NACD: Assisting Directors In Understanding Their Responsibilities And Avoiding Liability

Wednesday, October 23, 2013 - 11:09

The Editor interviews Peter R. GleasonManaging Director and Chief Financial Officer, National Association of Corporate Directors (NACD).

Editor: Tell us about your background with NACD.

Gleason: I am managing director and CFO, as well as head of research – a role I have held since I joined NACD 13 years ago. During my tenure with NACD, I have held a variety of positions, including COO.

Editor: What role does NACD play in training directors to be mindful of their responsibilities?

Gleason: As the voice of the director in the broader business community, our role is to advocate for the profession of directorship and develop and support leading corporate governance practices. Our research and our educational programs help our 14,000 members respond to current issues and opportunities and anticipate emerging ones.

In addition to our member directors, we also serve many corporate counsel, corporate secretaries, and other professionals who need to know about issues affecting their companies' directors.

Editor: Does NACD make available videos or other training materials that assist directors in understanding their responsibilities and avoiding liability?

Gleason: Absolutely. We have publications that focus specifically on director liability, including a Blue Ribbon Commission report, which was produced with guidance from E. Norman Veasey, the former chief justice of Delaware Supreme Court. We also have weekly or biweekly webinars on varying topics, but they very often cover liability issues.

It is also among the topics covered in a fundamental online course on our website: “How to Become a Director,” which is hosted by Charles Elson from the University of Delaware, a nationally known expert on corporate governance. He also teaches the fiduciary duties section of our Director Professionalism® class.

Editor: Does NACD suggest steps that directors should take to prevent reputational damage to the corporation that might reflect on them?

Gleason: Directors build their reputations over their careers and obviously don’t want to have them damaged in any way, shape, or form. The key here is avoiding, and we believe staying informed about critical issues, leading practices, and emerging trends is the best way to avoid reputational damage or situations that can cause reputational damage. All of NACD’s resources are designed to help directors stay on top of current issues, whether it’s an article about an emerging trend in our magazine, a chapter program, or an educational program – they are designed to help directors see over the horizon to anticipate and prepare for emerging issues. Repairing reputations is a lot more difficult, but very often transparency and action can go a long way.

Editor: Does NACD counsel directors of global companies that have branches in foreign countries about issues unique to particular countries (such as privacy) that might trigger liability?

Gleason: This is a topic covered in programs and research that we do. We have covered it in connection with doing business in China and the liabilities that may be triggered there. We alerted our members to risks arising under the Foreign Corrupt Practices Act, conflict minerals rule, and the international regulatory environment; we’ve done multiple episodes covering this topic in our BoardVision video series. BoardVision runs almost weekly, with different experts addressing specific issues, and the regulatory environment – both domestic and international – is often a topic of those videos. In addition, we have written comment letters on issues concerning the UK and European Union, and we are part of a worldwide coalition of directors called The Global Network of Director Institutes (GNDI). It is an international collaboration of membership organizations to share expertise in corporate governance and professional director development.

Editor: Has NACD done anything to guide directors in the adoption of enterprise risk management plans?

Gleason: We discussed the need for such plans in an early book titled Risk Oversight: Board Lessons for Turbulent Times. About four years ago, we did a new publication, Risk Governance: Balancing Risk and Reward, intended to help the board get their arms around what management should be doing from an ERM standpoint.

Editor: Does NACD suggest that individuals check the company’s track record with respect to reputational issues and pending and threatened litigation before joining a board?

Gleason: Yes. It is included in our list of questions that the director should ask when they are invited to serve on a board.

Editor: Is compliance one of the things you suggest directors investigate before they join a board?

Gleason: Absolutely. You need to look at the compliance programs and where they reside in the organization and assure yourself that reports up through the board are made. You also want to make sure that, as a board, you’re not overly involved in the details of compliance so that you lose sight of the strategic aspects.

Editor: What advice do you give directors with respect to assuring themselves that the board is getting adequate counsel?

Gleason: Be sure that the directors have ready access to the general counsel, or if there is no general counsel, to its outside counsel and that prospective directors talk to that counsel before they actually accept a seat. You want to make sure you have excellent counsel at your fingertips when you’re joining a board.

Editor: What do you tell directors about board committees and the kinds of issues they might have to deal with, say, if they’re on a committee that’s devoted to accounting issues or some other specific issues that the board decides are better delegated to committees of the board?

Gleason: We have written publications on each of the key committees, and we have separate Blue Ribbon Commission reports on each of the three most common committees: audit, compensation, and nominating or governance. We’ve done some thorough research and created recommendations about how these committees should be structured, what matters they should be considering, what their charters should look like, and what far-reaching issues they should handle. We also advise directors to look over the horizon for emerging issues.

Additionally, we have created advisory councils within the NACD composed of chairs of the three most common committees of Fortune 500 companies along with a fourth council composed of the chairs of their risk committees and other committee members focused on risk oversight. We then bring representatives of these councils together with regulators and large shareholders to talk about some of the issues that we see from the regulatory perspective, from the shareholders’ perspective, and from the board’s perspective that they are dealing with on a daily basis as chairs of these key committees.

Editor: What do you do in terms of providing directors with guidance in regard to being sure that they are adequately protected by D&O insurance?

Gleason: We advise prospective directors to check the adequacy of D&O insurance before accepting an invitation to join a board.

Editor: Does the NACD counsel individual members faced with situations in which they might expose themselves to liability?

Gleason: We have a service available to our members that invites them to ask us any question related to corporate governance or service on a board, and we try to respond to them within two business days. It’s called ExpresSource. We do not, however, offer legal advice, as we are not attorneys. We draw upon our 36 years of corporate governance experience and strong base of resources to provide answers and insights that may be helpful.

 

 

 

Please email the interviewee at resources@NACDonline.org with questions about this interview.