Saving Capitalism—One Conference at a Time

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Ever since the rise of capitalism in post-feudal Europe, people have predicted its self-destruction. Private creation and ownership of wealth carries risks, and these risks have been spotted by advocates and enemies alike. Free-market proponent Adam Smith in Wealth of Nations warned against the dangers of separating ownership and liability in joint-stock companies.  A century later, in Das Kapital, Karl Marx, a foe of capitalism, said capitalism would fail due in part to the inevitable decline of profits over time. And at the turn of this past century, capitalist icon and financier George Soros wrote of the “capitalist threat” in the Atlantic Monthly magazine, predicting that uninhibited pursuit of self-interest without concern for the common good would lead to a breakdown of the free-market economy.

In more recent times, however, we have not needed books or articles to sound the alarm. The current realities of persistent recession and excessive regulation say it all. Clearly, capitalism is under siege and we, its practitioners, are its only hope.

Fortunately, there are several existing communities devoted to this noble cause.  One is NACD itself. At our national headquarters and in our chapters, we at NACD believe the organization is helping directors do their jobs well, which, in turn, strengthens companies and the economy.

But NACD is not alone in its dedication. A number of movements have emerged with the express purpose of saving capitalism from both itself and overregulation. One of the newest and fastest-growing is “conscious capitalism”—a movement that challenges business leaders and indeed all stakeholders to rediscover and live their companies’ true purpose—even while creating long-term wealth for owners.

The phrase was coined by Muhammad Yunus, who received a 2006 Nobel Peace Prize for founding the Grameen Bank, a provider of micro-loans.  The term caught on quickly. Kip Tindell, CEO of the Container Store, and John Mackey, co-CEO of Whole Foods Market, co-founded Conscious Capitalism Alliance in 2007, which would join with an institute to become Conscious Capitalism Inc.(CCI).

The Conscious Capitalism movement, via CCI, has grown in less than half a decade to become a convening force—one strong enough to tear me away from my office! Last month I served on a panel at the Fourth Annual Conscious Capitalism Conference at Bentley University in Waltham, Massachusetts. The event focused on the importance of “love and care” in the workplace, along with similar topics, including the board’s role in corporate culture, the theme of my panel.

The conference brochure advised me that “conscious businesses have distinctive cultures that help to sustain their adherence to their higher purpose and their orientation towards maintaining a harmony of interests across stakeholders. Conscious cultures are self-sustaining, self-healing and evolutionary.” So far so good!

I assumed my purpose was to suit up, show up, and “carry the flag” for corporate directors.  I could just picture myself as being the only “suit” among a sea of social activists and rising-star millennials, being a lone voice explaining that directors do care.  In preparation for the panel, I had come up with what I call the 5 Cs:

  • code (help develop the code of conduct)
  • CEO (pick the company leader and successors with an eye to culture)
  • compensation (compensation committee sets incentives for nonfinancial and well as financial results)
  • controls (audit committee ensures compliance with laws,  the code of conduct, and any other norms)
  • composition (nominating and governance committee selects the board, which then sets the tone at the top through all of the above)

But as it turns out, although I did intone my 5 Cs, I didn’t have to do much explaining about how the boardroom works. Directors and business VIPs were everywhere in the crowd of over three hundred—including some with strong NACD credentials.

Day 1 featured former Medtronics CEO Bill George, who co-chaired the NACD Blue Ribbon Commission on Executive Compensation, as a keynote panelist on the theme of love and trust in business.

On Day 2, the director community was also in evidence. The moderator of the corporate culture panel, Deborah Wallace, is an NACD Fellow, and her panel included NACD’s most recent Director of the Year, Jenne Britell, chair of United Rentals. Another director on the panel, Ralph “Bud” Sorenson, is the chair of the nominating and governance committee of Whole Foods. The conference also featured several notable CEOs, past and present (not only Tindell and Mackey, mentioned earlier, but also Ron Shaich, founder and co-CEO of Panera Bread; and Doug Rauch, former CEO of Trader Joe’s and current CEO of  CCI).

Coming all the way from Australia was Ian Pollard, a prominent member of the Australian director community, active with the Australian Institute of Corporate Directors. And I couldn’t resist giving a shout-out to Steve Jordan, director of the U.S. Chamber of Commerce’s Business Civic Leadership Center. (BCLC advances businesses’ social and philanthropic interests through a variety of programs, including corporate citizenship awards and a disaster help desk that empowers businesses to help communities when natural disasters strike.) Like yours truly, Steve is a member of the advisory board of the Caux Round Table, which deserves its own full-length blog post—coming soon.

This star lineup told me that corporate America is already engaged in social responsibility, already devoted to making capitalism sustainable for the long term. Why else would such respected directors be there? And I noticed some knowing nods of agreement from the audience when I discussed the Global Reporting Initiative (GRI), the standard for reporting on company accomplishments in the environmental, social, and governance (ESG) realm—or “sustainability” for short. At NACD, we’ve been keeping our members in the know about such issues—which we will cover at our Board Leadership Conference in October 2012. As usual, our speakers and panels on sustainability-type issues will draw an appreciative crowd.

But Conscious Capitalism runs deeper than simply preaching to the choir about the importance of social issues. According to CCI co-founder Raj Sisodia, Conscious Capitalism has four defining characteristics: “First is a higher purpose. There needs to be some other reason why you exist, not just to make money. Second is aligning all the stakeholders around that sense of higher purpose and recognizing that their interests are all connected to each other, and therefore there’s no exploitation of one for the benefit of another. The third element is conscious leadership, which is driven by purpose and by service to people, and not by power or by personal enrichment. And the fourth is a conscious culture, which embodies trust, caring, compassion, and authenticity.”

Ideally, these values permeate the conscious corporation at every level, including all its employees. Keynote speaker Singh Kang, general manager of the Taj hotel in Boston, gave a good example. Taj is owned by the Tata Group, an $80 billion Indian conglomerate known for its benevolence to employees. Kang was general manager of Taj Mahal Palace in Mumbai during a terrorist attack on November 26, 2008, referred to as India’s 26/11. During the crisis, he stayed on duty, focusing on safety for all as his employees tried to protect guests, even taking bullets for them. Eleven employees died in the attacks.  Their families received generous, lifelong survival benefits from their company, returning loyalty for loyalty.

This was Conscious Capitalism in action. These loyal employees and their equally loyal employer will remain forever etched in my mind, inspiring me to continue defending and protecting our economic system—along with the positive values it can foster.

Alphabet Soup: A Director’s Guide to Financial Literacy and the ABCs of Accounting and Auditing

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On June 13, 1958, my last day as a second-grader at Chesterbrook Elementary School in McLean, Va., I rushed home, got a book of matches, went outside, and ceremoniously burned my Jolly Numbers book.

Yes, I hated math. (Making 8s look like snowmen didn’t fool me; this was work!) Today, for myriad reasons I have grown to love math. But I can’t say that I love accounting and auditing (A&A). Now, I’m not angry enough at A&A to burn ledgers, but I do have a complaint: A&A today involves not only jolly numbers—but ever-changing ones, along with ever-multiplying acronyms. This can make serving on not only the audit committee, but also the board of directors, extremely challenging.

As we all know, all audit committee members serving on the boards of companies listed on the New York Stock Exchange (NYSE) or NASDAQ must be (or become) financially literate. The NYSE leaves the definition of literacy up to the board. NASDAQ, however, has defined this as the ability to read and understand fundamental financial statements. At NACD, we believe that all directors should be financially literate—and, consistent with NASDAQ, define this as the ability to read and interpret financial statements.

To effectively interpret financial statements, it is obviously helpful to know the standards that apply to them. This means not only understanding the financial numbers, but also some idea of how to account for and audit those numbers.  Given the complexity of auditing and accounting standards today, this is not easy—not even for the “audit committee financial expert” that Sarbanes-Oxley rules first required for all audit committees almost a decade ago.

Yet A&A literacy is achievable—just ask! That’s what I’ve been doing for the past few decades while working with accountants and auditors on a number of projects—most recently a collaboration of the Center for Audit Quality (CAQ), the Financial Executives International, and The Institute for Internal Auditors with the NACD to find innovative ways to combat financial reporting fraud. As a group, I find these A&As typical of the profession: full of diligence and integrity—and governed by a growing number of standards.

Complex Challenges, Simple Solutions

Over time, I’ve identified at least seven complex challenges that thwart understanding of A&A:

  1. Similar or identical A&A acronyms.
  2. Overlap between A&A professions, and shared use of the word “auditor” for both internal controls and external reviews.
  3. Shared turf between A&A standard setters.
  4. Periodic changes of the names/numbers of A&A standards.
  5. Growth in the number of mandatory A&A standards and standard-setters.
  6. Growth in the number of voluntary A&A standards and standard setters.
  7. Global convergence of A&A standards.

This blog will define these challenges and propose simple tips that all directors can use. At the end of this article, there is a list of the 20 most crucial acronyms for A&A standards and standard setters. As a director, you will want to learn these terms. But before you do, consider my advice on how to keep it simple.

Complex Challenge 1: Similar or identical A&A acronyms.  At a board meeting, hearing about A&A standards, just to start with the beginning of the alphabet, you may hear the letters AS, ASB, ASU, AT, AU, followed by numbers. Do you really know which are accounting standards, and which are audit standards, and what they mean? (See the handy glossary below.) Getting to the letter I in the alphabet of A&A, the soup thickens. Recently, I learned that there was an IAASB as well as two different IASBs. I had the same second-grade impulse to strike a match! I calmed down when I learned that whereas the IASB is the International Accounting Standards Board, the other IASB is the Internal Auditing Standards Board, and the IAASB is the International Auditing and Assurance Standards Board. Might some nonexperts serving on audit committees drown in the alphabet soup?

Simple Tip 1: Call things by name. When you are in a board or committee meeting, whether you are a director or an advisor, don’t just use an acronym and number—and don’t let anyone get away with one. Use or insist upon the name of the standard. For example, instead of Topic 820 (or worse yet FAS 157, in the pre’99 parlance), call it “fair value accounting.”



Complex Challenge 2: Overlap between “accounting” and “auditing” professions—and use of the term “auditor” for both external and internal auditors. Auditing and accounting are different yet intertwined. It’s notable that the main U.S. standard setter for audit standards does not have audit in its name. It is called the Public Company Accounting Standards Board—even though it sets standards for auditing, not accounting! Similarly the IAASB (for “Audit” standards) is run by the International Federation of Accountants.

To make matters more complicated, the word “auditor” by itself means someone who works for an audit firm. However, the term “internal auditor” means someone who works for a company that gets audited by such a firm. The work of these two types of auditors is entirely different. The external auditor, as mentioned earlier, reviews the work of accountants. The internal auditor is responsible for what are called internal controls—the system of checks and balances that ensures an environment conducive to proper accounting and reduces the chance of error or fraud. Standards for each of these groups—accountants, auditors, and internal auditors, are set by three different authorities.

Simple Tip 2: Keep the As straight.  Think of it this way. Accountants apply accounting standards to create financial statements, internal auditors set internal controls, and auditors audit the results. All three are necessary for good financial reporting and each needs separate professional standards.


Complex Challenge 3: Shared turf between accounting- and audit-standard setters. Because auditors essentially check the work of accountants, and both accountants and auditors must be CPAs, it is not surprising that there is some overlap between the turf of standard setters. An example of this would be the overlap between the American Institute of Certified Public Accountants (AICPA) and the Public Company Accounting Standards Board (PCAOB).  The AICPA sets standards for private company auditors, and the PCAOB sets standards for public company auditors. However, unlike the AICPA, which has been in existence since 1897, the PCAOB is relatively young (10 years old) and has set only 15 Audit Standards so far (this is not counting other types of documents produced by the PCAOB such as concept releases). Where the PCAOB has not set an audit standard, called an AS, and where the AICPA has not set a statement of audit standard, called an SAS, companies are expected to follow by default the applicable audit standard set by the AICPA, called an AU.

Simple Tip 3: Give it to the committee “expert.” This is a particularly complex area. To maintain simplicity, the designated audit committee financial expert can shoulder this burden, assisted perhaps by an occasional educational session for the full board. Directors can take comfort in knowing that public company auditors are overseen by an independent board—the PCAOB. The AICPA has overseen private company auditors for more than 100 years.


Complex Challenge 4: Periodic changes of the names and content of accounting and audit standardsBy now all audit committee members know about the FASB Codification project that renamed the GAAP standards definitively in July 2009. A few years back, I was writing a long treatise on U.S. accounting standards under the Financial Accounting Standards Board (FASB), such as the famous FAS 157 and its sequel 157R on fair value accounting. But along came a change that renamed and renumbered all of the standards.  FAS 157 is now Topic 820. The global landscape has also shifted nomenclature. From 2004 to 2009, the Clarity Project of the International Accounting Standards Board improved International Standards for Accounting (ISAs), which are now referred to as International Financial Reporting Standards (IFRS).

Simple Tip 4: Learn the code! As mentioned earlier, it’s a good idea to use descriptive words rather than numbers when referring to a standard. In addition, if you are going to learn any numbers, the FASB Codification scheme is worth learning. Being only a few years old, and very well organized, it’s not likely to change in our generation.


Complex Challenge 5: Growth in the number of mandatory A&A standard-setters and standards. Currently, there are at least eight separate entities that are responsible for accounting and/or audit standards, more than 1,000 accounting standards, and dozens of audit standards—domestic and international. Thanks to monumental efforts by standard setters and the professionals helping them, the standards are logically ordered and clearly labeled. The main problem is the sheer amount. No single human brain can possibly know them all. Certainly an experienced accountant and/or auditor can help familiarize the board and the audit committee with the most important standard setters and standards.

Simple Tip 5: Make a list.  Make your own list of the important acronyms.  For a one-page guide to the 10 main standard setters and the 10 main acronyms they use, see the lists at the end of this blog.


Complex Challenge 6: Growth in the number of groups setting voluntary standards to supplement the mandatory standards. I was recently given an excellent guide to A&A organizations and their acronyms from a colleague in the standard-setting profession. In addition to the eight standard setters listed below in this blog, the list had 10 more, including the above-mentioned organizations (CAQ, FEI, IIA) and the longstanding Committee of Sponsoring Organizations of the Treadway Commission (COSO), which has suggested voluntary standards for internal controls for a quarter century.

Simple Tip 6: Prioritize your attention. As valuable as suggested practices are, mandatory standards come first. So, for example, a PCAOB standard on risk oversight would have more weight than a COSO standard, no matter how valuable the latter may be.


Complex Challenge 7: Convergence of accounting and audit standards globally. For years we have been hearing that accounting standards are converging into a global standard. The FASB and the IASB are currently holding meetings, slowly but surely creating joint standards. So far, the IASB has either completed or is working on more than 30 International Financial Reporting Standards (IFRS). That’s only about 3 percent of the way through the 1,000 we have in the United States.—and some may remain forever American—but it’s a trend worth watching.

Simple Tip 7: Request a “short list” of global A&A standards. It is beyond the call of duty for directors to master convergence by themselves. Here is a good area for professional assistance. Ask your external audit firm to provide a short list of the global accounting and audit standards that impact your operations most critically—along with notes about what they mean for the company. Given the slow progress of convergence, this is not an impossible task—and can broaden your A&A horizons.    


Don’t get me wrong. I have profound respect for the accounting profession and the various professionals who hold the title of certified public accountant (CPA). They rival corporate directors as a group endowed with a keen sense of integrity and service on behalf of the enterprises they serve.  Personally, however, I wouldn’t want to do their work. They deserve every penny they make, precisely because of all the names and numbers they must learn and remember to do their jobs.

In closing, here are the acronyms I have collected as must-knows for all of us. Good luck, and please keep all matches away from me!


These lists only include mandatory or unique standards and the bodies that set them. It does not include the many organizations that support this fundamental work through additional voluntary standards.  (See No. 7)

Acronyms for Standard-Setters

AICPA – American Institute of Certified Public Accountants – standard-setter for accounting and auditing of private companies.

ASB – Audit Standards Board of the AICPA – standard setter for private company audits. This board oversees the AU standards of the AICPA.  The AU standards are numbered from 110 to 901. They are interim standards unless they are superseded by an SAS. There are 121 of the SAS standards (SAS 1-SAS 121).

FASB—Financial Accounting Standards Board—standard-setter for U.S. accounting rules. The FASB, along with its predecessor the Accounting Principles Board, has set standards in Topic Areas, as well Exposure Drafts to test ideas. Topics, which are authoritative, cover nine areas numbered 105 (General Principles) through 995 (Industry Standards). Each Topic has drop downs with one to 10 further topics, each of which in turn has several more topics. All in all, counting all three levels of topics, there are some 1,000 topics. 

IASB—International Accounting Standards Board—This group has either completed or is currently working on more than 30 standards, called IFRSs.  See also the IASB below

IAASB—The International Auditing and Assurance Standards Board—part of IFAC. The IAASB has issued 36 standards for auditing and assurance numbered 200 through 810.

IASB—Internal Auditing Standards Board—This group sets standards for internal auditing internationally. It is part of The IIA.

IFAC—International Federation of Accountants—standard setter for international standards of audit and assurance (via IAASB). See IAASB.

IFRS Foundation—With the IASB, sets international accounting standards. See IASB.

The IIA—The Institute of Internal Auditors—sets global standards for internal auditing. The long name of these are International Standards for the Professional Practice of Internal Auditing, globally nicknamed IPPF. These Standards are numbered 1000 through 2600. Standards vary in length and complexity, but some are many pages long, containing numerous subtopics.

PCAOB—Public Company Accounting Oversight Board—setter of U.S. auditing rules. The PCAOB has set 15 Audit Standards (AS1-AS15). It also has posted 18 professional standards, called Rule 3100 through Rule 3700. It also has posted the AICPA’s AUs (see AICPA). The PCAOB also publishes Concept Releases to text ideas before they become proposed standards.

Acronyms for Standards

AS—Audit Standards—standards set by the PCAOB

ASU-—Accounting Standard Update—Updates to accompany the Topics in FASB. (Ever since Sept.15, 2009, Topics replaced SFASs name and numbers.)

AT—Interim Attestation Standard—adopted by the PCAOB as an interim standard for an aspect of auditing; based on AICPA audit attestation standards.

AU—Interim Audit Standards of the PCAOB and shared by the AICPA. (The “A” and “U” do not stand for words.) Each AU is authoritative unless and until it is superseded by an SAS.  Each AU is consistent with and draws from one or more SASs.

GAAP—Generally Accepted Accounting Principles—standards set by FASB.

GAAS—Generally Accepted Auditing Standards—standards set by the ASB of the AICPA.

IFRS—International Financial Reporting Standards—set by the IASB and IFRS Foundation; supersede IAS standards.

ISA—International Standards on Auditing—from IAASB.

SAS—Statement on Auditing Standard—an authoritative standards from AICPA.

Topics—the new name given to accounting standards under FASB’s Codification.

The following acronyms are superseded (or waning) but still being referenced by those who have not learned the new nomenclature.

FAS—Financial Accounting Standard—old name for standards issued by the FASB—also called SFAS (for Statement of Financial Accounting Standard).

IAS—International Accounting Standards—currently being superseded by IFRS.


25 for 35

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Next year, NACD will turn 35. Wow! Since I’ve been here for 25 of those years, that makes me feel…well, seasoned.  Recently, one of NACD’s past chapter leaders, Dann Angeloff (honored as one of five founding members at our 25th anniversary), asked our opinion for the main changes in the boardroom over our past three decades. As I pondered Dann’s question, I could see my professional life flash before my eyes!

So here’s my list of “tipping points” in board history—one for every year of service. Of course, it’s tempting to list the many accomplishments of NACD’s many illustrious board members, chapter leaders, and dedicated employees past and present—shout outs to great leaders John Nash, Roger Raber, and Ken Daly—and those who served in interim periods—but I’ll keep this list general. I’ll also resist the temptation—well, maybe not—to tell you a little more about me—in particular about a day in my life in 1978, when I worked briefly at my father’s publication, Directors & Boards. (This was before the visionary Rock family acquired it and the most excellent editor Jim Kristie took the helm.) On that fateful day, a colleague and I decided to spice up our Monday by tracking down Susan Sontag, a famous female intellectual of the era, to see if she might want to write us a little think piece on corporate boards. “Boards?” she responded incredulously. “Boards?” she repeated, adding “How dreadful!” She clearly believed that boards were boring!

Was Ms. Sontag right? Let’s take a journey through time, and you can decide for yourself. Here are 25 top headlines for governance—starting just a bit before my time but continuing to present.  

1977: The National Association of Corporate Directors (NACD) launches association and publication. NACD, founded by directors and headed by John Nash for its first 20 years, gave corporate directors an unprecedented way to obtain board-focused education and research, and to engage in networking and advocacy. In its first year the Association faced a significant challenge: implementation of the Foreign Corrupt Practices Act of 1977, which required boards to oversee internal financial controls. That same year, the New York Stock Exchange (NYSE) required its listed companies to have independent audit committees. During NACD’s earliest days, the Securities and Exchange Commission (SEC) was headed by the wise Harold M. Williams, who urged directors to take the lead in governance reforms.

1981: Ira M. Millstein wrote The Limits of Corporate Power (McMillan). This book, explaining such subjects as the duties of loyalty and care, would be the first of many influential Millstein publications.

1982: Martin Lipton invents a new kind of shareholder rights plan – the “poison pill.” This controversial mechanism allowed boards to buy time when facing an unsolicited takeover.

1983: Agency theory comes of age through Michael Jensen’s article on “The Separation of Ownership and Control” (Journal of Law and Economics). This article brought awareness of the issue first raised in 1932 by Adolf Berle and Gardiner Means in The Modern Corporation and Private Property. They noted that in the large modern public corporation, shareholders are widely dispersed and must rely on directors to represent them.

1984: Congress creates the U.S. Sentencing Commission to issue guidelines on corporate sentencing. Eventually published in 1987, these guidelines, applied to “white collar” crimes, among others. They offer reduced sentences to corporations with strong compliance programs. This development put compliance on the map for boards. The same year, the American Bar Association would undertake a major revision of its Model Business Corporation Act, a guide for state corporation law including model statutes for director and officer duties.

1985: The Delaware Supreme Court decides Smith v. Van Gorkom. This decision made it clear that the decision-making processes of directors would be subject to increased scrutiny. This same year saw the founding of the Council of Institutional Investors (CII) and Institutional Shareholder Services (ISS), both of which put more “heat” on boards to perform well on behalf of shareholders. Smith v. Van Gorkom began a long line of Delaware cases exploring the dimensions of fiduciary duties—too numerous to list here.

1986: The Delaware Supreme Court decides Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.  This case, involving a hostile bid for the cosmetics giant, put permanent pressures on boards to look for best offers once their company was in play. Similarly that same year, the Sixth Circuit court decided in Edelman v. Fruehof Corp. that directors should not accept a management buyout without considering other offers. The next year, in CTS Corp. vs. Dynamics Corp. of America, the U.S. Supreme Court upheld the rights of states to pass antitakeover statutes. But the Revlon decision was not the only notable event in 1986. That same year, Congress removed a real estate tax deduction as part of the 1986 Tax Reform Act, triggering the collapse of numerous banks (1000 closed between 1986 and 1991), resulting in numerous lawsuits against their officers and directors. Also in 1986, the Executive Leadership Council (ELC) was formed with the intent of increasing diversity at the board level through facilitating dialogue among African Americans within corporate leadership. Together with Catalyst, a group founded in the 1960s to promote advancement of women, ELC has been a force for diversity in boardrooms.

1987: The National Commission on Fraudulent Financial Reporting releases its report on the subject, sponsored by the Committee of Sponsoring Organizations (COSO). The work of this group, chaired by James Treadway (aka the Treadway report) gave directors their first set of guidance on their role in the detection, prevention, and oversight of fraud. Global contemporaries included the Cadbury Committee report in England (1992, with sequels in 1995 by Greenbury and Hempel), the Dey Report in Canada (1994), the King Report in South Africa (1994), and the Vienot Report in France (1995). Also in 1987, NACD held its first Director of the Year dinner, honoring Juanita Kreps before a packed audience. Unfortunately, the next morning, directors awoke to news of the stock market plunge on Black Monday. The meeting room that had been full the night before was mostly empty, except for John Nash and a few governance die hards.

1988: The Department of Labor issues a set of guidelines, now known as the “Avon Letter.” The Department-directed Employee Retirement Income Security Act (ERISA) required fund managers to vote proxies with the same diligence as they would when making other fiduciary decisions, thus placing more scrutiny on proxies and on boards.

1990: Institutional investor ownership of shares hits 53.3 percent mark. This was a big one. Prior to 1990, individuals held most shares of corporate equity. Institutional holders tipped the balance in 1990, according to a report published by the Columbia University Institutional Investor Project that year. The new prominence of institutional shareholders led to sweeping reforms in proxy voting rules in 1992 that allowed freer communications among investors.

1992: General Motors board elects John Smale as independent chairman and the National Law Journal publishes the first article (by Martin Lipton and Jay Lorsch) on the role of the lead director. Before these events, no major public company had an independent chair and the role of lead directors was entirely informal. The Lipton-Lorsch article put lead director on the map. That same year, Robert A. G. Monks and Nell Minow published Power and Accountability, which called for more investor activism and board responsiveness; and Michael Jacobs wrote Short-Term America, warning about the short-termism of investors and managers alike.

1993: NACD releases the first of its long-running series of influential Blue Ribbon Commission reports. This ongoing annual series provides best-practice guidance to directors based on the experiences of their peers, rather than from regulatory or academic sources. The 1993 report on executive compensation was followed by landmark reports on director compensation and “director professionalism,” among nearly 20 topics so far.  The report came out just as the Internal Revenue Service passed a tax code rule – 162(m) – which removed deductibility of pay over $1 million, with exemptions for companies with plans approved by independent compensation committees. This new rule had the unintended result of increasing CEO pay because many CEOs and boards saw $1 million as the new floor for CEO pay, rather than as a ceiling.

1994: California Public Employees Retirement System (CalPERS) challenges 400 public company boards to develop corporate governance guidelines similar to the guidelines General Motors had pioneered for publication that year. Before the mid-1990s, boards’ operating principles were largely informal. The advisor for the GM guidelines, Ira Millstein, later became governance counsel to and a director of NACD, and chaired the NACD Blue Ribbon Commission on Director Professionalism. Campbell’s Soup Company and Mallinckrodt Inc. were also pioneers in this vein.

1995: Congress passes the Private Securities Litigation Reform Act. This law, enacted by a pro-business Congress and administration, attempted to reduce the level of private securities litigation against directors under federal law. In that same year, Kennesaw State University in Georgia opened a Corporate Governance Center. Similar centers at Dartmouth College, University of Delaware, University of Tennessee, Stanford University, and Yale University (among others) followed.

1996: The Delaware Chancery Court opines in In re Caremark International Inc. Derivative Litigation in 1996. This was the first court decision to state that directors have an affirmative duty to seek reasonable assurance that a corporation has a system for legal compliance. That same year, NACD formed the Center for Board Leadership to support corporate governance research.

1997: The Coalition for Environmentally Responsible Economies (CERES) starts a Global Reporting Initiative (GRI). Today GRI exists as a framework for reporting on sustainability issues including environmental, governance, and social, enabling directors and investors to track these important nonfinancial aspects of corporate performance.

1999: The Organization for Economic Cooperation and Development (OECD) issues Corporate Governance principles – and the New York Stock Exchange, the National Association of Securities Dealers, and NACD release guides for audit committees. The OECD guidelines were the first set of international governance principles for use by directors. In 2000, the World Bank Group launched the Global Corporate Governance Forum to expand use of the guidelines beyond the OECD.

2001: Only months after the tragedy of 9/11, Enron files for bankruptcy. Later, reports by a committee of its own board and a report of Congress identified ways in which the Enron board itself contributed to the problem. Enron filed for bankruptcy in December 2001, an event  followed less than six months later by the bankruptcy of WorldCom, creating a public outcry and hunger for corporate reform.

2002: Congress passes the Sarbanes-Oxley Act. Among many other provisions, this law increased the duties of audit committees, mandated whistleblowing systems, and required the stock exchanges to tighten the governance standards for their listed companies. That same year the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) signed the “Norwalk Agreement,” agreeing to work toward the convergence of accounting principles—a move that increased the complexity of serving on board audit committees.

2003: New York Stock Exchange, NASDAQ, and American Stock Exchange publish corporate governance guidelines. The guidelines, an outgrowth of a more general Sarbanes-Oxley mandate, set a series of specific requirements for audit, compensation, and nominating and governance committees. In composing these new list rules, the exchanges heeded suggestions from NACD, based on our Blue Ribbon Commission reports.

2004: NACD co-founds the Global Director Development Circle (GDDC) for the exchange of leading practices among director associations. The earliest members represented director organizations in five continents.

2006: The Delaware Supreme Court upholds the Chancery Court decision on Disney. In the case In re The Walt Disney Company Shareholder Litigation, the Delaware Chancery Court exonerated the board and some senior officers of The Walt Disney Company for using the right process a decade earlier to approve an officer’s pay package with generous severance, even though the officer had not performed well. In its decision, the Chancery Court said that it could not in fairness apply current governance standards to judge an event that had occurred ten years prior. Furthermore the court cautioned that a failure to follow current best practice standards (such as those promulgated by the Council of Institutional Investors (CII) or NACD, both cited in the decision), while lamentable, does not constitute liability.

2007: In a period of strong stock market performance, the SEC issues rules permitting Internet availability of proxy materials. These rules facilitated communications between boards and shareholders—the subject of an NACD Blue Ribbon Commission the following year. The same year, Automatic Data Processing (ADP) spun off Broadridge Financial Solutions, which began developing platforms for more direct communication between corporations and shareholders.

2008: NACD releases Key Agreed Principles to Strengthen Corporate Governance for U.S. Publicly Traded Companies. As the financial panic set in, these principles, endorsed by the International Corporate Governance Network (ICGN), and based on areas of consensus among NACD, the Business Roundtable, and the Council of Institutional Investors show how many areas of agreement there are among managements, directors, and investors.

2009: Lehman Brothers files for bankruptcy, the largest U.S. bankruptcy ever. That same year President Barack Obama signed into law the Fraud Recovery and Enforcement Act of 2009, which mandated appointment of a Financial Crisis Inquiry Commission to explore the causes of the financial crisis. The final report of that Commission, published nearly two years later, found “dramatic breakdowns in corporate governance…at every level.”

2010: Congress passes the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act, especially Title IX (particularly Subtitles E and G) are best known among directors for say on pay, disclosures regarding board leadership structure, increased independence for compensation committees, whistleblower bounties, and private ordering for proxy access. Additional mandates include compensation clawbacks, conflict minerals disclosures, and disclosure of the ratio of CEO to median employee pay. In response to the high level of new board regulations, the Rockefeller Foundation funded a study group on corporate boards, which found the “board gaps” in need of bridging.

As for 2011, it remains to be seen what this year’s big event will be. But meanwhile, I will continue this happy task of tracking highlights—all the events I have heard, written, and discussed, and in many cases, witnessed first hand. It’s a fascinating adventure.

Oh, I forgot one item—a 26th in honor of next year:

2012: NACD celebrates 35 years. See you then!


(Who said boards were dreadful?)