Delaware Court of Chancery
The new chief judge of the Delaware Court of Chancery is, like his predecessors, expected to adhere to tradition. “The court’s role is traditional,” Leo E. Strine Jr. told a New York Times reporter in June shortly after he was sworn in as chancellor of the most powerful business court in the United States. “The core concept of the Delaware court is, what are the fiduciary duties that directors owe to shareholders? Markets are dynamic, the core concept is constant.”

Strine is the 21st chancellor since the court was established in Delaware in 1792 to provide a more balanced judgment for equity cases than less-sophisticated common-law courts—previously the state’s only alternative to its courts of statutory law. (Common plea and equity courts apply principles, while statutory courts apply laws.) Today, Delaware’s Court of Chancery is a rarity. All states have courts of law, but only a few—Arkansas, Delaware, Mississippi, New Jersey and Tennessee— have chancery courts as well.

No other state court impacts business law to such a profound degree. While Delaware’s size is disproportionate to its dominance of American business law, in fact, Delaware was a latterday convert to the chancery model. Other states formed equity courts in the pre-Revolutionary period under the supervision of royal governors, which later led to questions about their independence. Delaware’s timing just three years after ratification of the U.S. Constitution and the election of President George Washington assured that its court would be seen as independent, and it thrived while other chancery courts were abandoned. As a result, the Delaware Chancery Court is based on a unique body of law dating back 200 or more years in corporate dealings and disputes. For other states looking longingly at Delaware’s dominance in business law, there appears to be no catching up.

Prior to being confirmed as chancellor, Strine had served as a vice chancellor since 1998. He graduated magna cum laude from the University of Pennsylvania Law School, and received his bachelor’s degree summa cum laude from the University of Delaware.

The NACD Directorship 100:

Introduction

Directors and Officers

Corporate Governance Hall of Fame Class of 2011

NACD 2011 Public Company Director of the Year and B. Kenneth West Lifetime Achievement Award Winners

People to Watch

Sam Glasscock III was sworn in as vice chancellor in August after having served as master in chancery for 12 years. Glasscock was appointed to fill the vacancy created by the ascension of Strine to chancellor. He received a BA in history from the University of Delaware in 1979, a JD from Duke University in 1983 and a master’s degree in marine policy from the University of Delaware in 1989.

J. Travis Laster was sworn in as vice chancellor in 2009. Laster received his AB summa cum laude from Princeton University and his JD and MA from the University of Virginia, where he served on the Virginia Law Review and was a member of the Order of the Coif.

Donald F. Parsons became a vice chancellor in 2003. He is a 1977 graduate of the Georgetown University Law Center and received a BS in electrical engineering from Lehigh University.

A vice chancellor since 2000, John W. Noble holds a BS magna cum laude in chemical engineering from Bucknell University and a JD cum laude from the University of Pennsylvania Law School. He served as a federal district court law clerk and then practiced with Parkowski, Noble & Guerke in Dover, Del.

The Delaware Supreme Court
Like the Chancery Court, the Delaware Supreme Court has a worldwide reputation for rendering concise opinions concerning corporate law, which generally (but not always) grant broad discretion to corporate boards of directors and officers. The Supreme Court consists of a chief justice and four justices who are nominated by the governor and confirmed by the Delaware State Senate. Justices are appointed for 12-year terms. Myron T. Steele is the seventh Chief Justice of the Delaware Supreme Court. His term ends May 26, 2016. He presides with Justices Carolyn Berger (July 2018), Randy J. Holland (May 27, 2023), Jack B. Jacobs (June 4, 2015) and Henry duPont Ridgely (July 22, 2016).

Before his appointment as Chief Justice, Steele was a Supreme Court Justice from 2000 to 2004 and a vice chancellor of the Court of Chancery from 1994 to 2000. Steele graduated from the University of Virginia (BA, foreign affairs, 1967) and the University of Virginia School of Law (JD, 1970; LLM, 2005). He served on active duty in the U.S. Army and retired as a colonel in the Delaware Army National Guard. Before being appointed to the bench, he was a litigation partner in Prickett, Jones & Elliott of Wilmington and Dover. He also served as outside counsel, director and chairman of the Central Delaware Health Care Corp. In addition to his judicial activities, Steele has been appointed to the Judicial Conference Committee on Federal-State Jurisdiction by U.S. Supreme Court Chief Justice John Roberts.

To register for the NACD Directorship 100 gala dinner and forum, please click here.

In assessing the current environment, Niederauer said that right now it “feels like the guns are pointed to all of us who do business,” when actually most of the “bad actors” of the financial crisis actually came from “a small percentage” of listed firms.

Niederauer’s talk focused on the financial crisis, and how companies can get themselves on the “right track.” Despite healthier balance sheets, an attractive interest rate environment, and “no near-term risk of inflation,” it’s been a fragile recovery, and the markets have not responded as anticipated. According to Niederauer, this is due to a “high and sticky” unemployment rate, and policy uncertainty. He hopes the upcoming midterm elections will bring about a remedy.

Niederauer stressed job creation as the key to an economic recovery. To promote this, he encouraged businesses to focus on three areas:

1. Well-functioning capital markets
2. Access to affordable capital
3. “Remembering what made this country great”

The discussion was concluded with a review of NYSE’s commitment to corporate governance.

On May 6th, how did your day start, and how did it end?
I got back from a three-day trip to the West Coast very late the night of May 5th, and May 6th was a pretty normal day until about 2:30. I was in a meeting and my assistant slipped me a note very calmly that read: “The market’s down just over 1,000. The first circuit breakers are about to be hit.” I calmly got up and walked over to my desk, and in the short time it took me to get from my chair to behind my desk, the market was now down 600. It was obvious something had happened. Jim Cramer, a friend of mine, had reported on the news that it must have been a technology problem at the NYSE, because the most noticeable evidence was in NYSE stocks. Let’s just say that I did not expect, even at 2:30, to end the day by appearing on CNBC with Maria [Bartiromo] and explaining what I thought had happened, and that we hadn’t had any technology issues.

Is it a one-off, or is it something we can prevent?
I wish I could tell all of you that someone meant to sell 10 million and sold 10 billion and it was the so-called “fat finger” trade. It wasn’t. It exposed a weakness in market structure in the United States that is really a direct result of the fragmented markets that we’ve lived with for a while. That’s not a pitch from us to have our monopoly status reinstated. Competition is here to stay. But we believe that having speed bumps in the market in times of aberrant volatility is right. It’s been a part of our market. No one is going to convince me to take it out because I think it’s the right thing for issuers and investors.

Tell us about the impact of more government regulation and involvement in business, and what’s going to be our relationship to risk taking going forward?
The challenge is if you go back a couple of years, the issues were limited to the financial services industry. Do they need to be governed slightly differently, or do they need a risk committee? I would go to Washington and ask, why am I supposed to go around to the other 99.5 percent of the companies that did absolutely nothing wrong, and say to them, “even though you did nothing wrong, Washington has decided you need to govern your companies in a different way”? It’s completely inappropriate. We could come up with all the anecdotes that we want, but if the government wants to get more involved, that’s fine. I’m all for some of the reforms, such as a central clearing of over-the-counter derivatives and other opaque instruments. If we want to federalize the boardroom, however, I’m not for that. None of us should be. I think we have to fight that pretty hard.

Can you give us some insight, either in your days as a banker or as the CEO of the NYSE Euronext, what should CEOs be doing and thinking about in regard to their own compensation?
Look, I was a rookie CEO when I got this job. My view on this was pretty simple. I felt that the executive team’s compensation was not aligned properly with the shareholder. So first, we put metrics around the bonus. We made more of the bonus long-term stock and we set up a long-term incentive plan that the earliest you get the stock is three years out. Our view was that if most of the executive team’s compensation is in long-dated stock that got us closer to the target. Secondly, we disclosed in our proxy our compensation philosophy, how it works, and how we derive the bonus pool—way more information than we’ve ever given before.

Speaking of getting closer to home, can you tell us about your board?
We had to go from not being nearly independent enough to where we made sure no one would ever question us about that again. So we went to the
other end of the spectrum, where everybody had to be totally independent. I’ll just give you a list of the people who were disqualified for potential conflict: anyone who works in the industry and any sitting executive of a publicly listed company—NYSE or Nasdaq. That rules out an awful lot of qualified people. Is our board terrific? Yes. But I’m not even
allowed to talk to 10,000 really qualified people about being on the board until I can try to get that rule changed. The other mistake we made—and look, hindsight’s 20/20—is that we moved no people off the board when we merged with Euronext in 2007, and both boards were a CEO plus 10. When I got this job, I inherited a 22-person board. Just think about trying to manage a public company with a 22-person board.
Now the board is down to 16. We’ve had some good turnover. Our business has gotten a lot more complicated. And if you get too independent, the danger is that you don’t have people who are really close enough to what you’re trying to accomplish. You want people who can challenge, challenge, challenge.

Is this a tough period to be a CEO? Does the anti-business sentiment get to you?
I think I have one of the best jobs in the world, so I wake up every morning at five o’clock, and I can’t wait to get to work. I grew up having my dad teach me, that’s the American dream, and now some people want to say, “Well, it’s not the American dream anymore.” My view is no one’s going to take that away from me and no one should take it away from anyone in this room. A lot of us are self-made. We should be proud of that. Look back in history, folks. Revlon and Hewlett-Packard started in the depression. Companies like Microsoft and Intel started in a recession. That’s where the job creations come from at every recovery in this country, and yet, you haven’t seen one piece of legislation that encourages that. You haven’t seen the banks really step up and lend money to these institutions. I think that’s the bigger issue than is it a tough time to be a CEO. I mean, I think I’m one of the luckiest people that I know.

The role of corporate directors will be extremely important to restoring trust and protecting average investors in the post-crisis period. Transparency and accountability are more important than ever before. Board directors must invest a substantial amount of time to discussing and assessing various risks throughout the company. Directors must understand and deliberate on the company’s corporate strategy and medium to long-term goals. Furthermore, directors should be proactive about meeting a diverse group of employees and clients to get a complete understanding of what is going on within the company.

As we reassess aspects of corporate governance, we must emphasize the dangers of an over-reliance on short term profits, which often leads to too much risk-taking. An over-emphasis on producing short-term profits is at least partly responsible for getting us into the crisis. Short-term focus caused many firms to lever themselves to unprecedented levels, play speculatively in complex financial instruments and become less sensitive to risk-taking in general.

Managers and directors must think beyond quarterly earnings and balance the demand for visible short-term success with long-term value creation. A lot of money can be made or lost in an instant in today’s sophisticated financial market place. There is nothing wrong with that in principle: Short-term gains can spur long-term value. The problem occurs when long-term investment decisions are sacrificed in favor of short-term gains. Short-term goals should never loose sight of long-term strategy, and companies and their boards should work together to articulate and communicate their long-term vision.

Also, compensation practices should be aligned with long-term performance. We believe executive compensation is not something that should be legislated but instead is the responsibility of the full board of directors (and more specifically, the board’s independent compensation committees) who have fiduciary duties to represent the interests of shareholders.

There have been many proposals floated in Washington recently with regard to corporate governance reform. We think it is important to keep in mind that the financial crisis was not caused by a failure of corporate governance, and as we strive to learn the lessons of 2008 and fix what failed, we should avoid over-reacting and adopting a one-size-fits-all approach. Federalization of corporate governance is not the answer. Managers need sufficient flexibility to run their companies, and neither investors nor directors want the same set of detailed rules to apply across the board. For instance, a chairman/CEO split does not make sense for all companies and not all companies need a risk committee.

We have found that many of our listed companies are very concerned about federal legislation reaching too far into the boardroom. As a result, we have launched a new advisory commission to demonstrate that there can be private-sector alternatives to federal legislation. Last fall, we announced the formation of an independent commission to examine U.S. corporate governance and the proxy process. This commission is taking a comprehensive look at strengthening U.S. best practices for corporate governance. We will look forward to reporting the results of their hard work.
For directors new to your roles, congratulations, and I hope to meet you at the New Directors’ Summit on June 7th at the Exchange.

To meet Duncan Niederauer, the CEO and a director of NYSE Euronext, at The New Director Summit on June 7th at the NYSE, please email events@directorship.com.

ADDITIONAL COVERAGE IN THE BOARDROOM GUIDE FOR THE NEW DIRECTOR:

• An Orientation for New Directors
• Performance and Pay Alignment: A Top Priority for Compensation Committees
• A Renaissance in Succession Planning and Board Recruiting
• Congratulations, You’re the Audit Commitee Chair. Now What?

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.