So here’s my list of “tipping points” in board history—one for every year of service. Of course, it’s tempting to list the many accomplishments of NACD’s many illustrious board members, chapter leaders, and dedicated employees past and present—shout outs to great leaders John Nash, Roger Raber, and Ken Daly—and those who served in interim periods—but I’ll keep this list general. I’ll also resist the temptation—well, maybe not—to tell you a little more about me—in particular about a day in my life in 1978, when I worked briefly at my father’s publication, Directors & Boards. (This was before the visionary Rock family acquired it and the most excellent editor Jim Kristie took the helm.) On that fateful day, a colleague and I decided to spice up our Monday by tracking down Susan Sontag, a famous female intellectual of the era, to see if she might want to write us a little think piece on corporate boards. “Boards?” she responded incredulously. “Boards?” she repeated, adding “How dreadful!” She clearly believed that boards were boring!

Was Ms. Sontag right? Let’s take a journey through time, and you can decide for yourself. Here are 25 top headlines for governance—starting just a bit before my time but continuing to present.  

1977: The National Association of Corporate Directors (NACD) launches association and publication. NACD, founded by directors and headed by John Nash for its first 20 years, gave corporate directors an unprecedented way to obtain board-focused education and research, and to engage in networking and advocacy. In its first year the Association faced a significant challenge: implementation of the Foreign Corrupt Practices Act of 1977, which required boards to oversee internal financial controls. That same year, the New York Stock Exchange (NYSE) required its listed companies to have independent audit committees. During NACD’s earliest days, the Securities and Exchange Commission (SEC) was headed by the wise Harold M. Williams, who urged directors to take the lead in governance reforms.

1981: Ira M. Millstein wrote The Limits of Corporate Power (McMillan). This book, explaining such subjects as the duties of loyalty and care, would be the first of many influential Millstein publications.

1982: Martin Lipton invents a new kind of shareholder rights plan – the “poison pill.” This controversial mechanism allowed boards to buy time when facing an unsolicited takeover.

1983: Agency theory comes of age through Michael Jensen’s article on “The Separation of Ownership and Control” (Journal of Law and Economics). This article brought awareness of the issue first raised in 1932 by Adolf Berle and Gardiner Means in The Modern Corporation and Private Property. They noted that in the large modern public corporation, shareholders are widely dispersed and must rely on directors to represent them.

1984: Congress creates the U.S. Sentencing Commission to issue guidelines on corporate sentencing. Eventually published in 1987, these guidelines, applied to “white collar” crimes, among others. They offer reduced sentences to corporations with strong compliance programs. This development put compliance on the map for boards. The same year, the American Bar Association would undertake a major revision of its Model Business Corporation Act, a guide for state corporation law including model statutes for director and officer duties.

1985: The Delaware Supreme Court decides Smith v. Van Gorkom. This decision made it clear that the decision-making processes of directors would be subject to increased scrutiny. This same year saw the founding of the Council of Institutional Investors (CII) and Institutional Shareholder Services (ISS), both of which put more “heat” on boards to perform well on behalf of shareholders. Smith v. Van Gorkom began a long line of Delaware cases exploring the dimensions of fiduciary duties—too numerous to list here.

1986: The Delaware Supreme Court decides Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. This case, involving a hostile bid for the cosmetics giant, put permanent pressures on boards to look for best offers once their company was in play. Similarly that same year, the Sixth Circuit court decided in Edelman v. Fruehof Corp. that directors should not accept a management buyout without considering other offers. The next year, in CTS Corp. vs. Dynamics Corp. of America, the U.S. Supreme Court upheld the rights of states to pass anti-takeover statutes. But the Revlon decision was not the only notable event in 1986. That same year, Congress removed a real estate tax deduction as part of the 1986 Tax Reform Act, triggering the collapse of numerous banks (1000 closed between 1986 and 1991), resulting in numerous lawsuits against their officers and directors. Also in 1986, the Executive Leadership Council (ELC) was formed with the intent of increasing diversity at the board level through facilitating dialogue among African Americans within corporate leadership. Together with Catalyst, a group founded in the 1960s to promote advancement of women, ELC has been a force for diversity in boardrooms.

1987: The National Commission on Fraudulent Financial Reporting releases its report on the subject, sponsored by the Committee of Sponsoring Organizations (COSO). The work of this group, chaired by James Treadway (aka the Treadway report) gave directors their first set of guidance on their role in the detection, prevention, and oversight of fraud. Global contemporaries included the Cadbury Committee report in England (1992, with sequels in 1995 by Greenbury and Hempel), the Dey Report in Canada (1994), the King Report in South Africa (1994), and the Vienot Report in France (1995). Also in 1987, NACD held its first Director of the Year dinner, honoring Juanita Kreps before a packed audience. Unfortunately, the next morning, directors awoke to news of the stock market plunge on Black Monday. The meeting room that had been full the night before was mostly empty, except for John Nash and a few governance diehards.

1988: The Department of Labor issues a set of guidelines, now known as the “Avon Letter.” The Department-directed Employee Retirement Income Security Act (ERISA) required fund managers to vote proxies with the same diligence as they would when making other fiduciary decisions, thus placing more scrutiny on proxies and on boards.

Boards are expected to:
- Choose the CEO, monitor his or her performance and have a detailed succession plan in case the CEO becomes unavailable or fails to meet performance expectations.

- Plan for and deal with crises, specially crises like HP where the tenure of the CEO is in question, BP where there has been a major disaster or J&J and Toyota where hard-earned reputation is threatened by product failure.

- Determine executive compensation, achieving the delicate balance of enabling the company to recruit, retain and incentivize the most talented executives, while avoiding media and populist criticism for “excessive” compensation.

- Interview and nominate director candidates, monitor and evaluate the board’s own performance and seek continuous improvement in board performance.

- Provide business and strategic advice to management and approve the company’s budgets and long-term strategy.

- Determine the company’s risk appetite (financial, safety, reputation, etc.), set state-of-the-art standards for managing risk and monitor the management of those risks.

- Monitor the performance of the corporation and evaluate it against the economy as a whole and the performance of peer companies.

- Set state-of-the-art standards for compliance with legal and regulatory requirements, monitor compliance and respond appropriately to “red flags.”

- Take center stage whenever there is a proposed transaction that creates a seeming conflict between the best interests of stockholders and those of management, including takeovers.

- Set the standards of social responsibility of the company, including human rights, and monitor performance and compliance with those standards.

- Oversee government and community relations.

- Pay close attention to investor relations and interface with shareholders in appropriate situations.

- Adopt corporate governance guidelines and committee charters.

To meet these expectations, it will be necessary for major companies to have a sufficient number of directors to staff the requisite standing and special committees; to have directors who have knowledge of, and experience with, the company’s businesses, even though meeting this requirement may result in boards with a greater percentage of directors who are not “independent”; to have directors who are able to devote sufficient time to board and committee meetings, and the preparation for them; to provide regular tutorials by internal and external experts as part of expanded director education; and to maintain a true collegial relationship among and between the company’s senior executives and the members of the board.

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. He was also an inductee into the Directorship 100 Corporate Governance Hall of Fame, Class of 2007.

This commentary was originally a client memo written by Martin Lipton and posted on the Harvard Law School Forum on Corporate Governance blog.