Balancing Act – Building a Better Board

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Boards today face an increasing number of demands. In addition to an increasing number of regulatory requirements, they are also meant to be the problem solvers and strategic leaders for companies. With the fast pace and growing complexity of business today, that is no small task. To guide an organization through today’s challenging business environment, the board must be comprised of directors with a wide range of skills and experiences

Diversity of a board is not simply guided by race or gender. There must be diversity on an intellectual level. A board that truly serves as a strategic asset to investors is one that brings together a team whose skill sets are aligned with the goals of the company. For example, a U.S. company interested in expanding overseas operations should have a director on its board that has experience taking a company global.

Even companies that have a targeted demographic, such as Avon “the company for women,” have diverse boards. Although Avon’s tagline is generally a women-centric company, the company’s board is represented by a mix of men and women, as well as directors with varying ethnic backgrounds. Boards today need to have a range of skills and experiences in their portfolio to help companies succeed in an increasingly competitive environment.

NACD and the Society of Corporate Secretaries and Governance Professionals held joint roundtables nationwide to bring directors and legal professionals together to discuss the board building process. This distinguished group identified three fundamental concepts for creating the optimal board composition:

1. Analyze the needs of the board, its strengths and weaknesses, and determine what skills are needed for aligning the board with the strategy of the company.

2. Recruit to the board’s needs by casting a wider net to find candidates who have the skills, experience, desire, and time necessary to drive performance at the board level.

3. Evaluate the board regularly to identify areas to improve its own performance and develop a plan to address them.

Boards of directors are working to build better balanced boards through the assessment of skill sets and experience. NACD offers several board composition planning tools to help directors determine the best possible construction for their boards.

Director Confidence Falters in Q2

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Confidence in the economy is a broad topic to discuss. Just as one area starts to show positive growth, the world is shaken by a different downturn or disaster. In an article last month in the New York Times, economist Paul Krugman discussed the increased complexity of the current economy, compared to the months following the most recent financial crisis. In late 2008, the world’s collective attention was on the falling stock market. Today, there are many areas contributing to overall economic confidence: inflation, employment, oil prices and so forth. As Krugman notes, “we’re living in a world that is characterized not so much by the sum of all fears as by some of all fears.”

NACD’s most recent Board Confidence Index (BCI) reflects this conflicted view. In Q2 2011, the Index fell from 64.9 to 63.1, the first time it has dropped since its creation in the autumn of 2010. When asked to characterize the current state of the economy compared to one year ago, directors registered a confidence index of 68, a decrease of five full points since Q1 2011. Directors also feel less confident in the progress made in the short run—looking at changes in conditions over the past quarter, confidence dropped to 59 from 61.

However, the slight decline in confidence is countered with a more optimistic view for the coming months. Just this week, Federal Reserve Chairman Ben Bernanke projected increased growth for the next six months in remarks following the Central Bank’s Beige Book release. According to Bernanke, policymakers will be focused on the labor markets. According to the Q2 2011 BCI, the boardroom agrees. Despite slowed growth, nearly half of corporate directors (43%) plan to expand the workforce in the upcoming quarter. In addition to hiring practices, directors are generally more confident regarding the future. Expectations for the next year stand at an assured 67.

Recently released data from The Conference Board (TCB) echoes the caution seen in the boardroom. Despite higher predictions, TCB’s Consumer Confidence Index fell to 60.8 from a revised 66 in April. Unsurprisingly, American consumers are troubled by the current combination of increased costs for food, the increased cost of oil and the depressed real estate market.

The Board Confidence Index is conducted by NACD in conjunction with Heidrick & Struggles and Pearl Meyer & Partners. Q3 2011 results can be expected in September.

NACD Announces Blue Ribbon Commissioners for Lead Director Report

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An elite group of more than 20 corporate directors and corporate governance thought-leaders have begun work on the 2011 Report of the NACD Blue Ribbon Commission on the Effective Lead Director, led by co-chairs Barbara Hackman Franklin, former U.S. Secretary of Commerce , director of Aetna and Dow Chemical Company and chairman of the board for NACD, and Irvine Hockaday, director for Ford Motor Company, Estée Lauder and Crown Media Holdings.

Lead directors play a significant role in the boardroom, enhancing board effectiveness by acting as independent figures in communicating the needs between the company’s management and board. Five years ago, only 39 percent of boards had lead directors. That number has almost doubled. Today, 66 percent of boards have a lead director.

NACD broadly defined the duties of the lead director in a 2004 Blue Ribbon Commission Report. Leveraging their years of experience, the NACD Blue Ribbon Commissioners will clarify the role of the lead director in order to enhance the effectiveness of the lead director in the boardroom. The 2011 report will expand the earlier recommendations by exploring how the lead director role can be used to the fullest extent. Specifically, the report will discuss the evolving roles and responsibilities of the lead director; the ideal profile of a lead director; and key relationships and communications of the lead director, including those between management and shareholders. The report will also offer recommendations for future challenges facing the role.

The 2011 Commissioners who contribute their views to the report are directors from leading companies and corporate governance experts. In addition to co-chairs Barbara Hackman Franklin and Irvine Hockaday, the panel includes:

Holly Gregory, corporate partner at Weil, Gotshal & Manges, will also serve as governance counsel to the Commission.

The 2011 Report of the NACD Blue Ribbon Commission on the Lead Director is scheduled for release at the NACD Annual Board Leadership Conference, October 2-4, 2011, in Washington, DC.