The first college graduate in his family, Norman R. Augustine received both BSE and MSE degrees from Princeton before moving to the Department of Defense, rising to Undersecretary of the Army. He joined private industry and rose to chairman and CEO at Lockheed Martin. His current and former board service includes ConocoPhillips, Black & Decker, Procter & Gamble, Lockheed Martin, and in the not-for-profit sector, Johns Hopkins, Princeton, MIT, the American Red Cross, American Institute of Aeronautics and Astronautics, Boy Scouts of America, President’s Council of Advisors on Science and Technology, and the National Association of Corporate Directors. His hobby is adventure travel; he has stood on both the North and South Poles of the earth.

Norman R. Augustine

Spreading tar on roofs was how I made a living during summers. The only way to get off the roof was getting an education, which I owe to my parents.

I was lucky to begin graduate work in aerospace engineering the week before Sputnik launched.

Playing a tiny role in getting my friends to the moon and back safely was one of the most exciting parts of my career.

The book that influenced me most is The Rise and Fall of the Third Reich by William Shirer. We must always be vigilant. And Shakespeare is my literary passion, particularly Henry V.

My family is the most important thing in my life.

Adventure travel is how I spend much of my free time. I have visited 109 countries. I have never once played golf!

Joining a board is about mental challenge—and contributing. I thought I had seen everything in over 500 Fortune 100 board meetings, but there is always something new to learn.

Shareholders, employees and CEOs each have a voice. Directors perform a critical role in our society, and they too need a voice. That’s NACD.

Ann M. Fudge
Ann M. Fudge’s rise through the corporate ranks made her one of the most influential— and one of the youngest— decision makers in American business. Her unique blend of business intelligence and respect for her personal life made her a mentor. Fudge began her career at General-Mills as a marketing assistant in 1977 and was a director of marketing by 1983. Moving to Kraft in 1986, she became known for reviving older brands. Fudge was promoted to executive vice president of the company, but retired in 2000 to devote more time to her family. Three years later, she returned to work as chairman and CEO of Young and Rubicam Brands before retiring in 2005. She now serves as an independent director on the boards of General Electric, Novartis AG and Unilever PLC and is an independent non-executive director of Unilever NV. She is slated to join the board of Infosys in October.

The NACD Directorship 100:

Introduction

Directors and Officers

Governance Professionals and Institutions

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

People to Watch

Norman (Norm) R. Augustine
To say that Norman (Norm) R. Augustine has made his mark would be a vast understatement. The retired chairman and CEO of Lockheed Martin Corp., the nation’s largest defense contractor, and a former under secretary of the Army, Augustine is recognized for his national leadership in technology. He also served as chairman and principal officer of the American Red Cross for nine years in addition to being on many boards of directors. Augustine has received more than 20 honorary degrees and was awarded the National Medal of Technology and the U.S. Department of Defense’s highest civilian award, the Distinguished Service Medal, which was given to him five times. In addition to Lockheed Martin, his current and former board service includes ConocoPhillips, Black & Decker and Procter & Gamble, and in the nonprofit sector, the NACD, and others too many to list.

Harvey L. Pitt
Now the founder and CEO of Kalorama & Partners, an international business advisory practice, and Kalorama Legal Services, Harvey L. Pitt served as the 26th chairman of the Securities and Exchange Commission from 2001-2003. During his tenure, he led the SEC in restoring the U.S. securities markets to full operations after the terrorist attacks of September 11th. Pitt also instituted a policy of “real-time enforcement” to make the SEC’s enforcements efforts more effective. He worked to reconcile the demands of accountants, financial services firms, public companies, institutional shareholders, legislators and stockholders with legislation such as the Sarbanes-Oxley Act. Prior to his tenure as chairman, he was a partner of Fried, Frank, Harris, Shriver & Jacobson.

John (Jack) F. Welch Jr.
Known for his unique and effective leadership style, John (Jack) F. Welch Jr. the legendary chairman and CEO of General Electric, began his career at GE as a junior chemical engineer in 1960, the same year he finished his PhD. He worked his way up the ranks to become CEO in 1981. Welch was known for firing the bottom 10 percent of his managers annually, while greatly rewarding the top 20 percent. During his tenure, the number of GE employees greatly decreased while annual revenue increased immensely. In 1986, with the acquirement of RCA, Welch shifted GE’s business from manufacturing to financial services through numerous acquisitions. When Welch left GE, the company’s recorded revenues were more than $410 billion, making it at the time the most valuable and largest company in the world. Now a bestselling author and special partner at Clayton Dubilier & Rice, Welch tweets and blogs about business and sports at The Welch Way, the website developed by he and his wife, Suzy Welch.

Warren E. Buffett, Charles (Charlie) T. Munger
Warren E. Buffett is a legend for his self-made success. The “Oracle of Omaha” showed interest in the stock market and making money from a young age. Shortly after graduating from Columbia where he was taught by the venerated value investor, Benjamin Graham, he founded the Buffett Partnership and his investment success, particularly in buying undervalued companies whose stocks began to rise, made him extremely wealthy. He later converted his fund into a public stock corporation and created one of the most established records of out-performing the S&P 500. Buffet is respected for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth. In 2006, he announced that he would give 99 percent of his fortune to philanthropic causes, mostly to the Bill and Melinda Gates Foundation.

Charles (Charlie) T. Munger, the vice-chairman of Berkshire Hathaway, has been described by Buffett as “my partner.” Although Munger is better known for his work with Buffett, he ran an investment partnership of his own from 1962-1965. As the chairman of Wesco Financial Corp., now a wholly owned subsidiary of Berkshire Hathaway, he controls an equity portfolio of more than $1.5 billion. Munger is known as a generalist for whom investment is only one of a broad range of interests and does not involve himself in the day-to-day operations of Berkshire. An avid philanthropist, he also writes and speaks about business philosophy.

Class of 2010
H. Rodgin Cohen
Edward A. Kangas
Alan G. Lafley
Carol J. Loomis
Paul A. Volcker

Class of 2009
Jay W. Lorsch
Martin Lipton
Pearl Meyer
Thomas J. Neff

Class of 2008
John C. Bogle
William G. Donaldson
Arthur Levitt
Ira M. Millstein
Robert A. G. Monks
Paul Sarbanes
Michael Oxley

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

Moderator Kenneth Daly was so impressed with what the two panelists had to say that after several minutes he exclaimed, “I just learned everything there is to learn for an MBA!”

Augustine’s philosophy on leadership is straightforward: “Find quality people, tell them what you want and get out of the way.” Quality people are those who have “enthusiasm, intelligence and respect for others,” he said. Augustine believes that good leaders are enablers who guide employees to better performance.

Duberstein echoed his co-panelist’s beliefs and added his own thoughts on the subject. “A good leader empowers those around him to do their jobs better,” he said. Leadership is “judgment, values and integrity” and a good leader seeks “people who are independent, but loyal to the mission.”

The panelists also offered a sobering message to America’s corporate CEOs. Augustine said that there is nothing special about today’s CEOs and that they work for the company and shareowners. This seems to imply that courageous leadership also requires a sense of humility.

As the discussion turned to leadership in the boardroom, the panelists looked at the issue from a slightly different perspective. According to Augustine and Daly, directors must bring “professional skepticism” to the boardroom that when applied in the appropriate way is essential for the success of any enterprise. While it’s not necessary to agree with one another, board members should serve in a collegial fashion, get along and respect each other.

One message was clear from the session: cooperation and guidance, from both executives and directors, will create success in an organization. Courageous board leadership, panelists noted, is less about “working against” and more about “working with.”

NACD Directorship: Has the boardroom of 2010 undergone a sea change?
Noski: Yes and maybe no. I think we have the Sarbanes-Oxley compliance aspect nailed down. We spend a great deal of time with strategy and succession. If a business isn’t in duress, the board’s work is fairly straightforward. But if you pick the wrong CEO, you have just wasted the next five years because it takes a few years to assess and terminate the current CEO and then a few years for a successor to get up to speed. So to me, succession is a key skill and a critical responsibility that is sometimes overlooked in the regulatory frenzy.

ADDITIONAL COVERAGE IN THE BOARDROOM GUIDE FOR NEW DIRECTORS:

A Message to New Directors

The Renaissance in Succession Planning and Board Recruiting

Congratulations, You’re the Audit Committee Chair. Now What?

Performance and Pay Alignment: A Top Priority for Compensation Committees

NACD Directorship: What are some of the challenges for new directors?
Bromilow: I have seen new directors struggle in some areas. It’s important for directors to understand the culture. Different companies operate in very different ways, so understanding how to work within that framework is important. To the extent the company is in a unique industry, it may also be a challenge to understand the business model and the special risks. New directors should also understand how the board approaches its oversight role.

For directors new to the audit committee, there is an additional layer of challenge. Financial reporting is complex and audit committee members should understand how the company deals with it. It includes understanding how financial information rolls up, the key players in the finance function and the applicable regulatory and compliance matters.

NACD Directorship: Pfizer is a leader in corporate governance, how do you orient new directors?
Kenney: Pfizer has a very robust director orientation process with scheduled meetings with each of our division heads and other senior leaders over the course of six to nine months. We give directors a significant amount of information to contact any member of senior management, including the controller and treasurer. We provide not only office contact information but also their home contact information. This is management’s way of saying to our directors, “We have confidence that you can go directly to any of these people with questions.”

NACD Directorship: Norm, suggestions for the new director?
Augustine: When I served on one board, we had a board dinner the night before each meeting. At every dinner we would assign one member to talk about his or her life. It changed the tone of the board and its effectiveness. We all looked at each other quite differently when we knew more about each other. It helped us work together much more effectively.

NACD Directorship: How much time do directors now need to devote to board duty?
Kopelman: The surveys indicate this has increased significantly over the last decade, but recently leveled off. Trying to overlay upwards of 175 hours of annual board service—
including review and preparation, travel, board and committee meetings, plus informal calls and emails on top of a full-time staff or line job is surely a challenge both for the executive and his or her employer. Recently retired, seasoned executives seem to be able to get up to speed quickly and devote the ongoing time.

NACD Directorship: Are there specific skills for new directors?
Levine: Independent judgment. The proxy rules from December 16 now require for the first time that boards explain their selection criteria philosophy. For me, that is key—does that person have the ability to have a challenging discussion without becoming too personal? Directors need to keep their cool but also know when to strike it hot. I would also add that they should have a burning curiosity about the important things. It’s important to understand their individual potential contribution as well as how they will impact on the creation of meaningful board dialogue.

Barry: Boards look for specific skills in new directors that may be currently lacking—which can reflect the sector or the company’s condition at the time. So while the specific skills being sought will differ from company to company, there are skills and attributes that are important for all directors. First, directors should bring  broad business experience and an appreciation for contemporary management techniques and leading practices. Second, directors need to demonstrate leadership. This encompasses strategic thinking and planning, decision making, negotiation and problem solving. They also must have the courage to ask tough questions and to probe management when they are uneasy. Third, it’s important for directors to have insight, judgment, integrity and a sound professional demeanor—to disagree without being disagreeable.

NACD Directorship: Should “on-boarding” be a formal process? What special recommendations would you have?
Noski: What I ended up doing was to design my own onboarding. Once I understood the organization, I would advise the CEO or lead director that these are the people that I want to go and spend time with. My early experience was largely trial and error. Now, I work with the board chair or lead director and we have designed a program for incoming directors. Another novel approach is to have a policy of not assigning new directors to serve on committees in their first year.

Bromilow: Boards don’t turn over that quickly, so companies often have an ad hoc onboarding program. Director candidates should conduct due diligence before accepting any nominations, so they will already have some insight into the company. But that doesn’t preclude the need for proper orientation, which should include, at a minimum: the company’s strategic plan; a discussion about the key risks the company faces, how it mitigates those risks and the board’s role in risk oversight; and an introduction to the management team and an understanding of the succession plan.

From PwC’s perspective, audit committee orientation for new members should start with a discussion of financial reporting, including areas of key judgment. Then it should introduce the key players from finance, internal audit and the external audit team. It should also cover how the audit committee discharges its other core responsibilities over areas like compliance.

Kopelman: We have to make a distinction between folks who have never sat on a public board before and those who have a couple of directorships under their belt. You need to make sure that new directors get a grounding in governance—that they thoroughly understand the board’s role and especially how it differs from management’s, both legally and practically. I have seen an informal buddy system—assigning a sitting director to each newcomer—work well. Also, I’m involved with onboarding directors for companies coming out of Chapter 11: You’re parachuting people in who need to start functioning as a team. It will take time for them to gel and function effectively as a group—just look at the Yankees over the last eight years!

NACD Directorship: Norm, what have you seen that works?
Augustine: The best example I can think of comes from Procter & Gamble. As the board would travel to various parts of the world, P&G would arrange for us to visit people in their homes and sit down with real customers—housewives, children and families. We’d ask them about Tide—why don’t you buy Tide? In one case, the reason was that when the housewife had to buy soap she had to walk a considerable distance home with a huge box—so she wanted small packages even if they were less economical. The result was Tide produced and sold in smaller boxes. You can’t merely have the corporate staff tell you what the business is about you have to get out and see it.

NACD Directorship: Scott and Glenn, do you or the NYSE have a view to share?
Cutler: I agree that relationships with management, service providers and customers are extremely important for directors, as is having an understanding of governance. But more than ever, corporate boards have to focus on the company’s stock, its shareholders and what influences their decision-making. There aren’t enough boards that have an active dialogue with shareholders, and boards ought to think more about that.
Tyranski: What does the investing public think? Investors are really counting on boards to reach out and meet with the right person beforehand and ask the right questions.

NACD Directorship: John, in terms of understanding risk, what extra measures should the audit committee be taking?
Morrow: I can’t overstate the importance for audit committee members to get to know the people in the finance function, including the CFO, controller and other significant players. There is so much that can go wrong within the finance function—so much opportunity for fraud and malfeasance—that audit committee members should get to know the character and integrity of individuals in key finance function roles.

NACD Directorship: What about new directors and that highest profile of subjects, compensation?
Ferracone: The compensation committee is certainly where the accountability resides, and the workload has increased due to added regulation and scrutiny. The board members on the compensation committee really do need some structured training. It is often said that many board directors have skills from their careers that are quite relevant but ironically, few have experience with executive compensation. So at Farient, our orientation begins with the framework that provides the new director with a strong but basic background—looking first at a detailed view of the external landscape. We then also capture the compensation history in the company, its peer group, its pay philosophy, its plan designs, as well as internal issues. We then take new compensation committee members through the alphabet soup of technical items: 162(m), 280G, 409A, SEC disclosure rules and long-term incentive valuation models.

Our overarching goal in this exercise is to train the new director to be on the lookout for program design features and scenarios that develop into outliers. Finally, with respect to performance and pay alignment, we show how to test to what extent their company’s performance and pay are aligned.

NACD Directorship: What are some of the smart compensation practices you have seen?
Augustine: The first question many people outside the corporate world ask is whether the CEO for this or that company is worth 250 times the wage of the lowest paid worker. That may seem like quite a disparity. But take the experience at P&G where A.G. Lafley led an effort that rewarded shareholders with billions of dollars in what was essentially a “turnaround.” What was he and his team worth to a shareholder?

I’m a believer in pay for performance, but that is not always so simple. What if companies perform poorly, not because of CEO performance but because of a poor economy? Should the CEO and management then be penalized? When things are going badly management is not enjoying life; the job is much more arduous—dealing with constituencies that are quite unforgiving. This is the last time one would want to risk losing a good CEO. But if we pay generously when things go up, do we not cut pay when things are in decline? It is also noteworthy that in the military they give medals for bravery in retreats, too.

NACD Directorship: Norm, it is nuanced as you say, but we have to deal with it. Any suggestions?
Augustine: Many of the issues around compensation can be resolved through a few smarter practices. “Holding periods” are an example. I strongly believe management should hold the stock resulting from the exercise of options, after selling the necessary amount to pay taxes, for at least three years. I also favor certain clawback provisions, which can be an excellent reminder of the need for long-term performance. Whatever the case, judgment is crucial; don’t trap yourself with formulas alone.

Gershkowitz: The most important issue we are helping clients to address is how to truly ensure that pay is aligned with performance. Virtually every company makes this claim but we now know that it is much harder to achieve than one thinks. Farient has developed a visual representation of alignment that is underpinned by a quantitative model that we use with compensation committees to take a snapshot of their current degree of alignment relative to the broad market, their industry and even a specific peer group.

We also work with committees to run different scenarios to see how it might be possible to improve alignment by introducing new programs or redesigning some features of current programs. For example, using a fixed-share approach to stock option awards will have a different impact on alignment going forward than a value-based approach.

Similarly, a performance-share plan will have a different impact on alignment than a stock option or restricted stock plan. In the current environment, the ability to determine where a company stands in terms of pay and performance alignment and model out future scenarios before approving new plans, plan changes or plan exceptions can be a powerful decision-making and governance tool for compensation committees.

The Boardroom Guide for the New Director Advisory Council

Norman R. Augustine, former chairman and CEO, Lockheed Martin
John J. Barry, partner and leader of the corporate governance group, PricewaterhouseCoopers
Catherine L. Bromilow, partner, corporate governance group, PricewaterhouseCoopers
Christopher Y. Clark, president and publisher, Directorship
Jeffrey M. Cunningham, chairman, CEO and editorial director, Directorship
Scott R. Cutler, EVP/co-head of U.S. Listings and Cash Executions, NYSE Euronext
Robin A. Ferracone, executive chair, Farient Advisors
Todd M. Gershkowitz, senior vice president, Farient Advisors
Steve Kalan, associate publisher, Directorship
Rosemary Kenney, director, corporate governance, Pfizer
Kenneth P. Kopelman, partner, Kramer Levin Naftalis & Frankel; director, Liz Clairborne; president, New York chapter of the NACD
Gregg A. Krowitz, VP/listings strategy and analytics, NYSE Euronext
Stuart R. Levine, chairman and CEO, Stuart Levine & Associates; director, J. D’Addario & Co., Broadridge Financial Solutions
John F. Morrow, director, corporate governance group, PricewaterhouseCoopers
Charles H. Noski, director, ADP, Air Products and Chemicals, Microsoft, Morgan Stanley
Glenn W. Tyranski, SVP, financial compliance, NYSE Euronext
Judy Warner, chief content officer, Directorship