NACD: Advancing Exemplary Board Leadership

Tuesday, May 31, 2011 - 01:00

The Editor interviews Kenneth Daly , President and CEO, National Association of Corporate Directors.

Editor: Please tell our readers about the National Association of Corporate Directors. What is NACD's mission?

Daly: NACD is focused on advancing exemplary board leadership, with emphasis on facilitating unique insights for directors, driving impact in the boardroom and creating outcomes that benefit long-term shareholders and investors. Our efforts result in director professionalism, board effectiveness and, ultimately, shareowner value as the outcome.

Editor: What is NACD's value proposition and how does NACD deliver this value?

Daly: NACD's unique value proposition stems from four key areas: 1) NACD provides a peer network of over 11,000 dedicated corporate directors; 2) we provide a broad, comprehensive suite of resources based on authoritative research; 3) NACD offers a broad inventory of director-led education courses with credentials that showcase directors' commitment to boardroom excellence; 4) NACD is the voice of the director. Now, let me tell you about each of these four value components and how they deliver unique value for the director community.

First, NACD is a unique membership organization with more than 11,000 members, representing public, private and non-profit companies that include Wal-Mart, American Express and Microsoft. NACD's membership is known for the company we keep, namely, more than 80 percent of the Fortune 50, including companies like JPMorgan Chase, Home Depot and Pfizer.

NACD members enjoy high-quality, peer-to-peer experiences that enable them to share and learn what others are accomplishing in the boardroom. Our members help one another anticipate emerging issues and trends, before impact reaches their boardrooms.

Importantly, NACD's programs and services are delivered organically - by directors, for directors. No other organization can stake that claim. Thus, our members benefit from the experiences and insights of other board chairs, lead directors, corporate counsel, committee chairs and board members. The value of this network is delivered through nationally led programs and, locally, through our geographically dispersed system of 22 NACD chapters, which facilitate more frequent member director collaboration.

Secondly, NACD provides a comprehensive suite of resources that are based on authoritative research that drives professionalism and effectiveness in the boardroom. NACD's practical tools, resources and guides are full of practical "how-to's" and leading practices that are shaped by directors and refined by NACD's team of governance professionals.

This resource chest helps directors and boards do their jobs better - in a more efficient and effective manner, which in turn leads to better strategic direction for companies and better shareholder value.

When directors need fast answers to tough questions and guidance to pressing opportunities, they can tap directly into NACD's pool of governance experts. And when a board wants to discuss an opportunity in the confidence of its boardroom, NACD assembles experienced directors and governance leaders to address the request.

The cornerstone of NACD's research is our series of Blue Ribbon Commission reports, which distill the results of convening leading directors and governance experts to study and make recommendations on critical boardroom topics. These studies are refined by NACD's research team and augmented by subject-matter experts. Furthermore, NACD convenes relevant stakeholders - such as directors, legislators, regulators and governance experts - to discuss and report their findings on board practices.

NACD research also benefits members through detailed board benchmarking analysis, based on our annual governance surveys and on-demand research services where members submit questions directly to our research team via phone or email. All on-demand research services are included - on an unlimited basis - as a membership benefit.

Third, NACD provides a broad inventory of director-led education courses focused on helping directors stay in the know, and unique credentials are awarded upon completion of a designated curriculum to bolster investor confidence. Directors who complete NACD's education curriculum become NACD Board Leadership Fellows. The NACD Fellows have demonstrated their commitment to adding definable value to their boards and shareowners - over time and despite change. Being recognized as a NACD Fellow provides recognition for directors' proactive involvement in advancing exemplary board leadership.

Lastly, and most importantly for many boards, NACD is the voice of the director community by being its advocate to influence boardroom policy and practices. NACD amplifies the needs and views of directors through congressional testimony and education for Congress and regulators. For example, I testified on the Hill last month, focusing on the potential unintended consequences of the Dodd-Frank whistleblower bounty program. NACD also speaks for its director members through SEC comment letters that communicate the boardroom perspective to regulators; through advisory councils of directors and stakeholders to help shape the governance landscape; and through education initiatives to increase awareness of boardroom realities on Capitol Hill.

Editor: Can you give examples of the materials and services that NACD offers? Daly: Our proxy disclosure template provides step-by-step examples of how a board can articulate to investors what skill sets and experiences are required to align with its company's strategies, and reflect how the directors on the company's board fulfill these required attributes. Further, NACD creates numerous handbooks and videos, used and discussed during chapter-led and national programs. As mentioned above, the foundation of NACD's efforts are our Blue Ribbon Commission reports. Everything we do is based on this director-led and NACD-refined thought leadership.

The primary delivery platform of NACD's resources is through our massive inventory of director education courses, which enables boardroom leaders to learn on their own terms - from large conferences and forums, to small, intimate peer-exchange roundtables. Our distance learning courses, programs and webinars allow extended and online access to NACD resources.

One of our newest platforms is NACD BoardVision - a bi-weekly web video series. I encourage your readers to check our BoardVision at www.NACDonline.org/boardvision.

If a board prefers to discuss specific topics in the privacy of its boardroom, NACD provides in-boardroom services, such as board evaluation and benchmarking, succession planning and topical education as desired by the board, such as strategic planning, risk management and crisis communication.

Lastly, NACD offers director recruitment services through our Directors Registry® , which helps members locate and hire the leaders necessary to build the best board possible. When a board needs to find a director or key executive with specific skill sets and experiences, many boards utilize NACD's Directors Registry, which currently lists thousands of highly qualified director and executive candidates. The key value of Directors Registry is affordability, speed and overall value, and no other resource provides comparable value.

Editor: What keeps directors up at night, and what is NACD doing to help directors navigate these issues?

Daly: Issues of the greatest complexity and concern include performance metrics, executive compensation, board composition and risk oversight. In broad terms, performance metrics refers to strategies, such as aligning compensation with corporate performance. Strategic planning is a central board responsibility, and metrics link corporate performance with strategy.

Our recent Blue Ribbon Commission report on performance metrics discusses this topic in detail and provides six steps to effectively develop and implement company-wide performance metrics.

NACD offers tools and guidelines - such as our Blue Ribbon Commission report on executive compensation - to help boards develop effective compensation plans and communicate these plans to investors. It is an excellent resource for NACD members.

Board composition requires a high level of scrutiny and sets the goal of creating a board that is a strategic asset in matching individual skill sets to corporate strategy. In our recent white paper on Board Building, NACD identified the top three fundamental concepts for optimizing board composition: analyze, recruit and evaluate. Furthermore, NACD emphasizes the importance of diversity of skill sets, experiences and intellect - that align with the company's strategy.

Risk oversight is a fundamental governance issue. While the board does not actually manage the company's risk - that is management's job - the board's job is to ask the tough, probing questions that help monitor the company's risk profile and ensure determined risks are within the company's risk appetite.

Editor: How should these critical issues be managed with respect to board communications and compliance?

Daly: Shareholders welcome dialogue, and a board must develop effective ways to facilitate communication of its goals and accomplishments. NACD's Blue Ribbon Commission on board-shareholder communications is another great benefit for our members.

Given the extraordinary ramifications of landmark Dodd-Frank legislation and resulting regulations, it's easy for a board to lose perspective and focus only on compliance and related activities. NACD benefits its members by helping boards sharpen their sights on long-term value.

Editor: What is the role of corporate counsel in a well-functioning board?

Daly: Corporate counsel is the front-line resource for keeping the board's leadership abreast of emerging trends in the legislative and regulatory arena. Effective GCs marshal company resources and support from internal auditors and compliance and ethics officers to ensure that the board is prepared and well informed.

Corporate counsel performs the role of a gatekeeper to ensure that the board can implement effective compliance programs that align with current regulations. GCs proactively monitor compliance initiatives and plan for forthcoming activities on the board agenda with respect to legal and regulatory matters. GCs coordinate communications between senior management and the board.

Editor: What are the trends in director compensation in terms of its make-up (cash, equity, etc)?

Daly: NACD recently issued its 2010-2011 NACD director compensation report, in conjunction with Pearl Meyer & Partners. NACD was the first to recommend moving toward a 50-50 mix of cash and equity, as the increase in equity helps align director compensation with corporate success.

A virtually universal element of compensation programs, the annual cash retainer is used by 94-98 percent of public companies.

We see an ongoing decrease in payment of board meeting fees, which still are used by a majority, though in less than 40 percent of top 200 companies. This decline is the result of better technology - for example, with webinars replacing or reducing the number of personal meetings - and increased use of dynamic communications - such as popular online alerts - via mobile devices. All of these developments make it more difficult to define "meeting."

Overall, director compensation is up, with equity portions increasing proportionately as equity values rise, due to increased time commitment and compensating for heightened expectations and more personal risk.

Editor: Do you have any final comments for our readers?

Daly: Directors are the custodians of capitalism. Working with and through NACD's valuable membership benefits, corporate boards can perform as strategic assets for their companies to bolster investor confidence, deliver sustained, long-term value, accelerate job growth, and create a thriving economy. The NACD and its members appreciate this opportunity to tell our story for your readers.

Please email the interviewee at ken_daly@nacdonline.orgwith questions about this interview.