Category: Board Composition

NACD Insight and Analysis: Communicating for Long-Term Value

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This week, NACD bridged the gap between corporate directors and the investors they represent. In conjunction with Broadridge Financial Solutions, NACD hosted a Virtual Roundtable at the Newseum in Washington, DC, bringing together leaders from the investment community with directors to discuss the disclosures and communication strategies.

Hosted by NACD President and CEO Ken Daly, the Roundtable featured investment community representatives from T. Rowe Price, CalSTRS, and Vanguard Group, Inc. They engaged in dialogue with board members from Forrester Research, Broadridge Financial Solutions, Kimberly-Clark, Legg Mason, SmartPros Ltd., and Assure Holding Corporation. With the intent to inform directors on what investors are looking for in the proxy in the upcoming year, the Roundtable discussion covered compensation, committee reports, and director qualification disclosures.

The investment managers represented at the Roundtable do not take a “check-the-box” approach based on guidance from proxy advisory firms; instead, they choose to complete their own analysis. Notably, these active shareholders emphasized quality over quantity with respect to disclosures in the proxy statement. Simply an increase in the amount of disclosures from companies only makes it more difficult for investors to uncover the valuable information in the proxy. The participating investors further suggested companies should make an effort to provide quality disclosures regarding how executive compensation matches performance, and how incentives are linked to the business strategy, for example.

The participating investors also stressed the improvements that need to be made regarding the new director qualification disclosures resulting from the SEC Proxy Disclosure Enhancement rules. They felt many companies did not fully explain how each director’s skill sets contributed to the company’s business strategy.

Lastly, the investors offered advice to the boardroom on director succession. After directors have analyzed their board’s composition in light of the company’s strategy, they find a larger challenge in recruiting directors to fill the gaps in skill sets. As a solution, Anne Sheehan of CalSTRS suggested that directors should “think of their shareholders as stakeholders.” Long-term investors have the same interests as directors and might be able to offer potential candidates whose skills complement the company’s business strategy and build its long-term value.

Selecting a Lead Director – Everything Is Subtle

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I had the privilege of joining over 30 public company directors this week to discuss lead directors—what they do and how to pick them. Wow, what a lively discussion it was. 

Ted Dysart

Ted Dysart

We were fortunate to have our partners from Heidrick & Struggles there—Ted Dysart and Stephen Miles, who are both vice chairmen for this leading executive recruitment firm. Through a very candid dialogue, we were really able to dig into this topic. At the session, and in many praiseworthy emails following this gathering of esteemed directors, I heard many common suggestions that all boards can put into action. 

Stephen Miles

Stephen Miles

The key takeaways? Everything is subtle; just work through the details, expectations and preferences that fit for your situation.

Beyond the subtleties, three key themes did emerge for me:

  1. Role: Define expectations first. How will the CEO and management team work with the chairman or lead director?  What do we expect him/her to do? 
  2. Criteria: What skill sets and experiences are required, preferred and desired?  Surprisingly, this aspect of the process is really no different from other director hire decisions, but many boards overlook this critical step. 
  3. Process: Have a process and make it transparent. No need to keep your selection process a secret from your fellow board members. They can help you identify key criteria and you want them invested in the success of whomever you select as your next board leader. 

While many other items were discussed, here are a few that rose to the top for me:

  1. Term limits/rotation: No consensus…all over the board: Yes, no, perhaps.  
  2. Time commitment: Ensure this person is willing to make the commitment and has the time available after making that commitment.
  3. Crisis and succession: Ensure this person is willing to take on a key role in times of crisis. You never know what can happen, and the lead director needs to be ready to step up, whether as interim CEO or chair of a search committee.
  4. Experience: This leader should be seasoned and savvy (some felt, ideally, from the company’s industry), and can act as a sounding board for the CEO, management and others on the board.
  5. Trust: This is a “no kidding” area, but many emphasized the need to ensure the lead director check his/her ego at the door and not have a personal agenda.
  6. Collaboration: Near the top of requirements, the lead director needs to be a strong team builder with exceptional listening skills. Is he/she a facilitator? 
  7. Raising the bar. One passionate participant even suggested that all boards separate the chair and CEO roles. Perhaps this director was thinking about asymmetric information risk. No matter; we assured the participants that NACD does not advocate for specific board structure, rather, it’s situation-dependent—
    i.e., it’s subtle! Combined chair/CEO roles make sense for some companies, and separating the roles is appropriate for other companies.

In closing, I wish I had brought copies of page 10 from the Report of the NACD Blue Ribbon Commission on Board Leadership. The chart on page 10 summarizes the relationship of the leader of the independent directors and the CEO and their respective areas of responsibilities. 

 Net net: this topic is hot, and we are exploring the optimal next steps to help directors continue to advance exemplary board leadership.

U.S. Demographics, Hispanic Outreach, Board Service—and You

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 Our host was Mike Gonzalez and Sylvia Garcia, director of Hispanic Outreach for Newt Gingrich, was one of the attendees. I met Juan and Romanita, Gustavo and Hector, Octavio and Ana Maria, and at least three men named Manny. Jeb Bush, Jr. introduced his new wife, Sandra Algudady. The occasion was a dinner at the Heritage Foundation to celebrate the launch of Libertad, the conservative think tank’s brand new Spanish-language website.

You can read here why Heritage believes it is important to offer Hispanic audiences the opportunity to explore conservative thinking in Spanish, but the takeaways from an evening of lively discussion resonate far beyond those who would like to see not only a Republican president in the White House, but someone with at least as much affinity and respect for Latinos as presidents “41” and “43,” both of whom were lauded by the group of 30 conservative thought leaders from the world’s of business, journalism, advocacy, policy and politics.

I was at the dinner at the thoughtful invitation of NACD member Pablo Schneider, who, as a contributing editor of Latino Leaders magazine, involved NACD in producing a board edition of the publication earlier this year. The magazine is produced in English, which is good because the Irish (that’s me) may be great talkers, but we are certainly not great linguists. Latino Leaders encourages Hispanic executives to consider board service, making sure that American businesses have access to directors who will match their customers of the future.

Already, U.S. Hispanics are the country’s largest minority and have $1 trillion in purchasing power. By 2050 they are likely to be 30 percent of the U.S. population.

 Pablo and fellow NACD member Charlie Garcia, a director of Winn-Dixie and a great contributor to American society through his military and public service, will be among the directors facilitating discussions at next week’s NACD Director Professionalism®—The Master Class in Tampa, FL. They’ll be helping committee chairs and lead directors consider their own board composition and the skills and experience they may wish to consider accessing as they prepare for the future.

 Here at NACD we are practicing our language skills. The session is titled Su Mesa Directiva, Su Empresa, Y Los Mercados Hispanos, but old-school Anglophones need not worry; the discussion will be in English.

Charlie Garcia (front right) with Jeb and George Bush, 2006. Reproduced with Mr Garcia's permission