Tag Archive: duty of loyalty

Directorship: The Go-To Guide

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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.

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.