backgrounds, says Pendergast, who serves on several public, private and non-profit boards. “In the boardroom, it is beyond that. It is about not having people from the same background. It used to be there would be seven CEOs on the board. No one from HR. No one from Techno-logy. No one from R&D. We need to look at diversity in every way. The ‘thinking’ boards are spending more time to find a director to fit their needs; someone who is honest, ethical and willing to take a contrarian position.”

This “patience vs. balance approach” gives the organization—whether a $2-million or a $2-billion corporation—the correct corporate governance model, bypassing short-term gain in favor of embedded fiduciary and risk oversight tied to individuals who foster an aggressive, value-driven and performance-oriented culture, and are knowledgeable and responsive to market forces.

So, given the “new normal” of the post-recession recovery, if it’s necessary to replace the entire board of a public company over the next three to four years, is it also possible?

Yes, according to Robert M. Galford, managing partner of the Center for Leading Organizations and chair of the compensation committee of Forrester Research. But it does take time to bring new members up to speed. What Galford suggests is that board chairs exercise a bit of creativity to rejuvenate current members while actively recruiting new members for the future.

“Boards get into patterns and into assigned roles,” Galford said. He urges directors to be bold and brave: “Ask the C-Suite what it would like to see from its board.”

Galford also recommends occasionally ditching the C-Suite to allow board members direct contact with middle managers and other high-potential employees in an informal setting. One way of accomplishing this, he says, is to politely disinvite the C-level—except maybe the chief counsel, as lawyers like to say, out of an abundance of caution—from the dinners that are often held the night before a quarterly board meeting. Then invite the “skip-down” crowd to meet with the board.

“Don’t have the ‘highfalutin’ there. Invite two to five employees per board member so the board sees more of the organization. This way, board members get a great deal of value unfiltered,” Galford says.

He also advocates that even experienced directors should participate in continuing education and executive leadership programs for public-board members.

“It’s very invigorating. [These programs] are surprisingly helpful. First, they calibrate your own point of view. Second, it gives you the ability to gain perspective on what’s on the horizon for boards in general. And, third, it is an opportunity to formally and informally hear from others about the issues that they are grappling with,” says Galford, who has more than a dozen years of public-board experience and is a faculty member for NACD’s customized education programs.

Over those 12 years, Galford says, board service has become “harder work, more work, more serious, more consequential. It may take awhile for board members to re-energize [as a result of educational and leadership programs] but once it works, the results are better returns for stakeholders and shareholders. It’s a fairly high return of investment…[a] tremendous return on costs that provide significant improvements. There’s very high ROI in this.”

This emphasis on board leadership demonstrates that boards are pro-actively refreshing and recruiting by considering individual skills and evaluating experience against corporate strategy. The results of these “skills and experience” boards: directors and managers are working together to achieve “constructive interaction” with a focus on activities that help the company maximize shareholder value.

Where to begin? There are hundreds of them—and we at NACD spend much of our time dispelling them. Our main tool for setting the record straight is our set of Key Agreed Principles, reflecting a consensus of managers, shareholders and directors.

So, what are some of the myths, why do they matter, and how can directors overcome them through action?

Governance Myth Number 1: The fundamental purpose of the board is to represent the desires of shareholders.

This “agency theory” is close, but no cigar. The truth is that the board is there to build the long-term value and sustainability of the corporation on behalf of shareholders and all stakeholders. Believing the agency theory myth causes problems because it cuts other constituents (for example, rank-and-file employees) out of the picture.

Action step for directors: When requesting reports from management, ask for long-term financial projections and constituency impact statements (with proper disclaimers, of course).

Governance Myth Number 2: The main job of the board is to monitor management.

There goes that agency theory again. This isn’t even close, and frankly, it’s insulting (makes it sound like all CEOs and CFOs are crooks). The main job of the board is to select and develop a CEO, who will in turn select and develop a management team that will in turn select talent that can create and market worthwhile products and services. Believing the monitoring myth creates headaches because it puts everybody on the defensive and impairs productivity.

Action step for directors: Work with senior management and the head of human resources to develop and implement a CEO succession plan that empowers managers to be the best they can be.

Governance Myth Number 3: The main purpose of a board or committee meeting is to hear, discuss and vote on proposals from management.

This is fine for Civics 101, but the real world delivers more board value. If your company is using directors in this way, it is wasting a powerful resource. When a company has a fully engaged board, not all ideas come from management; sometimes they come from the board. There are times when instead of giving a long proposal to the board, management is better off making a very short proposal and then asking a question: What do you think? The board meeting then becomes a living proposal. (Indeed, this was exactly how we came up with our Key Agreed Principles mentioned above!)  The idea that directors are there only as a sounding board deprives a company of board brainpower.

Action step for directors: Insist that the meeting agendas have short timeframes for presentations and long timeframes for discussion.

Governance Myth Number 4: When considering management proposals, directors only know what senior management tells them.

The fancy name for this is “information asymmetry.”  It’s a problem but hardly a universal law. Directors receive information from many sources—including from the results of their own research, and reports from the consultants they are empowered to hire. Under Sarbanes-Oxley Act Section 301, “Each audit committee shall have the authority to engage independent counsel and other advisers as it determines necessary to carry out its duties,” and “each issuer shall provide for appropriate funding  … to any advisers employed by the audit committee under paragraph (5).”

Also, remember that audit committees receive direct reports from the internal audit function, which may or may not be part of senior management, and hotlines bring the information connection down to the shop floor. Most governance guidelines specifically permit board members to make and receive direct contact with any employee, as long as they inform the CEO of any non-routine contact. Believing otherwise impedes communication.

Action step for directors: Learn as much as you can about the companies you serve, from as many sources as you can. Rob Galford’s recent post on this subject is a good place to start.

Governance Myth Number 5. When it comes to governance, process is everything.

This is a half-myth, because it’s almost true, but it still misses the mark. To be sure, it is much more important for the board to make a decision the right way than to make the right decision. This is the basic idea behind the judicial concept called the Business Judgment Rule, and it was the great lesson of the 2005 Disney case decided by the Delaware Chancery Court as well. But the problem with believing in this half-myth is that if directors believe process is everything, they may start focusing too much on the mechanics of decision making and avoid making any decisions based on their own experience and intuition, which can sometimes transcend procedures:

Action step for directors: Go through all the proper steps—but don’t get so hung up in process that you miss a chance to make a good decision.

This is an excerpt of Surviving and Thriving in Uncertainty, Creating the Risk Intelligent Enterprise by Frederick Funston and Stephen Wagner (Wiley Books, 2010).

Conventional risk management focused on asset protection, typically in the form of insurance. It was also believed that risks could be identified and managed within silos and that risk aversion would maximize shareholder value. Risk was typically seen as a cost, not an opportunity. Risk management programs took “one size fits all” forms. For these and many other reasons, conventional risk management has failed.

In the turbulent and uncertain 21st century, the buffers of space and time no longer exist. Information has become instantly available. It still confers power, but now everyone has it. Communities of interest can form overnight. Centralized control often fails in the face of turbulence. Fixing pieces no longer solves problems. Many assets are now intangible and cannot be protected in traditional ways. Many risk events are unknown and perhaps unknowable.

Surviving and thriving in uncertainty and turbulence requires unconventional thinking and calculated risk taking. The enterprise must be understood holistically and seen as a living organism. Risks must also be understood as opportunities that can be optimized or exploited, not just as costs. Risks must be viewed as interconnected and difficult to contain. Like wildfires, they cross boundaries and must be managed accordingly. If a risk is relevant and potentially life-threatening, be prepared for it.

Everything has changed but human nature. Judgment will always be difficult. The 21st century enterprise must develop a 21st century view of risk and risk management. Nearly all enterprises have certain characteristics in common. They all operate to a large degree in the same macro-economic environment. The “fatal flaws” and corresponding “risk intelligence skills” described in Part II apply almost universally.

That said, every enterprise is also unique and differs from all others in key ways. Every enterprise operates at a different stage of development. It possesses different skills, understanding, awareness, and culture. Each of these distinct characteristics must be considered carefully by leaders trying to improve risk intelligence, along with the unique benefits the enterprise can realize through that improvement.

The benefits of improved risk intelligence
Demonstrating the value of prevention is often difficult. It should be intuitively obvious that the improved ability to protect existing assets while more effectively managing the risks to future growth ought to improve the enterprise’s chances of survival and success. The enterprise that builds risk intelligence into the core ways of running its business can improve its resilience and agility and should realize the following benefits:

• Challenging basic business assumptions can help identify “Black Swans” provide first-mover advantage
• Defining the corporate risk appetite and risk tolerances can help reduce the risk of ruin
• Improving signal detection can provide advance warning and enable more proactive responses
• Identifying mission-critical interdependencies can help establish an appropriate margin of safety
• Anticipating potential causes of failure can improve chances of survival and success through improved preparedness
• Factoring in momentum and velocity can improve speed of response and recovery
• Verifying your sources and corroborating the reliability of information can improve insights for decision making and thus the quality of decisions
• Taking a longer-term perspective can aid in identifying the potential unintended consequences of short-term decisions
• Improving operational discipline helps sustain success
• Understanding the Total Cost of Risk (TCOR) can help demonstrate the value proposition and reduce the Cost of Failure while improving risk intelligent enterprise management

Making the transformation
Once the enterprise understands its current state of risk intelligence and the best opportunities for improvement, it needs a plan to close the gap and transform the way it comprehends and manages risks to value. It takes time and effort to become a risk intelligent enterprise.

Risk intelligence is not a status or designation that can be attained and then enjoyed ever more. Rather, it is a way of making better decisions amid uncertainty and under turbulent conditions. Thus, risk intelligence is not an end in itself but a way of doing business, not a goal but a developmental journey. By the same token, improving risk intelligence must be a deliberate and sustainable enterprise process, rather than a mere project.

Voice of experience
“To be successful, risk management has to be a core process of managing the enterprise, not merely a project. A lot of directors seem to think that because they devise a ‘strategy’ to deal with known risk, they’ve got a good handle on risk. My perception is that they don’t. Too often, all they want to do is identify the top 10 risks based on what people know. It’s a project approach—and that’s not what’s really needed. A systematized approach of understanding the most basic business assumptions has more long-lasting potential.”

—Larry Rittenberg, Professor and Chairman Emeritus, Committee of Sponsoring Organizations of the Treadway Commission (COSO)

Developing and applying the necessary supporting processes, systems, and tools enterprisewide requires a “fractal” approach, in which any part of the whole embodies the properties of the whole. That implies that skills, processes, systems, and tools are common at every organizational level.

To be effective, these processes, systems, and tools must be deployed throughout the enterprise and applied with discipline. Although they will be applied differently at different levels, if the skills, processes, systems, and tools work for senior executives and the board, then directors and executives should have confidence that they will work elsewhere. Also, as with any skills, the more you practice, the better you become—provided you practice properly and maintain discipline.

At its best, risk intelligence informs every area of the business at every level such that the practices become part of every function, strategy, initiative, decision, activity, and job. This entails making risk intelligence an organizational value on the order of practicing true customer focus or achieving high quality through zero defects.

Such values do not come about by themselves or by executive decree or through a one-shot training initiative, a short-term project, or a “check the box” approach. They come about because the board and management view them as worthwhile, practice them publicly, recognize them in compensation programs, and embed them in core processes and systems.

The transformation challenge
In many organizations, despite the number and severity of risk management failures, executives still remain unconvinced of the business case for improved risk intelligence and thus risk management. Given this, there are several possible explanations as to why transformation efforts may fail.

For starters, even though the greatest value of risk management is prevention and preparation, demonstrating its value in advance often proves daunting. People may say, “That can’t happen here,” or “It can’t happen again,” or “We’re too smart to let that happen to us.”

Voice of Experience
“People don’t see the need for prevention until it’s too late. Obviously when a crisis occurs, everyone recognizes the need; it’s self-evident. It ought to be obvious that prevention is less expensive and more effective than response and recovery. I’ve tried to create recognition of the need for prevention in stages by starting with a risk scan. Let’s make sure we understand the risks that we have in the organization and the need to take some actions to mitigate the risk, understand it more, and be more involved in what this looks like.”

–Suzanne Hopgood, director

Prevention, therefore, is much less likely to receive priority, especially when resources are scarce. A clear statement of the TCOR may be required to demonstrate the value of improved prevention and preparation. Even when executives are convinced of the value, those who try to implement a systematic approach may experience flawed or prolonged execution.

Generally, it is best to aim for rapid implementation by building more systematic consideration of risk to value directly into core business processes. Early wins are important to demonstrate value. Nothing succeeds like success, and word of mouth can aid implementation.

Lack of program management such as specific milestones and metrics as well as a failure to recognize the level of effort required can contribute to failed implementation. The implementation may also fail if the implementation team lacks dedicated, credible, and capable resources; if the vision and expectations are poorly communicated; and if the enterprise lacks a common language of risk. Difficulties in reconciling the different perspectives of various specialist silos also can result in a lack of cross-functional alignment and coordination.

Conclusion
The first part of this book addresses the reality that conventional risk management has failed. The 21st century enterprise requires an unconventional approach to the understanding and management of risk to value in times of uncertainty and turbulence. Because turbulence cannot be predicted or modeled, the enterprise needs to improve its vigilance and preparedness.

The second part of the book describes 10 risk intelligence skills that ought to be common to directors, officers, and employees even if the challenges and decisions they must make will be different. The development of these ten skills is, of course, no absolute guarantee of success. However, their absence is likely a harbinger of fatal flaws that could lead to the demise of the enterprise.

The third part of the book describes the characteristics of the risk intelligent enterprise and the responsibilities of directors, officers, and employees. It outlined steps that can be taken to improve risk intelligence. It also discussed some missteps that ought to be avoided.

While all these parts when taken together may seem to be onerous and costly, the reality is that decisions that affect the enterprise’s survival and success are made every day at every level of the enterprise. This is enterprise management.

CombiMatrix announced that its board has appointed Mark McGowan to the role of interim president and CEO, effective July 1, 2010 upon the transition from current president and CEO Amit Kumar.

Geoff Ballotti, CEO of RCI, has been appointed to the board at Christel House International.

CardioNet, a wireless medical technology company, announced that its board has appointed Joseph H. Capper president and CEO, effective immediately. Capper succeeds Randy H. Thurman who remains chairman of the board. Capper was previously president, CEO and member of the board at Home Diagnostics.

Brazil
-  The agents of governance should be accountable for their actions, undertaking the full consequences of their acts and omissions.

-  The board of directors must ensure that management preemptively identifies and lists the main risks to which the organization is exposed. Management should also calculate the odds of such risks actually occurring.

-  While it is recommended that the CEO should not be a member of the board, the CEO should attend the board meetings as a guest.

China
-  The board of directors shall at least convene two meetings every year.

-  Those who are not permitted to serve on the board include any person who holds a position in the company,  such person’s lineal relatives and major social relations.

-  In case the independent directors fail to perform their duties, they shall bear the relevant responsibilities.

India
-  To prevent unfettered decision-making power with a single individual, the roles and offices of chairman and CEO should be separated, as far as possible, to promote balance of power.

-  An individual may not remain as an independent board director in a company for more than six years.

-  The maximum number of public companies in which an individual may serve as an independent director should be restricted to seven.

Russia
-  Companies should not, as a rule, take part in operations and conclude transactions involving a high risk of losing capital and investments.

-  The law restricts the participation of the director general or members of the managerial board of the company on the board of directors. However, it fails to provide the procedures needed to enforce this restriction.

-  The company should actively exercise its right to claim damages from members of the board of directors to compensate losses suffered.

QuantRX Biomedical appointed two new independent directors to its board: Robert G. Pinco, senior counsel and former head of biomedical/food and drug group at Buchanan Ingersoll & Rooney PC, and Patrick T. Mooney, CEO, president and chairman of Echo Therapeutics. The board of directors now has five members.

Peggy Gann, senior vice president of human resources and administration, has been elected as corporate executive officer of Thomas & Betts Corporation. Gann will report to Dominic J. Pileggi, chairman and CEO, and will be responsible for developing and direction the company’s global human services organization.

DEX, a supply-chain logistics provider, has added Tony Harris to its board. Harris has served as CEO of ADT PLC in the United Kingdom.

Daniel Gold has been appointed president and CEO of Marshall Edwards, a clinical developer of anti-cancer therapeutics. Gold most recently served as president and CEO of Prospect Therapeutics.

Autotask Founder and CEO Bob Godgart, has been appointed vice chairman of CompTIA’s board. Godgart directs all of Autotask’s investment and business strategy as well as operational activities.

James Ziglar was added to Integrated Biometric’s board. Ziglar is currently a senior fellow at the Migration Policy Institute where his work is focused on U.S. immigration policy, border-control and security initiatives.

Sirona, a dental technology firm, recently appointed Thomas Jetter to its board as an independent director.

CBL & Associates Properties appointed Thomas DeRosa its board. DeRosa, a former vice-chair and CFO of The Rouse Co., fills the vacancy resulting from the death in February 2010 of Claude M. Ballard.

Frank C. Condella Jr. has been named president and CEO of Columbia Laboratories, after serving as interim CEO since December 2009.

Physicians Formula elected Thomas Lynch to its board of directors. Lynch is the founder and senior managing director of Mill Road Capital.

Errol Gillespie was appointed to the board at Estate Coffee Holdings. Gillespie, an expert in farm management and the coffee industry, is a former agronomy extension officer with the Coffee Industry Board in Jamaica.

William C. Mills joined Interleukin Genetics’ board. Mills is currently an independent venture capitalist.

Monster Worldwide named two new directors, Cynthia McCague and Jeffrey Rayport, to its board. McCague has more than 35 years of experience as a human resources professional. Rayport is currently a Partner at Castanea Partners.

Primerica named P. George Benson to its board. Benson has been president of the College of Charleston since February 2007.

Joseph P. Sullivan, former chairman and CEO of Protocare, joined CIGNA’s board. Sullivan currently serves as a director of Amylin Pharmaceuticals. He is also chairman of the board of advisors of RAND Health.

Diana R. Wetmore has been appointed vice president of business development and alliances at Emerald BioStructures. She previously served as vice president of alliance management at Cystic Fibrosis Foundation Therapeutics.

Henry Ruhnke Jr. joined the 1st Capital Bank board of directors. Ruhnke is a registered architect and a principal of Wald, Ruhnke & Dost Architects.

Landen Capital has named James C. Gervais to its board of directors. Gervais retired from the Canadian Forces as a Lieutenant General, the second highest rank in the Canadian military.

AcademixDirect has appointed Karen C. Francis as chairman and CEO. Francis was formerly chairman and CEO of Publicis & Hal Riney.

David H. B. Smith was elected to the board at Northern Trust. Smith is executive vice president of policy and legal affairs and general counsel at the Mutual Fund Directors Forum.

Vermillion named Sandra A. Gardiner vice president and CFO. Gardiner served as CFO of Bend Research.

Adriana Pozzani Lynch, founder of Pozzani & Associates, joined Arbonne International as senior vice president and chief marketing officer.

Urastar Energy has appointed Charles W. Reed to its board. Reed is a registered professional geologist with more than 40 years of work experience in the mining industry.

Now, since I last spoke here two years ago, our country has been through a terrible trial. More than 8 million people have lost their jobs. Countless small businesses have had to shut their doors. Trillions of dollars in savings have been lost — forcing seniors to put off retirement, young people to postpone college, entrepreneurs to give up on the dream of starting a company. And as a nation we were forced to take unprecedented steps to rescue the financial system and the broader economy.

Complete text of President Obama’s speech on Wall Street reform yesterday at Cooper Union College.

And as a result of the decisions we made — some of which, let’s face it, were very unpopular — we are seeing hopeful signs. A little more than one year ago we were losing an average of 750,000 jobs each month. Today, America is adding jobs again. One year ago the economy was shrinking rapidly. Today the economy is growing. In fact, we’ve seen the fastest turnaround in growth in nearly three decades.

But you’re here and I’m here because we’ve got more work to do. Until this progress is felt not just on Wall Street but on Main Street we cannot be satisfied. Until the millions of our neighbors who are looking for work can find a job, and wages are growing at a meaningful pace, we may be able to claim a technical recovery — but we will not have truly recovered. And even as we seek to revive this economy, it’s also incumbent on us to rebuild it stronger than before. We don’t want an economy that has the same weaknesses that led to this crisis. And that means addressing some of the underlying problems that led to this turmoil and devastation in the first place.

Now, one of the most significant contributors to this recession was a financial crisis as dire as any we’ve known in generations — at least since the ’30s. And that crisis was born of a failure of responsibility — from Wall Street all the way to Washington — that brought down many of the world’s largest financial firms and nearly dragged our economy into a second Great Depression.

It was that failure of responsibility that I spoke about when I came to New York more than two years ago — before the worst of the crisis had unfolded. It was back in 2007. And I take no satisfaction in noting that my comments then have largely been borne out by the events that followed. But I repeat what I said then because it is essential that we learn the lessons from this crisis so we don’t doom ourselves to repeat it. And make no mistake, that is exactly what will happen if we allow this moment to pass — and that’s an outcome that is unacceptable to me and it’s unacceptable to you, the American people.

As I said on this stage two years ago, I believe in the power of the free market. I believe in a strong financial sector that helps people to raise capital and get loans and invest their savings. That’s part of what has made America what it is. But a free market was never meant to be a free license to take whatever you can get, however you can get it. That’s what happened too often in the years leading up to this crisis. Some — and let me be clear, not all — but some on Wall Street forgot that behind every dollar traded or leveraged there’s family looking to buy a house, or pay for an education, open a business, save for retirement. What happens on Wall Street has real consequences across the country, across our economy.

I’ve spoken before about the need to build a new foundation for economic growth in the 21st century. And given the importance of the financial sector, Wall Street reform is an absolutely essential part of that foundation. Without it, our house will continue to sit on shifting sands, and our families, businesses, and the global economy will be vulnerable to future crises. That’s why I feel so strongly that we need to enact a set of updated, commonsense rules to ensure accountability on Wall Street and to protect consumers in our financial system.

Now, here’s the good news: A comprehensive plan to achieve these reforms has already passed the House of Representatives.  A Senate version is currently being debated, drawing on ideas from Democrats and Republicans. Both bills represent significant improvement on the flawed rules that we have in place today, despite the furious effort of industry lobbyists to shape this legislation to their special interests.

And for those of you in the financial sector I’m sure that some of these lobbyists work for you and they’re doing what they are being paid to do. But I’m here today specifically — when I speak to the titans of industry here — because I want to urge you to join us, instead of fighting us in this effort.  I’m here because I believe that these reforms are, in the end, not only in the best interest of our country, but in the best interest of the financial sector. And I’m here to explain what reform will look like, and why it matters.

Now, first, the bill being considered in the Senate would create what we did not have before, and that is a way to protect the financial system and the broader economy and American taxpayers in the event that a large financial firm begins to fail. If there’s a Lehmans or an AIG, how can we respond in a way that doesn’t force taxpayers to pick up the tab or, alternatively, could bring down the whole system.

In an ordinary local bank when it approaches insolvency, we’ve got a process, an orderly process through the FDIC, that ensures that depositors are protected, maintains confidence in the banking system, and it works. Customers and taxpayers are protected and owners and management lose their equity. But we don’t have that kind of process designed to contain the failure of a Lehman Brothers or any of the largest and most interconnected financial firms in our country.

That’s why, when this crisis began, crucial decisions about what would happen to some of the world’s biggest companies — companies employing tens of thousands of people and holding hundreds of billions of dollars in assets — had to take place in hurried discussions in the middle of the night. And that’s why, to save the entire economy from an even worse catastrophe, we had to deploy taxpayer dollars. Now, much of that money has now been paid back and my administration has proposed a fee to be paid by large financial firms to recover all the money, every dime, because the American people should never have been put in that position in the first place.

But this is why we need a system to shut these firms down with the least amount of collateral damage to innocent people and innocent businesses. And from the start, I’ve insisted that the financial industry, not taxpayers, shoulder the costs in the event that a large financial company should falter. The goal is to make certain that taxpayers are never again on the hook because a firm is deemed “too big to fail.”

Now, there’s a legitimate debate taking place about how best to ensure taxpayers are held harmless in this process. And that’s a legitimate debate, and I encourage that debate. But what’s not legitimate is to suggest that somehow the legislation being proposed is going to encourage future taxpayer bailouts, as some have claimed. That makes for a good sound bite, but it’s not factually accurate. It is not true. (Applause.) In fact, the system as it stands — the system as it stands is what led to a series of massive, costly taxpayer bailouts. And it’s only with reform that we can avoid a similar outcome in the future. In other words, a vote for reform is a vote to put a stop to taxpayer-funded bailouts. That’s the truth. End of story. And nobody should be fooled in this debate.

By the way, these changes have the added benefit of creating incentives within the industry to ensure that no one company can ever threaten to bring down the whole economy.

To that end, the bill would also enact what’s known as the Volcker Rule — and there’s a tall guy sitting in the front row here, Paul Volcker  — who we named it after. And it does something very simple: It places some limits on the size of banks and the kinds of risks that banking institutions can take. This will not only safeguard our system against crises, this will also make our system stronger and more competitive by instilling confidence here at home and across the globe. Markets depend on that confidence. Part of what led to the turmoil of the past two years was that in the absence of clear rules and sound practices, people didn’t trust that our system was one in which it was safe to invest or lend. As we’ve seen, that harms all of us.

So by enacting these reforms, we’ll help ensure that our financial system — and our economy — continues to be the envy of the world. That’s the first thing, making sure that we can wind down one firm if it gets into trouble without bringing the whole system down or forcing taxpayers to fund a bailout.

Number two, reform would bring new transparency to many financial markets. As you know, part of what led to this crisis was firms like AIG and others who were making huge and risky bets, using derivatives and other complicated financial instruments, in ways that defied accountability, or even common sense. In fact, many practices were so opaque, so confusing, so complex that the people inside the firms didn’t understand them, much less those who were charged with overseeing them. They weren’t fully aware of the massive bets that were being placed. That’s what led Warren Buffett to describe derivatives that were bought and sold with little oversight as “financial weapons of mass destruction.” That’s what he called them. And that’s why reform will rein in excess and help ensure that these kinds of transactions take place in the light of day.

Now, there’s been a great deal of concern about these changes. So I want to reiterate: There is a legitimate role for these financial instruments in our economy. They can help allay risk and spur investment. And there are a lot of companies that use these instruments to that legitimate end — they are managing exposure to fluctuating prices or currencies, fluctuating markets. For example, a business might hedge against rising oil prices by buying a financial product to secure stable fuel costs, so an airlines might have an interest in locking in a decent price. That’s how markets are supposed to work. The problem is these markets operated in the shadows of our economy, invisible to regulators, invisible to the public. So reckless practices were rampant. Risks accrued until they threatened our entire financial system.
And that’s why these reforms are designed to respect legitimate activities but prevent reckless risk taking. That’s why we want to ensure that financial products like standardized derivatives are traded out in the open, in the full view of businesses, investors, and those charged with oversight.

And I was encouraged to see a Republican senator join with Democrats this week in moving forward on this issue. That’s a good sign. That’s a good sign. For without action, we’ll continue to see what amounts to highly-leveraged, loosely monitored gambling in our financial system, putting taxpayers and the economy in jeopardy. And the only people who ought to fear the kind of oversight and transparency that we’re proposing are those whose conduct will fail this scrutiny.

Third, this plan would enact the strongest consumer financial protections ever. And that’s absolutely necessary because this financial crisis wasn’t just the result of decisions made in the executive suites on Wall Street; it was also the result of decisions made around kitchen tables across America, by folks who took on mortgages and credit cards and auto loans. And while it’s true that many Americans took on financial obligations that they knew or should have known they could not have afforded, millions of others were, frankly, duped. They were misled by deceptive terms and conditions, buried deep in the fine print.

And while a few companies made out like bandits by exploiting their customers, our entire economy was made more vulnerable. Millions of people have now lost their homes. Tens of millions more have lost value in their homes. Just about every sector of our economy has felt the pain, whether you’re paving driveways in Arizona, or selling houses in Ohio, or you’re doing home repairs in California, or you’re using your home equity to start a small business in Florida.

That’s why we need to give consumers more protection and more power in our financial system. This is not about stifling competition, stifling innovation; it’s just the opposite. With a dedicated agency setting ground rules and looking out for ordinary people in our financial system, we will empower consumers with clear and concise information when they’re making financial decisions. So instead of competing to offer confusing products, companies will compete the old-fashioned way, by offering better products. And that will mean more choices for consumers, more opportunities for businesses, and more stability in our financial system. And unless your business model depends on bilking people, there is little to fear from these new rules.

Number four, the last key component of reform. These Wall Street reforms will give shareholders new power in the financial system. They will get what we call a say on pay, a voice with respect to the salaries and bonuses awarded to top executives. And the SEC will have the authority to give shareholders more say in corporate elections, so that investors and pension holders have a stronger role in determining who manages the company in which they’ve placed their savings.

Now, Americans don’t begrudge anybody for success when that success is earned. But when we read in the past, and sometimes in the present, about enormous executive bonuses at firms — even as they’re relying on assistance from taxpayers or they’re taking huge risks that threaten the system as a whole or their company is doing badly — it offends our fundamental values.

Not only that, some of the salaries and bonuses that we’ve seen creates perverse incentives to take reckless risks that contributed to the crisis. It’s what helped lead to a relentless focus on a company’s next quarter, to the detriment of its next year or its next decade. And it led to a situation in which folks with the most to lose — stock and pension holders — had the least to say in the process. And that has to change.

Let me close by saying this. I have laid out a set of Wall Street reforms. These are reforms that would put an end to taxpayer bailouts; that would bring complex financial dealings out of the shadows; that would protect consumers; and that would give shareholders more power in the financial system. But let’s face it, we also need reform in Washington.  And the debate — the debate over these changes is a perfect example.

I mean, we have seen battalions of financial industry lobbyists descending on Capitol Hill, firms spending millions to influence the outcome of this debate. We’ve seen misleading arguments and attacks that are designed not to improve the bill but to weaken or to kill it. We’ve seen a bipartisan process buckle under the weight of these withering forces, even as we’ve produced a proposal that by all accounts is a commonsense, reasonable, non-ideological approach to target the root problems that led to the turmoil in our financial sector and ultimately in our entire economy.

So we’ve seen business as usual in Washington, but I believe we can and must put this kind of cynical politics aside. We’ve got to put an end to it. That’s why I’m here today. That’s why I’m here today.

And to those of you who are in the financial sector, let me say this, we will not always see eye to eye. We will not always agree. But that doesn’t mean that we’ve got to choose between two extremes. We do not have to choose between markets that are unfettered by even modest protections against crisis, or markets that are stymied by onerous rules that suppress enterprise and innovation. That is a false choice. And we need no more proof than the crisis that we’ve just been through.

You see, there has always been a tension between the desire to allow markets to function without interference and the absolute necessity of rules to prevent markets from falling out of kilter. But managing that tension, one that we’ve debated since the founding of this nation, is what has allowed our country to keep up with a changing world. For in taking up this debate, in figuring out how to apply well-worn principles with each new age, we ensure that we don’t tip too far one way or the other — that our democracy remains as dynamic and our economy remains as dynamic as it has in the past. So, yes, this debate can be contentious. It can be heated. But in the end it serves only to make our country stronger. It has allowed us to adapt and to thrive.

And I read a report recently that I think fairly illustrates this point. It’s from Time magazine. I’m going to quote: “Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed… would rivet upon their institutions what they considered a monstrous system… such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level.” That appeared in Time magazine in June of 1933.  The system that caused so much consternation, so much concern was the Federal Deposit Insurance Corporation, also known as the FDIC, an institution that has successfully secured the deposits of generations of Americans.

In the end, our system only works — our markets are only free — when there are basic safeguards that prevent abuse, that check excesses, that ensure that it is more profitable to play by the rules than to game the system. And that is what the reforms we’ve been proposing are designed to achieve — no more, no less. And because that is how we will ensure that our economy works for consumers, that it works for investors, and that it works for financial institutions — in other words, that it works for all of us — that’s why we’re working so hard to get this stuff passed.

This is the central lesson not only of this crisis but of our history. It’s what I said when I spoke here two years ago. Because ultimately, there is no dividing line between Main Street and Wall Street. We will rise or we will fall together as one nation.  And that is why I urge all of you to join me. I urge all of you to join me, to join those who are seeking to pass these commonsense reforms. And for those of you in the financial industry, I urge you to join me not only because it is in the interest of your industry, but also because it’s in the interest of your country.

Craig Mataczynski has joined Vulcan Power as CEO. Mataczynski is the former CEO of Renewable Energy Systems Americas.

Constellation Brands elected Jerry Fowden to its board . Fowden is CEO of Cott.

Intelligent Communication Enterprise has appointed Nelson Wu to its board as a non-executive director. Wu is the general manager of business development at Hin Leong Trading in Singapore.

Michael J. Somers was elected to the board of directors at Willis. Somers was formerly CEO of the Irish National Treasury Management Agency.

Central Garden & Pet named John Ranelli to its board of directors. Ranelli previously served as CEO and president of Mikasa.

ExpressJet Holdings named Thomas M. Hanley president and CEO. Hanley previously served in various executive positions for Wexford Capital.

William J. Amelio and William E. Mitchell have joined the board of directors at National Semiconductor. Amelio is a member of the Daylight Partners Group of investors; Mitchell is the former chairman and CEO of Arrow Electronics.

TIAA-CREF appointed Connie K. Weaver executive vice president, chief marketing and communications officer. Weaver was senior vice president, marketing and communications,  at The Hartford Financial Services Group.

Nancy Pierce was elected to the board at Zhone Technologies. Pierce currently serves as President and Managing Director of KELD, an investment management and strategic advisory firm.

Michael C. Smiley, CFO of Zebra Technologies, has joined Twin Disc’s board of directors.

Highlights of the SEC Guidance
The SEC guidance highlights four ways in which climate change may trigger disclosure obligations:

1. Impact of international climate change accords; Indirect consequences of climate change regulation or resulting business trends, such as (a) decreased demand for carbon-intensive goods and services related to carbon-based energy sources and a corresponding increased demand for goods and services with a low carbon footprint, (b) increased competition to develop innovative products, and (c) increased demand for alternative energy sources;
2. Physical impacts of climate change, such as (a) property damage and disruption to operations on coastlines as a result of rising sea levels or severe weather, (b) indirect financial and operational impacts from disruptions to operations of major customers or suppliers from severe weather, (c) decreased agricultural production in areas affected by weather-related changes, and (d) increased insurance claims, premiums and deductibles for public companies with facilities in areas subject to severe weather.

If material to a registrant’s business, disclosure of the foregoing potential impacts of climate change may be required under Regulation S-K, specifically Item 101 (description of business), Item 103 (legal proceedings), Item 303 (management discussion and analysis) or Item 503(c) (risk factors).

Implications of the SEC Guidance
Public companies should keep the following issues in mind in preparing their annual reports to shareholders, Form 10-Ks and other public filings.

• Consider both the risks and opportunities of climate change: Companies should not focus solely upon the risks of climate change, but also on the opportunities of climate change (such as sales of allowances in a cap and trade system or increased demand for products with a low carbon footprint).
• Consider both indirect and direct risks and opportunities of climate change: The SEC Guidance provides examples of direct climate change risks (such as potential physical impacts or costs to improve facilities) as well as indirect risks and opportunities (such as changing demand for certain goods and services or reputational harm).
• Resolve doubts concerning the materiality of climate change in favor of disclosure: Although the SEC Guidance does not alter the traditional standard of “materiality” — which requires disclosure if a reasonable investor would view the information as important in making an investment decision — doubts whether information is material should be resolved in favor of disclosure.
• Ensure that adequate disclosure controls and procedures are in place to evaluate the materiality of climate change issues: The SEC Guidance does not require public companies to disclose their carbon footprint, but management needs sufficient information concerning greenhouse gas emissions and related operational matters to evaluate the likelihood of a material effect. Therefore, companies must have adequate controls and procedures to process information potentially subject to disclosure. Such controls and procedures should already be in place for management to make required certifications under Sarbanes-Oxley, but disclosure committees should now add an assessment of the materiality of climate change issues to the company’s business.
• Reconcile voluntary and mandatory disclosure of climate change issues: Many public companies voluntarily disclose information regarding their greenhouse gas emissions and climate change risk in corporate sustainability reports and various greenhouse gas reporting programs, such as the Climate Registry, the Carbon Disclosure Project and the Global Reporting Initiative. Companies should ensure that any mandatory SEC disclosure is consistent with prior voluntary disclosure or be prepared to explain any differences.

Richard M. Schwartz is a litigation partner and head of the environmental practice group in the New York office of Fried, Frank, Harris, Shriver & Jacobson LLP. Donna Mussio is a senior associate in the environmental practice group. Coleman Kennedy, an associate in the environmental practice group, also contributed to the preparation of this article.

Ultralife has named Brigadier General, U.S. Army (Retired) Steven M. Anderson to its board. Anderson has more than 31 years of experience in U.S. Department of Defense operations.

Peter Frank has been named to the board at Viasystems. Frank is currently the president of GSC.

EDA Consortium elected six people to its board. Edmund Cheng, Dane Collins, Aart de Geus, John Kibarian, Alex Shubat and Ravi Subramanian all joined the board.

Weikang Bio-Technology has appointed Yvonne Zhang, Yilun Jin, Allen Zhang and Yan Huang to its board.

Generac elected David Ramon to its board. Ramon, formerly president and CEO of USA.NET, will serve on the audit committee.

ARIAD Pharmaceuticals named Robert Whelan Jr. to its board of directors. Whelan was a Fellow at the Harvard University Advanced Leadership Initiative from 2008-2009.

Julie England, former vice president and general manager of RFID at Texas Instruments, joined the board of directors at Intelleflex.

RailAmerica appointed Ray M. Robinson and John E. Giles to its board. Robinson is a former AT&T executive and Giles is RailAmerica’s president and CEO.

Sheli Z. Rosenberg was recently named to General Growth Properties’ board of directors. Rosenberg is the former president, CEO and vice chair of Equity Group Investments.

Conseco elected David K. Zwiener to its board of directors. Most recently,  Zwiener was CFO at Wachovia.

The sophistication of the perpetrators behind these and similar incidents has propelled the data security issue beyond the IT realm into the boardroom. Directors and officers must now make it their business to understand what information their com-pany holds, where it is located and how it is protected. Boards need to analyze the potential impact a breach could have on the organization, be part of the effort to design and implement a far-reaching program to prevent breaches and prepare the organization to respond properly if one occurs.

Navigating the Regulatory Environment
Responding to regulatory changes can be among the most complex pieces of the puzzle. Numerous federal and state regulations pertaining to data privacy and security have been enacted and more are in the pipeline. For companies that don’t keep pace with the fast-moving regulatory environment, it’s a minefield of rules that could erupt in fines, penalties—and substantial liability for your organization and its management. A sampling of recent regulatory standards follows:

• The Health Information Technology for Economic and Clinical Health Act
  A provision to the economic stimulus bill, the HITECH Act expands the privacy and security regulations of the Health Insurance Portability and Accountability Act (HIPAA) beyond the healthcare industry and health insurers to any business performing activities involving Protected Healthcare Information

• Payment Card Industry Data Security Standard
  Created by credit card associations to combat fraud, PCI-DSS requires all those in a card transaction stream, including merchants, processors, and acquiring banks, to implement controls to protect credit card data.

• The Federal Trade Commission (FTC) Red Flags Rule
  This rule requires creditors to implement a program that identifies and detects warning signs of identity theft before extending credit to customers.

• Massachusetts 201 CMR 17
  Some 45 states currently require companies to notify those affected by a data breach as soon as practicable. Massachusetts enacted the most sweeping state mandate to date, requiring any businesses handling personal information of state residents to proactively develop, execute and maintain a program to protect this information.

More than a Policy
Since traditional insurance typically does not respond to data security and privacy events, boards need to be proactive in ensuring that a comprehensive approach to mitigating breach exposures includes insurance.

Privacy and security liability insurance should expressly address both first-party and third-party costs associated with a breach incident. It should be underwritten by a carrier with relevant experience in the line and in-house IT specialists who speak the language of your company’s own data security team. Other important facets to look for in coverage include:

• A broad definition of “covered information,” including not only the personal and private information of individuals but confidential corporate data;

• Coverage for legal liability damages and defense costs, as well as regulatory actions, fines and penalties (as permissible by law); and

• Coverage for the myriad costs a company will incur to manage an incident. Also ask about coverage to notify victims in those few states that do not currently have breach notification laws; while not required, the gesture can create goodwill and keep incidents from escalating.

Once a proper plan and insurance are in place, sound corporate governance requires that you stay closely attuned to data security risk. If the data security issue is not handled properly, the stakes can be high, including directors, officers and corporate liability, exorbitant fines and penalties and damage to your company’s reputation. With policies and procedures to prevent and respond to incidents, broad-based insurance and ongoing monitoring of the risk and regulatory environment, your board can be confident that this governance duty is prudently addressed.

Mark Camillo is vice president of professional liability at Chartis. The views and opinions expressed herein are those of the author and do not necessarily reflect those of Chartis Inc. or its subsidiaries, business units or affiliates.

What has changed, dramatically, is the steady spotlight on compensation. In the current environment, companies are subjected to intense scrutiny:  by regulators, by the press and of course, by shareholder groups, who will increasingly have input on issues once the business of the board only. Nonetheless, companies must still vie for the best CEOs.

Everyone—candidates for CEO jobs included—realizes that the game has changed significantly when it comes to attracting top talent in a cost-constrained, highly sensitive environment. And no one, on the giving or the receiving end, wants to be in the position of defending a pay package that attracts the wrong kind of    attention. That does not mean, however, that companies will have to recruit less-than-ideal executives for the crucial top spot, nor does it mean the executives who are tapped for these ever-demanding positions will have to settle for less than they deserve. Both sides must recognize that the ground rules have changed and adjust accordingly.

Job one is finding the best possible CEO candidate through a rigorous and systematic search process. This is no time to lower expectations or requirements. As always, the board should start with the strategy of the company and determine the skills, experience and specific competencies required in the next CEO to ensure the success of the strategy.

When closing in on the best candidate for the position, it is advisable to candidly address compensation package-related issues with the individual. A number of features that were previously fixtures in CEO packages, including perks such as chauffeurs, bodyguards, club memberships and personal travel in corporate jets, are no longer acceptable. This will be no surprise even for candidates who may be leaving positions where these features are still in effect.

The board doing the hiring and the CEO being recruited will most likely agree to leave some traditional, commonly accepted practices behind, including many severance provisions which, while not forbidden outright, are now far more difficult to get compensation committees to approve. They represent a “red flag” and may make the company vulnerable to damaging criticism.

Clearly, there is a delicate balance to maintain when constructing a compensation package for a new CEO: one that is generous enough to attract the best candidate, yet is in tune with currently accepted practices and does not raise objections among influential and vocal groups. Given the fact that the board or compensation committee must be able to justify all elements of compensation packages, one increasingly acceptable way to structure compensation is with a strong pay-for-performance orientation. Particularly in the case of a new CEO, this approach is perceived as fair to all sides. Assuming the CEO delivers above-market performance for above-market compensation, there is more likely to be broad understanding and acceptance.

Boards simply cannot afford to be myopic when assembling compensation packages to attract CEOs. Boards have to be acutely aware of how compensation will be viewed from a distance, recognizing what is off the table and what is now considered acceptable. With thought and proper planning, boards will still be able to attract the best CEOs, even in a cost-constrained environment.

Nels Olson is managing director, Eastern Region, for Korn/Ferry International and senior client partner with the Board & CEO Services practice.