At any NACD education program, the discussion of directorship as a part-time profession with full-time risks is bound to arise. Yet following any corporate crisis, the question is always asked: “Where was the board?” Outside of the C-suite and boardroom, many perceive that directors should be able to foresee and avoid a crisis before it strikes.
This perception is misguided for several reasons. As a result of legislative and regulatory activity, since the 1960s corporate boards have become increasingly independent of management. Although legislation such as Sarbanes-Oxley and Dodd-Frank mandated independence at specific committees, this has extended to the entire board. Today, most publicly held company boards comprise a majority of independent directors, and often the CEO is the only executive director.
The development of independent boards is not negative. In fact, it ensures that the board can effectively carry out its mission and responsibilities, and fairly hold management accountable to shareholders. However, there are a few consequences when directors are selected entirely for independence. Directorship, as noted above, is a part-time role. Inherently, directors rely on senior management for information necessary to carry out their oversight responsibilities. When outside directors are chosen for lack of ties to the corporation, they do not necessarily bring knowledge of the business or industry. Therefore, the benefit created by adding an independent director is largely tempered, as this outsider is reliant on the CEO for the information necessary to his or her oversight role.
To combat this risk of asymmetric information, NACD partnered with McGladrey to host four small gatherings of executives and directors in an effort to find ways of improving the communication and relationships between the board and C-suite. From these gatherings, the Bridging Effectiveness Gaps: A Candid Look at Board Practices white paper was created. As Bridging the Effectiveness Gaps notes, broadly, these gaps were found in the areas of strategy and risk, executive compensation, CEO succession planning, and board evaluations. By convening management and directors from different companies, the meetings fostered candid and open conversation regarding areas where communication tends to break down. However, where communication was generally the root of the problem, it was also the solution.
Recently, several companies made headlines after facing dramatic leadership changes. In the current environment, it is critical that directors actively ensure their company has developed a robust executive talent management program. However, according to preliminary data from the 2012-2013 NACD Public Company Governance Survey, more than half of respondents (54.7 percent) classify their company’s CEO succession plans as informal: general discussion, but no formal documentation.
As part of NACD’s effort to share key insights and help boards plan for the future, a session of the upcoming NACD Board Leadership Conference is designed to address this very issue. During the panel discussion, three current directors will share their stories, insights and strategies for future-proofing the C-suite. Slated to speak are:
Last April, Best Buy experienced a significant executive upheaval when former CEO Brian Dunn resigned amid allegations of misconduct. In May, Founder Richard Schulze also stepped down. The board found themselves in a crisis situation, with two key vacancies to fill in a short period of time.
Higgins Victor, a Best Buy director since 1999, proved to be an invaluable asset to the company. With her extensive experience in executive development, succession planning, and leadership coaching, she served as the nominating committee chair during the transition. During the discussion, Higgins Victor will share the lessons she learned as well as expert insights on effective succession planning.
Hooper serves on the NACD board of directors and on the boards of PPG Industries, Inc. and UnitedHealth Group. She chairs the audit committee for PPG and the nominating and governance committee for UnitedHealth Group. She previously was a board member of Target Corp., AstraZeneca PLC, DaVita Corp., and Seagram Co. Ltd. She is president and CEO of The Directors’ Council, which specializes in corporate board of director recruitment.
McDonald’s faced rapid-fire changes in executive leadership in 2004. Six months after Chairman and CEO James Cantalupo’s sudden death, his successor Charles Bell resigned after being diagnosed with a terminal illness. By the time James Skinner was named CEO in December 2004, the company was well-versed in emergency executive succession.
Current McDonald’s chairman McKenna will discuss how the company worked through this challenging period, safeguarding both corporate reputation and shareholder value. He will provide insights on proactive succession planning and how boards might “future-proof” their companies.
We anticipate a candid and instructive dialogue with Higgins Victor, Hooper and McKenna. Don’t miss out on this CEO succession planning session and the many other invaluable discussions at this year’s NACD Board Leadership Conference, Oct.14-16 at the Gaylord National Resort in National Harbor, MD—just minutes from downtown D.C.
Reflecting on the second anniversary of the passing of the Dodd-Frank financial reform legislation, the business media were quick to notice regulatory agencies’ slow pace in putting the mandates into effect. For the past two years, directors have waited for the numerous rules on corporate governance as promulgated by the landmark legislation to become final.
Although regulators are not nearly finished with the resulting rules from Dodd-Frank, the role of the boardroom is to provide oversight while considering the challenges coming around the corner. Directors must monitor current corporate performance with an eye on the company’s long-term strategy.
NACD’s latest publication, Governance Challenges–2012 and Beyond, offers a forward-looking perspective on the priority topics dominating boardroom discussion. Governance Challenges–2012 and Beyond features current guidance and thought leadership from six of NACD’s Strategic Content Partners, on issues ranging from executive compensation and director liability to risk oversight and board effectiveness.
Here are just a few highlights:
Mastering CEO succession planning from Heidrick and Struggles, CEO succession is critical to the long-term success of any company. Today, full board engagement is necessary for proper management of the leadership pipeline. That means ongoing boardroom involvement to ensure that succession plans can be readily adapted to changing circumstances, with a particular eye toward both predictable and unpredictable leadership disruption. Among other practicable suggestions, the report suggests mock board meetings to identify CEO successors and strategies to ease the transition.
Do financial statements and disclosures tell the company’s whole story? According to KPMG’s Audit Committee Institute, this question has become more important than ever, given the call for greater transparency from regulators and investors. In disclosures, directors should go beyond what is required to address expectations and provide a clearer context for the decisions made. To assist in this process, the board may choose to enlist the management-level disclosure committee.
Understanding the drivers of the business. In this section, Marsh and McLennan Companies continues this discussion originally visited in 2010 by the Report of the NACD Blue Ribbon Commission on Performance Metrics. To effectively identify and mitigate risks, it is critical that directors understand what drives profit and growth throughout the organization. While directors often receive an abundance of data on performance, they are less likely to receive information on the paths that lead to profit or loss. As Marsh & McLennan suggests, the board needs information on the trajectory of the enterprise if they are to serve as a strategic asset.
Legislators, regulators and shareholders have had greater influence on the boardroom than ever before. With insights and practical guidance from the nation’s leading boardroom experts, Governance Challenges–2012 and Beyond is an essential resource for directors who understand the need to stay ahead of the curve.