Directorship: The Go-To Guide
Consistently, the most sought-after skill in new directors is leadership experience, according to NACD’s Governance Surveys. However, regardless of one’s success in management or leading a company, directorship can prove to be a new challenge.
To assist new and potential directors, NACD created a professional development primer to prepare them for the rigors of overseeing a company: “A Practical Guide for Corporate Directors,” part of the Director’s Handbook Series. Originally released in 1996, the guide was updated this year in light of recent regulatory activity affecting the boardroom.
“A Practical Guide for Corporate Directors” recognizes that the determinants of successful directors tend to hold true for all companies—regardless of size or type. By providing the essentials of the boardroom and its practices, the guide can help directors fulfill their responsibilities.
Highlights from the guide include:
1. Board Structure: Committees and Regulations
The guide includes an especially useful primer on board structure. By highlighting the key committees—audit, nominating and governance, and compensation—it provides a foundation for directors on the respective duties of each committee, and how they interact.
2. Navigating the New Regulatory Environment
The updated guide also explains the implications for boards of the Dodd-Frank Act, which created numerous regulations governing board structure and operations. For rules such as shareholder access to the proxy, shareholders’ advisory vote on executive compensation (say on pay), and the whistleblower bounty program, the guide provides interpretations and guidance.
3. The Role of the Board: Nose In, Fingers Out
Ultimately, the board is the top legal authority within a corporation, charged with oversight of all aspects of the business. The guide helps new directors understand the nuances that separate oversight from management. As NACD’s founders put it, “NIFO: Nose In, Fingers Out.” As such, directors should oversee management’s performance of the hands-on tasks necessary to the operation of the business—not personally manage the tasks.
4. Directors’ Fiduciary Duties
Two major components of a director’s fiduciary duties are care and loyalty. The duty of care does not denote caution in this sense; rather, directors should be informed and exercise appropriate diligence and good faith as they make business decisions.
The duty of loyalty is simple: The company comes first. Directors must act in the best interests of the corporation while fulfilling oversight responsibilities—not in the interests of themselves or anyone else.
5. Liability Concerns
Liability arises when directors fail to perform their legal obligation to the company. While directorships entail certain risks to personal wealth and reputation, there are available protections. These protections include statutory reliance and non-fence-sitter laws.
“A Practical Guide for Corporate Directors” is a strong introduction to the boardroom for all directors.