Governance is in the eye of the shareholder.
But who is the shareholder? Is it Warren Buffett, the notoriously long-term investor who has never sold a share of Berkshire Hathaway? Or the hedge fund trader who holds shares for a nanosecond—a time span so short that a blink of an eye is measured in the hundreds of millions of them? Or is the shareholder a state pension fund keen to influence social policy, or the mutual fund that owns the entire S&P 500? Or maybe it’s the activist investor pushing for a change in strategic direction over the next few months, and then sells after the run-up, presumably to less “strategically focused” shareholders.
In corporate governance, all shareholders compete for directors’ attention. Being an intelligent listener in this noisy environment is what the directors of the Directorship 100 do best. The dispersion of shareholder interests means the board has to weigh priorities and make some unpopular choices. In doing so, it looks to those fellow directors who are best at bringing about desired outcomes. People with an unerring instinct for savvy business decisions are wired differently—part investment guru, part business maven, part organizational psychologist. Other directors will follow their lead, even under trying circumstances. A board will stick with a CEO when the “influential” director says it’s the right thing to do, but will terminate once they hear, “Time’s up.”
There are many names for this rarified group of individuals, but we refer to them simply as the Directorship 100. It is an honor bestowed not so much by NACD Directorship, but by the collective wisdom of the boardroom community.
But how is influence related to good corporate governance? In compiling the Directorship 100, we look for both influence and its requisite companion, a sound ethical compass, and then assess these mercurial qualities against all known public information and survey data. Outstanding expert advisors weigh in, more research is followed by more questions and more debate. The result is our list of finalist candidates for the Directorship 100. If any doubts remain or a story is still unfolding as may happen during a period of crisis, we generally defer the decision.
The NACD Directorship 100:
We anticipate a faintly Shakespearean reaction from some readers: “Throw out the bankers.” Our answer to why they are on the list at all is that a bank director who survived the debacle of ’08 ought to be recognized, if not enshrined. Board service is not an easy thing to measure, especially by looking at near-term stock market results or even regulatory trauma in this age of indict now, research later. The Directorship 100 tries to bring some insight into these special situations, and hopefully our approach demonstrates a balanced perspective.
A Fluid Environment
The Directorship 100 list is hard to get on and easy to get off. In any given year, a company might experience a corporate governance crisis, and a director rises to the occasion and is recognized. In quiet years, that same director folds happily into the background.
Selecting the Class of 2011
Our two primary lists measure people and institutions. Directors and Officers are chosen for their individual attributes, not because of the board they serve on—although if you are a chair of a major company, that speaks volumes about how your peers feel about you. For the Governance Professionals and Institutions, if you work for the SEC, it is your role that makes you influential. Leave it and you leave the list.
The term “research methodology” ranks right next to “economic formulae” in generating passionate reader interest. For the Directorship 100, methodology is more of a recipe than a method, and we choose our honorees based on quantitative results from our online survey of NACD members, search engine rankings, and qualitative measures including peer input from NACD chapters, expert review and major media references. The result is better attuned to the reality of the boardroom than you’ll find elsewhere.
We are careful to avoid the “familiarity fallacy.”
A popularity contest would understate results for a great director albeit one ignored by the media. Whereas a story like Mark Hurd’s departure from Hewlett-Packard or News Corp.’s phone-hacking would raise awareness of those directors, for better or worse. Our failsafe mechanism is an editorial advisory board, which devoted valuable time and expertise to a review of more than 1,000 nominations.
In some cases individuals were elevated that did not rank as well as they should have (“poor test takers,” the SAT’s would call them), whereas in others, the numerical ranking was somewhat self-generated by what might be called a “friends and family” approach. That’s okay for cell phone service plans, but not as useful for the D100.
The NACD Board and CBL
Readers should note that the NACD board of directors, chaired by Barbara Hackman Franklin, and the NACD Center for Board Leadership, are recused from the D100 on the grounds that they help select the finalists. We wanted you to know that if not for their role in the selection process, they would rank among the very best in the D100.
One more caveat: Some important names were left off either because they are new to their role, too narrowly focused, or in some cases, just fell out of the spotlight. So we created a new category for them, “People to Watch,” which we think of as our bullpen for future D100 honorees. We would not be surprised if they are brought out to the mound in future years, and that you will be following as we do this grand procession of those who contribute time and effort, as well as ingenuity and thought, to the cause of good governance.
To register for the NACD Directorship 100 gala dinner and forum, please click here.