Ed Breen (photos by David Nicholas/Longview)

“People don’t understand the effort directors have to put in. We continually educate ourselves, we are extremely involved in our companies that we’re on the boards of, and it’s just great that you’re doing this on behalf of your companies,” said Edward D. Breen, Tyco chairman and CEO, who was the keynote speaker at the D100 tribute dinner. “It’s amazing all the critics that we have against the business community the last couple of years, and it’s been building and building. If they saw the work we’re doing here and in the boardroom, they’d have a different opinion of Corporate America.”

Breen is no stranger to widespread criticism, joining Tyco in July 2002, as the stock price was plummeting, former executives were being marched off to prison for stealing from the company, and employee morale was virtually nonexistent. Breen was tasked with leading Tyco’s recovery. “You’ll always have these defining moments when you’re in a company, and it’s usually the big events that are the defining moments,” he explained.

Indeed, making the best of defining moments was a common theme among forum speakers and attendees alike. With virtually every company in the country still reeling from the financial crisis, and aiming a weary eye toward the snowballing European sovereign debt crisis, many boards are seeking to learn from the previous few years and shore up their companies to better withstand what may be waiting in the wings. Of the varied sources of success, one thing was clear: boards must collaborate, utilizing all members’ strengths, individual skills and experiences, to bring about the most effective change.

Rehabilitating HealthSouth

Jon F. Hanson

Carrying on in a highly critical environment was exactly what B. Kenneth West Award Winner Jon F. Hanson faced when he took the helm of the HealthSouth board. At the time, the rehabilitation hospital operator was making front-page headlines for overstating earnings, resulting in five of its former CFOs pleading guilty to criminal fraud charges. Hanson noted that some of the keys to leading his company’s turnaround included establishing a non-executive chairman, rotating committee chairs and establishing term limits. The award’s namesake was called in during HealthSouth’s crisis as an advisor; West instructed Hanson to have the “courage to encourage.”

Hanson was joined onstage by HealthSouth CEO Jay Grinney for a panel titled “Board/C-Suite Relations: Working Together for Shareowner Value,” underscoring to attendees that a united leadership does not necessarily stem from having the same person in the chair and CEO roles. “I think that paradigm is shifting,” Grinney said. “I suspect that the next generations of CEOs will be more collaborative, and we’ll see more companies moving down this road of separating the roles. It’s very hard to take it away from somebody once they’ve got it,” so the change is more likely to come as current CEOs retire or move on to new positions.

While Grinney and Hanson emphasized clear and open communication as one of the essentials for their success, this was also cited as necessary when addressing say-on-pay programs, successful M&A ventures and strategic planning.

A Salute to the Director of the Year

Jenne K. Britell

When United Rentals CEO Michael Kneeland introduced Jenne K. Britell, NACD’s Director of the Year, he described her as “intense” and a “master with a pen.” He said that when he pictures Britell’s leadership style, he sees her emphasizing the tone at the top “with a safety vest on and a hard hat under her arm, with a big smile on her face, because she walks around and she really engages our employees.”

Britell, who is chairman of the United Rentals board, makes it a practice to get into the field as part of her board service. “As we all know, it has become very convenient to disparage public companies, their boards and their leadership. As the stewards of good governance, we must respect that, but we all must also carry on,” she said. “Directors understand the need to face the cogent issues of the day while staying true to the core values of good governance.”

Directors need to keep these core values in mind while expanding their realm to include social responsibility issues. She cited fellow board director Dick Parsons and other colleagues for creating “the right environment” as being key to her success in the boardroom.

Value vs. Responsibility
Particular attention should be paid to the effects company operations have on surrounding communities. Veronica (Ronee) Hagen, a director at Newmont Mining, worked with the company’s independent work group to establish corporate social responsibility standards. “I’ll never forget the first meeting where we sat there with the NGOs, the work group and the board, and we’re all looking at each other like we don’t know where this is going, this is pretty scary, but it’s something that needs to be done,” Hagen said, noting that once the group found its footing they were able to make a difference. “I think that certainly this kind of transparency, this kind of dialogue, was really enlightening for the management, for the NGOs and certainly for the board. A lot of practices improved. It doesn’t solve everything overnight, it is huge amounts of work, but I think that it really brought the company through a very difficult time to a much better place.”

(From left) Mark Preisinger, Anne Sheehan, Veronica Hagen and Ron James

“For a long time it was believed that we in business faced a really stark trade-off between shareowner value and social responsibility. All of us sitting up here today are aligned in our belief that that was a false choice all along,” said Coca-Cola Director of Corporate Governance Mark Preisinger.

“Companies need to structure themselves in the most appropriate way for their operations,” said Anne Sheehan, CalSTRS’s director of Corporate Governance, during the forum’s panel on strategy and sustainability. “So we don’t want to dictate to them [that] they need to be structured this way, but rather that the board take on that responsibility on our behalf, making sure they’re overseeing the implementation and management is carrying out these responsibilities for us.”

The High Cost of Pay
Boards must take care to ensure their compensation plans are justifiable to shareholders, particularly in situations where pay may seem high to an outsider. Beth Bronner faced just this scenario as compensation committee chair at Assurant, where the company needed to retain its head of HR to weather an SEC investigation.

Jon Lukomnik (left), Beth Bonner, Steven Hall and Leo Higdon

“We did it in a way where we were totally transparent at the end of the day in the CD&A. This person had postponed her retirement to stay. So at the appropriate time, with her retirement, it was important to reward her. It was important to do it in a way that met guidelines,” Bronner explained.

Before Betting the Farm
As business has seen such major bet-the-farm deals in the past decades as the AOL Time Warner or Sprint/Nextel mergers, many are well aware of the risks of participating in an unsuccessful merger or acquisition deal. A group of M&A advisors and directors who had been through such events discussed best practices in ensuring a smooth process. “We’re seeing through the past several years very large-capital companies moving to make major acquisitions. You saw Pfizer do it right in the midst of the crisis, buying Wyeth. There have been many, many follow-up deals that have occurred around that. Every company in the health care sector had to say, ‘Am I a buy or a sell, or am I okay standing still?’” said Paul Parker, Investment Banking Executive Committee chairman and head of Global M&A at Barclays Capital.

Jeff Cunningham (left), Paul Parker, Dave Dorman and William McGuinness

Added CVS/Caremark Board Chairman Dave Dorman, “The boards I’m on, we generally have been insistent that management provide a strategic context that is living and ongoing whether a deal is imminent, almost as exactly as Paul described,” where the company would have an ongoing valuation process that includes educating the board on where the company stands in relation to its peer group and whether it is a private equity target. He also noted the value of bringing directors from both companies onto the board in a merger, as occurred with CVS/Caremark, to help maintain experienced perspectives from both sides of the transaction.

“On the M&A horizon right now, the most activity is on how to address risk,” said William McGuinness, chair of the litigation department at Fried Frank. “I think this is a period of a lot of opportunity.” One notable development McGuinness cited was the evolution of the reverse breakup fee, where a seller receives a payment because the buyer is unable to close the deal. “It’s a recognition that the downside risks of the failed transaction to a selling company are potentially enormous,” he said. Also in flux is the definition of material adverse changes (MAC), and the development of the “deemed MAC” which expands the rights to back away form a deal to include, for example, commodities cost changes.

Directors must keep a pulse on M&A trends regardless of whether they predict involvement in a transaction as a form of protection in the event a deal does turn sour. “The question is did you do the best thing under the circumstances to achieve the highest value. That’s the correct test,” said McGuinness.

“As in everything in business the answer is, it depends,” observed NACD Managing Director and Senior Advisor Jeffrey M. Cunningham, who moderated the panel.

The Face of Global Risk
While each company must decide what works best for its situation, the forum offered key takeaways that can apply throughout the business world. One came from Stuart M. Grant, co-founder and managing director of Grant & Eisenhofer, who reminded attendees of the need to focus on the future. “We’re always reacting to yesterday’s crisis, a crisis hopefully that continues to happen someplace somewhere else and not our institution,” he said.

David Kistenbroker (left), Hon. Mary Bush, Laura Stein and Stuart M. Grant

Fellow panelist Laura Stein had a similar wide-reaching view of the risk environment: “We want to make sure that every director is well aware of what we identify as our top ten key risks, and knows how we perceive those risks.” Having a separate risk committee from the audit committee, or having the whole board oversee risk, is a decision that should be made by each company given their size and industry.

Controlling the Narrative
Blockbuster Director Gary Fernandes, United Rentals Chairman Britell, Levick Strategic Communications CEO Richard S. Levick and Paul Weiss Chairman Brad Karp offered attendees advice from past experiences or advisory roles on handling problematic situations in the session “Turnaround: Dealing with Distress.”

Brad Karp (left) Gary Fernandes, Jenne K. Britell and Richard Levick

Early preparation, before a crisis is even on the horizon, is essential for a successful turnaround, explained Levick, who says clients often ask him, “We’re in the boxing ring and I’ve only prepared for the ballet—how do I win this fight?”

Karp noted that companies need to be ready to jump into the ring: “In today’s world of rapidly evolving technology, entire industries can face obstacles at a moment’s notice, and industry conditions can change without warning.”

A solid social media monitoring and response team can both anticipate and mitigate problems as they begin to germinate, rather than when they go viral. Levick compared the responses of Bank of America to its WikiLeaks threat and Taco Bell to a suit claiming the fast-food chain used drastically subpar meat products. Taco Bell flooded major markets with advertising asserting the validity of its recipes, while Bank of America chose to prepare teams to respond once WikiLeaks unleashed its information.

“It is not about us responding with particularity. For those of you who still use the term ‘spin,’ you might as well use it as often as you use the term ‘buggy whip.’ This is not about spin; it is about how we control the narrative,” Levick said. “We need to be thinking differently.”

Going Deep to Avert Risk
Mary Pat McCarthy, executive director of the KPMG Audit Committee Institute and vice chair of KPMG LLP U.S., advised audit committees to pay more attention to IT and data opportunities and risks. “It used to be you knew which companies were technology companies and they sold hardware or licensed software,” McCarthy said. “Now, arguably every company is a technology company.”

Pat McCarthy (left) Ann C. Berzin, W. Neil Eggleston and Patricia Russo

Constellation Energy Group faced a crisis in the fall of 2008 that unfolded in mere hours, Ann C. Berzin, a member of its audit committee, recalled during the panel “Uncertainty, Volatility and the Risk Agenda,” but sometimes, she said, “the best way to make a change is to be standing on the burning bridge.”

“If you go through board meeting after board meeting and you’re hearing from the CEO, CFO, the general counsel, the COO, you are not penetrating the organization and you will not learn a descending view. You won’t really get much beyond a fairly high level, and high levels aren’t where your problems are going to come from,” explained Debevoise & Plimpton Partner W. Neil Eggleston. “Figure out ways to penetrate further into the organization.”

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

Strategic Questions

• Do I belong on this board?
• Do I really want to be associated with this company/management?
• Is the company’s indemnification clause as good as it can be?
• Am I doing everything that a good, diligent director should do?
• How much D&O is the right amount for this company?
• Will asking questions about D&O be considered hostile?

Technical Questions

• Under what circumstances are personal assets exposed?
• Are there other “bundled” covers that could drain the D&O coverage away from the directors?
• Do I lose coverage when accused of a bad act or only when convicted of a bad act?
• Does the Side A coverage include a DIC provision?
• When does my D&O policy get triggered?
• Will a financial restatement impact the coverage in any way?
• What is the quality of the underwriting carriers?
• Will the coverage be available to the directors in the event of bankruptcy?
• What is my exposure if another director or an officer of the company is accused or convicted of fraud? Is there a severability provision?
• What changes in coverage take place when a company does an IPO? Is new coverage required at that time?
• Is there coverage for foreign operations?
• What is the right deductible?
• Does the cover include the right to buy a “tail” if the policy is not renewed?

The Response to Presby’s Questions
Should a director consider board service for a company that does not provide insurance coverage? Most would not consider it for fear that their personal assets would be put at risk. Some believe that the existence of insurance attracts litigation—a subject for a different story—but most directors of public companies today are simply not willing to accept that chance.

To take some of the guesswork out of how the questions developed by J. Thomas Presby should be answered, NACD Directorship sat down with Louis Lucullo, an executive vice president in the Executive Liability division at Chartis, for a fast-paced game akin to “Twenty Questions.”

ADDITIONAL STORIES IN THE DIRECTOR’S GUIDE TO LIABILITY:
Risks Rising
Litigation 101: You’ve Been Sued. Now What?
Avoiding the “F” Word: How Your External Auditor Can Help You Avoid Fraud
The D&O Glossary: Litigation Terminology Every Director Should Know

Lucullo recommends that before an executive considers joining a board she review the company’s bylaws and that an insurance provider be analyzed for its ability to pay claims.

To assess the quality of the insurance carrier, the best measurable for directors is the policyholder surplus, which for an insurance company, is its assets minus liabilities. What needs to be determined is whether the insurer has the wherewithal to sustain future catastrophic losses.

“Too often that’s a forgotten analysis by directors,” Lucullo says. One way to make such an assessment is to check with ratings agencies such as A.M. Best.

Also find out if the insurer has an effective claims process and a favorable approach to claims resolutions by asking other directors.

How much D&O insurance is the right amount? Typically either third-party consultants or the insurance broker should detail for the board what their peers typically buy.
The peer group can be based on a company’s direct competitors, size of its employee base or market cap. This allows the board to assess its own purchase decision.

Under what circumstances would a director’s personal assets be exposed? This is why so-called Side A coverage has become so popular. A feature built into a new insurance product recently launched by Chartis called Executive Edge goes a step further by advancing defense costs for covered loss when the the company fails or refuses to indemnify the executive for any reason. It’s important that directors review the order-of-payment clause in a policy to ensure that the corporation is paid after the officer and directors in the event of loss.

Will coverage be available if the company is insolvent? “The filing of bankruptcy does not in itself trigger an end to coverage. In fact, the policy should contain as part of the definition of an insured ‘the debtor in possession of the named corporation,’ which is what the company becomes when bankruptcy protection is filed for,” Lucullo explains.

Upon an emergence from bankruptcy, typically there’s a change in control that typically ceases coverage and converts the policy into what is called “runoff” or “tail” and claims have to allege a wrongful act before that date to be considered for coverage.

What is my exposure in the event another officer is convicted of fraud? This question introduces the concept of severability and whether the actions of one adversely affect the actions of another. The conduct exclusions in a D&O policy should be fully severable and should not have an impact on any executive who did not commit any fraud. Directors all share the limit, but new policies have gone out of the way to ensure that individuals are not adversely affecting other directors as much as they used to.

Another feature in Chartis’ Executive Edge policy is a claim cooperation clause that also is fully severable.

“Part of the requirement when there is a claim against you is that you cooperate,” Lucullo says, “and if you didn’t cooperate, we would have the right to deny the claim. Now, under this new policy, one’s action in not cooperating with the claims investigation does not affect the coverage of others under that policy.”

Does Excess Side A coverage include a DIC provision? Excess Side A coverage should always include a Difference in Conditions (DIC) provision, Lucullo says. If the underlying primary policy does not pay the Side A loss, the Excess Side A policy with a DIC feature would, under certain circumstances, drop down and pay the loss.

Will a financial restatement affect coverage? If fraud or criminal conduct is an element of the financial restatement, coverage could be at issue.

“Directors should look for Side A non-rescindable coverage—the insurance company cannot rescind A-side coverage, Lucullo explains. It should be obtained on both the A, B, C tower as well as the A-side DIC tower. Directors should also review conduct exclusions, which prevent the insurer from providing coverage in the event of fraud or a criminal act. Those exclusions, he points out, should be fully severable.

For example, if there is a financial restatement based on fraud there’s potential that a conduct exclusion is applied and insurance is knocked out for those individuals involved in the fraudulent activity. The corporation could also lose coverage based on the actions of certain individuals.

The bottom line is that it’s “important for directors to understand how their D&O policy works when the actions of another executive are at issue.”

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

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.