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Board Composition: The Rudder to Help Corporate Boards Navigate Through Changing Corporate Climates

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Though the Dodd-Frank financial reforms were signed into law a year ago, the corporate governance environment remains at a crossroads of uncertainty in many ways. While business leaders continue to adjust to the sweeping legislative reforms that have already been implemented, regulators are still drawing up the details on a host of issues and deciding how to interpret and implement many other pending regulations.

As an example, a U.S. Circuit Court of Appeals recently rejected a rule (on proxy access) by the U.S. Securities and Exchange Commission, which would have allowed investors to bypass a company’s nominating and governance committee by nominating their own candidates and placing them directly on the company’s proxy. This was one of the most challenging governance features of Dodd-Frank.

Many other proposed rules are being enacted without delay, including a host of reporting requirements aimed at director and board accountability. What’s more, shareholders continue to exert pressure by questioning the qualifications of individual directors when they are displeased with board performance or compensation decisions.

Evolving regulatory requirements, combined with recent market fluctuations and an increased scrutiny of the board, will put pressures on board leadership and structures, particularly on the board’s nominating and governance committee.

The strategic landscape is also adding complexity to a director’s job description. One of the board’s primary roles is to approve winning strategies and monitor their execution. Major shifts—from an expanding global marketplace to the rapid pace of technology and data creation—must be considered. And by no means should such oversight be considered an amateur’s venture. Today’s directors need to be well versed on the latest trends and developments that impact their specific industries.

That is why it is crucial to continually assess and optimize a board’s composition and ensure that boards have the right people at the right time—competent directors who possess the knowledge, experience and skill sets most closely aligned with the company’s strategies. Equally important is a board’s ability to establish and maintain a set of policies for board recruitment—and ongoing evaluation and education–that will steadfastly guide a corporation through a business climate that may be at times precarious.

This year’s NACD Board Leadership Conference will host a special Nominating and Governance Committee Forum to help directors identify the leading practices they need to navigate the new and evolving business environment. The forum will feature in-depth insights and analysis that will focus on enhancing the value directors can bring to their corporate tables and examine best practices for board and C-suite cooperation and productivity. Combining classroom sessions with confidential peer discussions, the session will also offer techniques that can be put to work immediately to identify and address strategic and operational gaps on a board.

To register for the NACD Board Leadership Conference, go to nacdonline.org/conference. Early-bird discounts are in effect until July 31. Additionally, for directors and executives from NASDAQ-listed companies to save 10 percent on registration prices, please enter coupon code OMXSAVE. To register or ask questions in person, please email registration@NACDonline.org  or call 202-572-2088.

Boardroom Diversity

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In Wednesday’s edition of NACD Directors Daily, the Sacramento Bee reported that Sodexo was named to the Black Enterprise Top 40 Best Companies for Diversity list for the fourth consecutive year. The company was recognized, in part, for the number of ethnic minorities represented on the company’s board of directors.

While there has been a call for increased diversity in the boardroom for years, the majority of companies have not significantly added to the number of minority directors (based on race and nationality) currently on their boards. According to the 2011 NACD Public Company Governance Survey, 52.4 percent of companies do not have minority directors. Just over 27 percent of boards have one minority director, and only one in five have two or more.

Similarly, few women serve on America’s public company boards. Nearly one-third of public company directors indicate that their boards do not have any female representation. Half of respondents say their boards have just one female director. Just 11.5 percent responded that their boards have three or more women directors.

However, these percentages appear to be increasing. Survey responses indicate that the number of boards with at least one minority or female director has increased since 2006.  Over 38 percent of boards in 2006 had at least one minority director, and in 2011, this number increased to 47.6 percent. Additionally, boards that reported having one female director slowly increased from 64.8 percent in 2006 to 67.4 percent today.

The final 2011 NACD Public Company Governance Survey will be available in late August.

Risk Assessment: Expect the Best, Plan for the Worst

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Organizations face risk on multiple levels and from an enormous range of factors. And being seen as a “high-risk” company certainly impacts valuation. Of the many concerns for risk managers today, two of the biggest are global economic uncertainty and information technology.

For boards concerned with how different economic forces will impact the corporations they oversee, today’s environment provides plenty of challenges and opportunities. Last month, the Wall Street Journal reported that as the Federal Reserve’s latest economic stimulus initiative (QE2) comes to a close, investors are keeping a close eye on their portfolios and shying away from riskier assets. According to a recent Bloomberg article, after his recent meeting with German Chancellor Angela Merkel, President Obama made it clear that U.S. economic growth is still at risk from the precarious economic situation in Europe.

Cyber attacks that lead to data theft threaten not only the valuable information a company might possess, but the trust and confidence of its investors as well. Just ask Sony, Epsilon and RSA Securities, who all recently suffered data breaches.

In a letter to Senate Commerce Committee Chairman Jay Rockefeller (D-WV), the Securities and Exchange Commission (SEC) recently stated that publicly traded companies should disclose the threats and potential impacts of cyber attacks. The SEC guidance came in response to a letter sent by Senator Rockefeller, who noted that “it is essential that corporate leaders know their responsibility for managing and disclosing security risk.”

Because of these new oversight and risk management demands and higher stakes for corporate boards, NACD is offering two separate sessions discussing risk assessment and management at this year’s NACD Board Leadership Conference in Washington, DC from October 2-4.

The Reshaping the Risk Agenda session features expert speakers who will explore possible blind spots in risk assessment and the implementation of early warning systems, as well as the importance of scenario planning. A major focus of the panel’s discussion will be the board’s role in overseeing risk versus avoiding risk in the current economic environment.”

This year’s conference also offers a Risk Board Committee Forum where professionals from the leading global management consulting firm Oliver Wyman will discuss methods for improving oversight processes and examine the links between strategy and risk. A special focus of this forum discussion will include the board’s role in overseeing IT risk.

NACD understands that the best way to mitigate risk is through education and learning from people who have already been on the front lines battling these issues—and winning. That is why we want you to be there to share your experience and hear from your peers.

To register for the NACD Board Leadership Conference, go to nacdonline.org/conference. Early-bird discounts are in effect until July 31.  Additionally, for directors and executives from NASDAQ-listed companies to save 10 percent on registration prices, please enter coupon code OMXSAVE. To register or ask questions in person, please email registration@NACDonline.org  or call 202-572-2088.