NACD Insight & Analysis for August 20, 2010

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Recent news has brought the topic of ethical standards in the boardroom and C-suite to the forefront. The board’s oversight responsibility is to ensure that processes are in place to promote the agreed-upon tone at the top. According to the 2010 NACD Public Company Governance Survey, nearly all respondents indicated that their management actively promotes a culture of integrity by precept and example. This can be accomplished through:

  • Standards of conduct
  • Guidebooks and manuals
  • Classroom sessions and training
  • Talks and visits, especially by senior executives

Boards must evaluate performance on many levels; this includes ethical as well as financial performance. For more guidance on the topic, please see NACD’s Director’s Handbook Series: Corporate Director’s Ethics and Compliance Handbook.

On the Global Investment Menu

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In these times, it is rare to be able to use the words “extremely successful” and “real estate investor” in the same sentence. So when I consider the utterances of my friend Joe, an extremely successful real estate investor, I often take heed. One of Joe’s key aphorisms has long been:  “If we all had the same taste, we’d all be eating in the same restaurant.”

Those words, and their applicability to the choices and preferences of investors, regulators and directors, came to mind while on a recent two-week stretch in Singapore, the UK and the US.  The range of attitudes and approaches in responding to rule-making and compliance was noteworthy, as it demonstrated the spectrum of approaches that can be employed in attempting to reach the goal of good, responsible governance.

Without getting enmeshed in long, generalized discussions about cultural differences and attitudes on ensuring compliance, I thought it might be interesting to offer a few quick snapshots of what is on the regulatory menu around the globe.  Think of them as small “appetizers” from a number of cuisines, and please, disregard any old biases about English, Asian or American food.  There are great chefs at work, and great meals to be had in each of these places.

  1. SGX Blacklist

    SGX Blacklist

    In Singapore, regulators “name and shame” companies whose governance practices fail to measure up on specific requirements.  One of the consequences of ignoring the mandate to have separated the chair and the CEO roles, is having the company name appear on a list of those “out of compliance”, and having that list well-publicized and broadly published. The newspapers and the financial press are ready consumers and promulgators of the list.

  2. In the UK, the Financial Reporting Council (which is the principal corporate watchdog) has proposed a “comply or explain” requirement in a proposed UK Stewardship Code for the behavior of institutional investors as shareholders, matching the UK Corporate Governance Code which is already in place. In this case, for example, the goal is to bolster shareholder involvement in corporate governance.  The code, as proposed, is not mandatory, allowing for the possibility of extenuating circumstances such as size or a specific investment strategy.  At the same time, who adheres to the code, and who does not, becomes a matter not just of public record, but of public disclosure as well.
  3. Dodd-Frank financial reform has moved many of the questions regarding corporateIn the US, we have seen that governance, such as majority voting, out of the hands of legislators and into the hands of regulatory entities who are charged with balancing the interests of a wide band of constituencies, ranging from public-sector pension funds that own huge quantities of corporate shares all the way to smaller-scale, newly-public companies.  The public-sector investors have substantial leverage, and are clear about the practices they expect to see disclosed and followed on the corporate governance menu.

NACD Dodd-Frank Act Webinars

Business Judgment Rule

Business Judgment Rule

2011 Shareowner Expectations

2011 Shareowner Expectations

NACD Members, click here to access the complete Dodd-Frank Act webinar archives

So what’s the takeaway from all of this? Does it whet your appetite for more in the way of voluntary compliance?  More in the way of mandatory compliance? More or fewer consequences for non-compliance?

In the arena of restaurant practices, there is wide variation. Some jurisdictions publicize the names of restaurants who have recently “failed” inspection, and why.  Others make restaurants conspicuously post the most recent results of their inspections for cleanliness, with big colored signs carrying a letter grade or a test score.

Keeping in mind Joe’s views on peoples’ tastes, along with the global availability of venues in which to invest or manage, what do you want on the menu that will satisfy your appetite for good governance?

*NACD Members, click here to access the complete Dodd-Frank Act webinar archives.

Independence, Process and Courage

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Prof. Charles Elson, Director, HealthSouth

Prof. Charles Elson

This month, I had the pleasure of working with longtime NACD member, Professor Charles Elson,* from the Weinberg Center for Corporate Governance at the University of Delaware. In addition to his academic work, Charles is also a member of the HealthSouth board of directors.

Charles was talking about duty of loyalty and duty of care (“Don’t be sleazy; don’t be sloppy.”) and advising boards about how to stay on the right side of the law. He emphasized the importance of independence; of thinking through and detailing the board’s decision-making process; and of courage—the guts to do the right thing.

Courage is a concept we have been thinking about a lot at NACD, and, indeed, we have arranged a plenary session at NACD’s annual conference to explore just what it means in the boardroom.

During their plenary session Courageous Board Leadership, Boeing lead director Ken Duberstein and former Lockheed Martin chair and CEO Norm Augustine will be interviewed by NACD’s CEO and president, Ken Daly.

They’ll speak about turning points in their own public service and board leadership and the times when they had to add courage to independence of thought and careful process. In addition to guts, both Ken and Norm have big hearts, sound judgment, and great senses of humor.

Don’t miss the chance to hear these two great storytellers reflect on their board experiences and share their passion for exemplary board and public service leadership at the NACD Corporate Governance Conference this October in Washington, DC.

Norm Augustine on Courageous Acts
Hear aerospace engineer Norm Augustine (also former chair and CEO of Lockheed Martin and former Undersecretary of the Army) talk about the courageous acts of 12 of his friends who walked on the moon – and the courage needed to face our energy crisis.

HBO History Makers Series featuring Kenneth M. Duberstein
Listen to the chairman and CEO of the Duberstein Group, Inc., who served as White House chief of staff during President Reagan’s administration, discuss his experiences.

*Coming soon: NACD’s multimedia, self-paced course, How to Be(come) a Director, will be available online later this year and is facilitated by Professor Charles Elson.