NACD Directorship November/December 2015 Vol

THE OFFICIAL MAGAZINE OF THE NATIONAL ASSOCIATION OF CORPORATE DIRECTORS NACD Directorship November/December 2015 Vol. 41, No. 6

Boardroom Intelligence November/December 2015

CEO’s Letter 4 The Power of One By Kenneth Daly

Chair’s Address 8 A Call for Greater Board Leadership By Reatha Clark King

Washington Update 14 A Coming Compliance Crackdown? By Alexandra R. Lajoux

Verbatim 18 Staying True to a Mission with Frank NACD DIRECTORSHIP 100 Heemskerk By Ashley Marchand Orme

Repartee 22 PwC’s Paula Loop Meets Ronna Romney By Judy Warner

Guide to Shareholder Communications 26 Virtual Meeting Usage Grows By Jonathan Foster

Sustainability 68 An Inside Story of Inclusion By Bob O’Brien

71 How to Be Climate Competent By Richard C. Ferlauto NACD Directorship 100 Small Talk 92 Taking the Lead, Long These directors and institutions set the gold standard in 2015. Live the Brand, More Plus: NACD’s Corporate Governance Hall of Fame, Director By Jesse Rhodes of the Year, and Lifetime Achievement Award honorees. 32 B:9.25” T:9” S:8” B:11.125” T:10.875” S:10”

Can your business afford a breach? A single breach can cause a 22% drop in your company’s net earnings over the next four quarters. Discover the security best practices you need to better protect your business. Download our complimentary report AT&T Cybersecurity Insights: Decoding the Adversary at our AT&T Security Resource Center. securityresourcecenter.att.com

This advertisement was prepared by BBDO New York Filename: P56049_ABS_ENT_V3.indd CLIENT: ATT BUSINESS SOLUTIONS Proof #: 3 Path: Studio:Volumes:Studio:MECHANIC... Created: 10-7-2015 10:59 AM PRODUCT: Resize of Rev Security Tape for NACD Mechanicals:P56049_ABS_ENT_V3.indd Saved: 10-7-2015 1:13 PM Program Guide Operators: Perian, Angelique / Sekulovski, Jovan Printed: 10-7-2015 1:14 PM JOB#: P56049 Print Scale: None SPACE: Full Page 4/C BLEED: 9.25” x 11.125” Fonts Ink Names TRIM: 9” x 10.875” Omnes_ATT II (Regular, Medium, Light) Cyan SAFETY: 8” x 10” Graphic Name Color Space Eff. Res. Magenta GUTTER: None Caution_V9_CMYK.tif (CMYK; 703 ppi), Mobilize_World-Lockups.ai Yellow Black PUBS: NACD Program Guide 2015 ISSUE: None TRAFFIC: Dorothy Gallardo ART BUYER: None ACCOUNT: None RETOUCH: None PRODUCTION: None ART DIRECTOR: None Contents November/December 2015 Features

Cover Story 32 NACD Directorship 100 The ninth annual listing of the most influential directors, institutions, and professionals that set the governance gold standard in 2015. 34 Corporate Governance Hall of Fame 36 B. Kenneth West Lifetime Achievement Award 36 Director of the Year 37 Directors 38 Methodology 53 Governance Professionals and Institutions

32 COVER ILLUSTRATION BY BOB KAYGANICH

Boardroom Guide to Shareholder Communications 26 Stuart R. Levine on the Complexities of Modern Shareholder Communications NACD Directorship spoke with Stuart R. Levine about how shareholder communications has changed since the 2008 financial crisis. Is the In-Person Meeting a Relic of the Past? The modern director and investor want efficient, virtual shareholder meetings. By Jonathan Foster Sustainability 68 At Forest City, Board Engagement Fosters Diversity and Inclusion One board member sparked a culture of inclusion that still strengthens the company’s results. By Bob O’Brien 71 Establishing a Climate-Competent Board Institutional shareholders are increasing their demands for boardroom leadership on climate matters. By Richard C. Ferlauto

www.NACDonline.org 1 Departments

CEO’s Letter Postings The Power of One By Kenneth Daly 4 79 Newly Appointed Directors at AXA Editor’s Note Financial, Verizon, Kellogg, More By Judy Warner 6 Best Advice Small Talk Chair’s Address 92 Out of Gas, Long Live the Brand, 8 A Call for Greater Board Leadership More By Jesse Rhodes By Reatha Clark King Need to Know 10 SEC Nominees, Health Scares, More Director Advisory 8 DENNY HENRY PHOTOGRAPHY Washington Update 82 Compensation 14 Is a ‘Corporate Compliance Crackdown’ Tailoring Executive Compensation Plans By Ed Steinhoff Coming? By Alexandra R. Lajoux 83 Risk Management Delaware Watch Guarding the Corporate Castle 16 Director/Attorney Privilege By Phyllis Deiso By Francis G.X. Pileggi 84 Internal Audit Communication Has Never Been Verbatim More Important 18 Staying True to a Mission By Richard F. Chambers By Ashley Marchand Orme 85 Compensation Repartee Incentive Plans: Goal Setting and Responsible Payout Patterns 18 22 PwC’s Paula D. Loop Meets Director By Melissa Burek COURTESY OF FRANK HEEMSKERK Ronna Romney 86 Geographic Diversity Entrepreneurial Governance The Challenges of the Global Board By Alex Wittenberg 67 Small-Cap Governance’s ‘Aha!’ Moment By Adam J. Epstein 87 Audit Committee Roundup Refining Risk Oversight Readings By Dennis T. Whalen 74 An Updated Classic Provides the 88 Board Composition ‘How’ and ‘Why’ for Independent Adding Critical New Expertise to Directors By Howard Brod Brownstein Boards By Dennis Carey and Robert Hallagan In Practice 89 Cybersecurity 76 Data Analytics in Audit Mitigates Risk 22 When Building a Cyber Defense,

ILLUSTRATION BY JT MORROW By Christopher J. Mazzei, Roshan Assume the Worst By Austin Berglas Ramlukan, and Ruby Sharma 90 Litigation and Liability Individual Accountability for Wrongdoing By Joan E. Meyer, Trevor N. McFadden, and Geoff Martin For membership information, please e-mail [email protected] or call 202-775-0509. 91 Compensation For reprint and distribution rights, please e-mail us at [email protected]. Relative TSR Will Not Align Pay and The opinions expressed in NACD Directorship are not necessarily those of the National Association of Corporate Directors, 2001 Pennsylvania Ave., NW, Performance Disclosure Suite 500, Washington, DC 20006. © 2015 National Association of Corporate Directors. All rights reserved. Reproduction in part or in whole, by any means, mechanical, photographic, or electronic, is prohibited without permission of the publisher. Individual and full-board subscriptions are available to NACD By Daniel Rodda members.

2 NACD Directorship November/December 2015 Send the right signals to your shareholders. Depend on Meridian to light the way for effective executive compensation strategies.

Meridian Compensation Partners, LLC We are one of the largest, most experienced, independent executive compensation consulting firms in North America. Our resources and expertise are unparalleled in scope.

We welcome the opportunity to discuss your needs. For more information, please call Michael Powers, Managing Partner, at 847-235-3600.

meridiancp.com

Independent Advice. Effective Solutions.

The Power of One BOARD OF DIRECTORS CHAIR As I write this letter, the National Association of Corporate Direc- Reatha Clark King tors (NACD) is poised between two major events: our 2015 Global VICE CHAIR Karen N. Horn Board Leaders’ Summit in September and our gala celebration of the NACD Directorship 100, where honorees and invited guests Dennis R. Beresford Sue W. Cole will gather to celebrate the directors and governance leaders who Kenneth Daly have made a critical difference this past year. Busy times. Directors Nicholas Donofrio often ask me which event is more important. Of course, my answer Hon. Cari M. Dominguez is “both.” One is educational, the other celebratory. One enriches Raymond V. Gilmartin Richard H. Koppes the other; both are meaningful. William E. McCracken With that in mind, I’d like to extend an invitation to a third Charles H. Noski Kenneth Daly is CEO of William J. White NACD. event: the act of contemplation. That involves not the power of 1,000, or even the power of 100, but the power of one: you, a unique SENIOR LEADERSHIP contributor to boardroom excellence. Individual directors can make a critical difference in the CEO Kenneth Daly boardroom, and it begins with their mind-set. An excellent director PRESIDENT Peter R. Gleason CHIEF OPERATING thinks deeply about a company’s issues, reflects on financial sound- OFFICER Katherine B. Davis ness in the short and long term, ruminates on social impact, asks CHIEF PROGRAMMING insightful and sometimes catalytic questions, and speaks his or her OFFICER Erin M. Essenmacher mind clearly—and then thinks some more. CHIEF MARKETING Certainly there is a “sameness” to directorship. Much that OFFICER Henry Stoever happens at the board level is collective: directors must deliberate GENERAL COUNSEL AND MANAGING DIRECTOR, together to make a decision, they are updated through the same BOARD ADVISORY information streams, and have identical exposure to liability as SERVICES Steven R. Walker fiduciaries. Meeting minutes rarely single out an individual’s contributions despite the fact that the perspectives and experi- PUBLISHING AND SPONSORSHIPS ences that each person brings to the table advance exemplary PUBLISHER Christopher Y. Clark board leadership. SENIOR ACCOUNT MANAGER Lindsey Baker Our learning events and celebrations of role models ulti- PARTNER RELATIONS mately find true purpose in fortifying one director serving one ASSOCIATE Stephanie Barko company at a time, one meeting at a time, one issue at a time. Consider the ways in which you promote excellence through EDITORIAL board service. Now, think about the most pressing issue facing EDITOR IN CHIEF Judy Warner you today. I’d like to hear about it. Write me at kdaly@NACD- CHIEF KNOWLEDGE OFFICER Alexandra R. Lajoux online.org. NACD wants to help you make positive change happen. ART DIRECTOR Patricia W. Smith RESEARCH MANAGER Ashley M. Marchand ASSOCIATE EDITOR Jesse Rhodes ASSISTANT EDITOR Katie Grills SENIOR RESEARCH ANALYST Ted Sikora PUBLICATIONS EDITOR Mary Tonkinson Ken Daly GRAPHIC DESIGNER Alex Nguyen [email protected]

NACDonline.org

4 NACD Directorship November/December 2015 B:9.125” T:8.875” S:8.375”

GRANDMA’S HOUSE, NOW WITH Wi-Fi. B:11.125” S:10.375” T:10.875”

STAY IN TOUCH THIS HOLIDAY SEASON. Chevrolet Traverse offers built-in 4G LTE Wi-Fi® 1 that’s more powerful than your smartphone, allowing you to connect up to 7 devices when Traverse is on and within 50 feet. So you can share all your holiday moments, even at Grandma’s.

THE 2016 CHEVROLET TRAVERSE

1 Requires a compatible mobile device, active OnStar service and data plan. 4G LTE service available in select markets. Visit onstar.com for coverage map, details and system limitations.

RAB Swop Editor’s Note

Best Advice NACD Welcomes These New Full-Board Members There is much to appreciate in this issue, and because I am rarely known for understatement, allow me to elaborate. The Alico NACD Directorship D100 (D100) recognizes and celebrates Blue Cross Blue Shield of those directors and governance professionals who, through their Massachusetts actions, words, and deeds, best exemplify NACD’s mission to Community Health Group San Diego “advance exemplary board leadership.” Chevron Corp. The making of the D100 takes a full year and involves the DHI Group insights and participation of NACD editorial and research staff Fenix Parts members, our board, and our leadership. The list really begins, H&R Block however, with you: our now 17,000-plus members who respond Henkels & McCoy Judy Warner is editor in to NACD’s request for nominations. This year our membership chief of NACD Director- submitted close to 500 nominations from which we selected the Luna Innovations ship magazine. 50 directors who were ultimately named to the list. Knowing how Metaldyne PG stretched directors are in their boardroom duties, I thank you. NACD Philadelphia Chapter This issue includes a special supplement, “The Changing Old Dominion Freight Line Face of America and the Boardroom,” which represents our Scottrade Financial Services third annual look at how demographics are reshaping boards SPX Flow amid greater cries for diversity. Bob O’Brien, CFO of Forest Texas Capital Bancshares City Enterprises, echoes this theme in an article that walks Thomson Reuters readers through how this real-estate developer sought out the Ulteig Engineers late Congressman Louis Stokes to join his company’s board. US Ecology Stokes helped to shape a diversity policy that transformed the USAA Savings Bank culture and strategic direction of Forest City. Fifteen years Vectrus later, Stokes’ conscientious actions have resulted in both a highly diverse board and workforce. This story is both the latest in our continuing series on sustainability and a supplement to the findings of the Report of the NACD Blue Ribbon Com- For information about full-board mission on the Diverse Board: Moving From Interest to Action. membership, please contact (Full board members can download a free copy of this report at Kelly Dodd at NACDonline.org/Library.) [email protected]. So my best advice to you? Aside from reading every page, think about your director peers who go above and beyond the call of duty to oversee the health of our nation’s companies. When you see a request for in the early part of 2016 D100 nominations, take a moment to recommend a colleague so that we can consider celebrating his or her achievements in these pages at this time next year.

Judy Warner [email protected]

6 NACD Directorship November/December 2015 I need a top notch firm that understands the financials from “a global perspective. I also need a team that is accessible, reliable, and who knows how to lead through acquisitions. At Baker Tilly, they are committed to our success.

— Rod Petschauer, CFO, Atwell, LLC An engineering and construction consulting firm

Baker Tilly’s specialized ” tax, assurance, and consulting professionals provide board and audit committees with candid business insight for their organizations.

We are a nationally recognized accounting and advisory firm, ranked as one of the 12 largest in the country with 2,500 employees across the US. As a member of the 8th largest worldwide network of independent accounting and advisory firms, 27,000 professionals in 133 countries are available to help meet your needs for seamless in-country expertise.

Connect with us: bakertilly.com

Brian Lane [email protected] 212 792 4842

A Call for Greater Board Leadership Amid Shareholder Activism By Reatha Clark King

Monumental shifts in our busi- associated with a shareholder and boards can have to respond ness environment are causing di- publicly challenging a company, effectively to, and even get ahead rectors to re-examine their roles, whether through a resolution on of, today’s tide of complaints responsibilities, and practices in a governance issue or through a about corporate governance. My search of ways to be more effec- proxy fight to gain board seats. outlook stems from the examples tive as corporate fiduciaries. In ad- Furthermore, that damage ex- of scores of companies that are a dition to ongoing oversight of is- tends beyond the company em- force for positive change in soci- sues specific to CEO succession, broiled in an engagement; the ety and the way that successful executive compensation, and risk rhetoric accompanying the companies benefit their share- oversight, directors are now faced shareholder activist movement holders, other stakeholders, and Reatha Clark King, PhD, with increased demands from a can lower the public’s trust in communities. Clearly, the com- is chair of NACD and a member of the board of variety of shareholders that want corporations in general. plexity of business today requires overseers of the Malcolm to change the course of board de- A number of governance that corporate officers and direc- Baldrige National Quality cisions—and even the composi- publications have featured for- tors commit themselves to contin- Award program. She is a tion of the board itself. ward-looking articles that en- uous improvement. former board member of As Securities and Exchange hance and encourage director As NACD develops its educa- Allina Health System, Exx- onMobil Corp., H.B. Fuller Commission Chair Mary Jo White education on the theme of board- tional programming, directors in Co., Lenox Group, Min- observed in a speech she gave at room disruption, most notably “Is particular should be aware that a nesota Mutual Co., Wells Tulane University earlier this year: a Disruptive Innovator Attacking director’s work is becoming more Fargo Corp., and many “The term ‘activism’ captures the Your Company?” by National As- challenging, the agenda of board nonprofit boards. range of efforts by investors to in- sociation of Corporate Directors tasks is growing longer, and critics fluence a company’s management (NACD) colleague Raymond V. are getting bolder in making their or decision making.” She said that Gilmartin (NACD Directorship, cases for change in board gover- activism is used to “achieve a va- September/October 2015). nance actions. riety of outcomes: board seats or Here, I will focus specifically I believe that the best way to control of the board; an acquisi- on board leadership as a positive counteract these pressures is for tion or spin-off of a non-core or disruptive force that could miti- boards to perform beyond the ex- unprofitable line of business; or a gate or lessen the negative impact pectations of their critics. This is a share buyback.” White also not- of an activist investor—or even lofty goal, and yet, it is attainable ed that companies are commu- turn it into a positive influence. if we are motivated to act for the nicating on a more regular basis But first: a call to action. benefit of shareholders, investors, with shareholders, including activ- and other stakeholders. To help ists. That increase in engagement A Force for Good sustain a healthy corporate sec- is generally a good thing and is a I urge the director community tor, it is particularly important for growing necessity for companies to take charge and aim for exem- boards to support strategic deci- of all sizes today. plary board leadership and strong sions that will ensure long-term There are, however, down- corporate governance. I am opti- value creation. sides to activism, namely the mistic about the potential influ- Boards have a comprehensive costs and reputational damage ence and power that companies role that includes overseeing all

8 NACD Directorship November/December 2015 aspects of the corporation’s work in addi- time provides ample support and wise ad- with certain audiences. These audienc- tion to playing an advisory role and mak- vice for the CEO. es—large and small investors, investment ing specified decisions in key areas. Boards 3. Sharpen board preparation. Board firms, suppliers, customers, regulators, today need to excel in the traditional tac- preparation is a never-ending imperative. employees, and communities—therefore tical, functional, and task-oriented gover- New issues that require board oversight and should receive special outreach and ongo- nance work while also addressing critically responsibility increase daily, and underscore ing attention. Although it is always critical important new issues that arise, such as cy- the need for continuing education through to maintain communications with large ber risks and shareholder activism. Manag- either formal or informal avenues, chosen investors, be sure to pay special attention ing these evolving sources of disruption re- according to the preference of the boards to the “small” or “retail” investors. An oft- quires visionary board leadership. and their individual members. While the repeated adage, usually in reference to cy- The following recommendations will types of new issues might vary by industry bersecurity experts, is “to know them be- enable boards to achieve excellence and and company, they all have one thing in fore you need them.” In an era when com- distinction and to exceed the expectations common: their numbers will continue to petition for votes in proxy battles is likely, of even their strongest critics. grow in our volatile and increasingly global small shareholders can be powerful allies. 1. Understand the board’s roles and environment. Strong board leaders seek to make in- responsibilities. More than any other lead- 4. Enhance disclosures and commu- teractions and exchanges with all share- ership function of being a director, I have nications. For as long as I have been a di- holders mutually beneficial. But how well reflected the most on the expectation that I rector, figuring out how to oversee disclo- do boards understand the expectations act with integrity and am held accountable sure and communication functions has of shareholders? Directors need to think to my company’s shareholders. I believe been contentious. Determining when and like an activist. Know that not all activists that to be effective in this era of increased what to disclose is oftentimes as perplexing seek to accomplish their aims in the same shareholder activism, boards, individually as whether to act ahead of a regulator’s re- ways. Strong board leadership helps man- and collectively, can benefit from updating quirement to disclose. On the surface, dis- agement decide the appropriate response their understanding of the board’s roles and closure is not an urgent matter for boards, to any shareholder proposal or challenge, responsibilities. Making this review a part but it continues to be worrisome, especially whether it is from an activist or non-activist of our ongoing preparation for board work for boards that strive to show strong leader- shareholder. will provide a better foundation for engag- ship. Strong boards realize that disclosure 6. Strengthen board leadership. Share- ing with both critics and supporters. For can easily become a reputational matter, holder activism underscores the imperative example, the board is expected to govern especially when the company is getting that board leadership needs to be stronger a company in the best interests of its share- adverse publicity because of a problem. than ever. Robust board governance en- holders and society at large. At first glance, In these situations, the public collectively sures long-term, sustainable success for disruptive shareholder challenges to board asks: “Where was the board?” shareholders and other company stake- decisions suggest one of several things: the Because boards are expected to be ac- holders in our society. Only with strong board is ineffective in performing its role countable for the conduct of their compa- management and board leadership can and responsibilities; the challenger does nies, they must both collaborate with the companies outperform the expectations of not understand the company’s strategy, ob- CEO and proactively communicate with corporate critics. jectives, and decisions; or a combination of the public before a crisis occurs. Commu- The question remains whether strong these situations. nications should be part of the board’s on- board and company leadership will de- 2. Improve board-CEO relations. The going dialogue and its preparation to reach crease future activist disruptions that tar- board plays a very different role than man- out to any and every audience, be it formal- get board governance decisions. Although agement and must be mindful of its three- ly through organized professional channels strong board leadership will lessen these part responsibility to oversee, advise, and or informally through interactions with attempts, I do believe that strong man- act for the benefit of the corporation and community members. agement and board leadership before and its shareholders. When a board is described 5. Deepen shareholder and stake- during conversations with shareholders as being “strong,” this means that the com- holder relations. Management should de- and stakeholders will result in more favor- pany has a board that leads and at the same velop strong and productive relationships able outcomes for all. D

November/December 2015 NACDonline.org 9 Need To Know Edited by Katie Grills A New Tipping Point at the SEC When President Obama nominated Lisa M. Fairfax and University Law School. She is also co-director of the Hester Maria Peirce to fill two vacancies at the U.S. DirectWomen Board Institute, a nonprofit that works to Securities and Exchange Commission (SEC), he put the increase the representation of women lawyers on cor- regulator on track to be led by a majority of women for porate boards. Peirce is a senior research fellow and the first time in its 81-year history. These appointments director of the Financial Markets Working Group, a think would, respectively, fill vacancies left by Commissioners tank within George Mason University’s Mercatus Center, Luis A. Aguilar (D) and Daniel M. Gallagher (R). which aims to develop solutions for sustainable economic Fairfax, an expert on shareholder activism and cor- recovery. A critic of the regulations and reforms passed porate governance, is the Leroy Sorenson Merrifield in response to the financial crisis, Peirce co-authored the Research Professor of Law at the George Washington book Dodd–Frank: What It Does and Why It’s Flawed. The appointments are subject to Senate approval. If both nominees are confirmed, it will be the first time in SEC history that four of the five commissioners are women. In recent years, the departure of some legal officers from the SEC for positions on Wall Street have raised questions about potential conflicts of interest. Even a 2011 Government Accountability Office report criticized the SEC for its lack of post-employment controls to prevent such conflicts and suggested that expanding the talent pool beyond corporate lawyers would better serve the financial system. By looking to the academic

sector for talent, Obama has—at least for now—ap- PHOTO OF LISA FAIRFAX IS WITH PERMISSION WWW.SECHISTORICAL.ORG.; ASSOCIATED PRESS Lisa M. Fairfax (left) and Hester Maria Peirce peased the critics on this score.—Jesse Rhodes

Moynihan Stays in C-Suite BofA has continued cost-cut- tives in their company, and 43 customers. Citing the Safe- and Board Seat ting efforts and posted a percent serve as CEO. guards Rule, the SEC faulted Bank of America CEO Brian T. third-quarter profit, breaking R.T. Jones for its “failure Moynihan remains board chair the company’s run of losses Regulating Cyber Risk to adopt written policies after 63 percent of investors and reversing a $232 million In September, the SEC settled and procedures reasonably voted in favor of the com- third-quarter loss in 2014. The its first cybersecurity enforce- designed to protect customer bined role. The majority 2015–2016 NACD Public ment case with R.T. Jones records and information,” and were wooed by execu- Company Governance Capital Equities Management, imposed a $75,000 civil pen- tives’ efforts to engage Survey indicated that an investment firm that man- alty. The firm also agreed to in deeper conversations the combined chair and aged 8,400 client accounts cease and desist from further about board-investor CEO role is common and claimed $480 million in violation of the rule. The set- relations in the weeks among Russell 3000 assets under management. tlement is reportedly a signal leading up to boards: 47 percent A 2013 cybersecurity breach of the SEC’s growing interest the vote. of board chairs compromised the data of in regulating cybersecurity Since then, are also execu- more than 100,000 individual risks and holding accountable

Bank of America’s Brian Moynihan. those who fail to adequately protect sensi- addition, because of the pace of change, require companies to notify the regulator tive customer information. cyber metrics need to be continuously of any incidents that have a “reasonable reviewed and revised so that they reflect likelihood” of materially affecting normal Pay-Ratio Disclosure Nets the operating environment. operations. Mixed Opinions Among Executives Los Angeles-based executive talent N.Y. Regulator Wants Cyber Policies WCD Transitions to Foundation firm Korn Ferry surveyed more than 700 Put in Writing WomenCorporateDirectors (WCD) executives to gauge their perception of Anthony Albanese, New York’s acting recently restructured to become a 501(c) the SEC’s recent CEO pay-ratio disclo- superintendent of financial services, has (3) nonprofit now called WomenCorpora- sure. Their findings were mixed. While 62 written a memo to federal and state teDirectors Education and Development percent of respondents approved of the regulators seeking input into the creation Foundation. WCD Chair and CEO Susan mandate that corporations should disclose of a proposal that would require financial Stautberg will lead the new organization. CEO-to-worker pay ratios, nearly 23 per- institutions to have written cybersecurity The transition was facilitated by KPMG cent felt that the disclosure would provide policies, according to a New York Times through its purchase and subsequent do- “little or no benefit” to their company. report. In addition, Albanese is exploring nation of WCD assets to the new founda- Some respondents said that the disclosure whether banks and insurance companies tion. KPMG’s continued sponsorship and could offer specific advantages, such as ac- should be required to appoint or hire a an expected increase in pro-bono services curate reflection of CEO value to the com- dedicated chief information security officer will allow the organization to advance pany (28 percent); increased transparency responsible for their cybersecurity pro- its mission to promote greater gender about the income gap between CEOs and gram and annual testing and vulnerability diversity in the boardroom. “We’re excited workers (21 percent); fuller shareholder assessments. The proposal also would about the possibilities this development insight into compensation strategy fairness (14 percent); and the ability to provide directors with greater clarity when deter- NACD Exclusive mining CEO compensation packages (13 Survey Finds Directors Unprepared for Activist Investors percent). The NACD 2015–2016 Public Company room continued its slow but steady rise. ■■ Defining Cyber Metrics Survey explores how prepared public A mere 14 percent of directors be- To take a holistic and comprehensive view company directors feel in the face of lieve their boards possess a deep under- of IT risks, boards need reliable cyber emerging governance challenges. The standing of cybersecurity issues. metrics, according to a report published as results—which for the first time include To download these insights, including part of PwC’s Audit Committee Excellence analysis of director attitudes toward activ- an appendix with comprehensive cover- Series. The publication defines the most ist investors—shareholders, and cyberse- age of the survey questions and answers, important cyber metrics that management curity issues, reveal these highlights: visit NACDonline.org/PublicSurvey. should report to boards to enable them ■■ 46 percent of boards have no plan to effectively oversee cyber risks and strat- in place to address challenges by proxy egy. Boards need to have the following investors. baseline information: how “crown jewel” ■■ Strategic planning and oversight information is protected; whether the remains a key priority for public compa- company is covered by cybersecurity insur- ny boards, with corporate restructuring, ance; critical IT upgrade needs; the current including M&A, emerging as one of five and aspirational states of IT infrastructure; top issues. the status of baseline IT “health”; and an ■■ The turnover rate on public compa- assessment of the tone and frequency of ny boards increased from 2014 to 2015. IT executive communications about the ■■ The number of women in the board- state of the department’s operations. In

November/December 2015 NACDonline.org 11 Need To Know

creates for WCD and its mem- basketball great Earvin “Magic” since the third quarter of 2014, bers throughout the world,” said Johnson. the average proceeds per IPO America’s KPMG Global Chairman John increased by nearly 46 percent. 20 Richest Veihmeyer in a press release. The Transatlantic Data Challenges This trend mirrors steady growth Investors foundation is already anticipating The Court of Justice, the Eu- in middle market offerings over expanding its global chapter net- ropean Union’s highest court, the past several years, with 2014 1. Warren Buffett work by seven or eight chapters ruled on October 6 that the Data being the most significant year in 2. George Soros in the coming year and offering Protection Directive, more com- growth overall for public offerings 3. Carl Icahn more educational and networking monly known as the Safe Harbor 4. Raymond Dalio events for directors. rule, does not afford American 5. Abigail P. companies the blanket right to Johnson Coming Home to Roost open transatlantic data transfers. 6. James Simons Following several months of The decision concluded that 7. Thomas media speculation, Jack Dors- the United States had violated a Peterffy ey recently returned as CEO provision requiring that nations 8. Ronald of Twitter, the social network receiving data to provide an “ad- Perelman giant he co-founded in 2006. He equate level of protection to the 9. Steven Cohen Etsy employees in June stepped down from the chief data.” The decision states that celebrate the company’s IPO at 10. Stephen executive role in October 2008; this provision was violated when the Nasdaq MarketSite. Schwartzman but the company quickly suffered the U.S. government allowed the 11. David Tepper declining user growth and ad dol- National Security Administration since 2000, according to The 12. John Paulson lars. Soon after rejoining Twitter, (NSA) access to E.U. citizens’ Wall Street Journal. “Despite 13. Andrew Beal Dorsey sold $200 million worth of data. According to a report from the lag in the number of IPOs, 14. Phillip Anschutz his shares back to the company Reuters, European Union data good deals will rise to the top, 15. Edward to fund an employee bonus pool. protection authorities will set a and when they do, they will be Johnson III Dorsey will continue to serve deadline of “the end of January” recognized and rewarded by 16. Eli Broad as CEO of Square, a payment for the United States to establish investors,” said Alex Castelli, 17. Ken Griffin company that in early November a new plan that protects the data co-leader of CohnReznick’s 18. Charles Schwab began a road show in advance of its citizens. While around 70 National Liquidity and Capital 19. Charles of an anticipated initial public American companies already Formation Advisory group, in a Johnson offering (IPO). While the San have bespoke privacy settings statement published on the firm’s 20. Bruce Covner Francisco Chronicle and others in place for European citizens, website. Source: Forbes magazine were reporting tumult on the many other companies do not, Twitter board—three directors and could face operational Health Scares are expected to be replaced and disruptions if an agreement is not The CEOs of Goldman Sachs Dorsey has said he will relinquish reached between the U.S. gov- and United Airlines both faced his role as chair—he also made ernment and the European Union life-threatening illnesses this leadership changes. Omid Kord- by the end of January 2016. fall. New United Airlines CEO estani, Google’s eleventh em- Oscar Munoz suffered a heart ployee and famed chief business Middle Market IPOs Net Top attack less than two months after officer, was named to executive Dollar replacing Jeff Smisek. Goldman chair. In addition, the Square New research from New York- Sachs’ Lloyd Blankfein announced ASSOCIATED PRESS board is comprised of former based accounting, tax, and advi- that he would continue to lead Goldman Sachs chief financial sory firm CohnReznick indicates the investment bank while he officer David Viniar, Kleiner that while middle-market IPO undergoes cancer treatment. Perkins partner Mary Meeker, and activity has dropped 41 percent The executives’ health concerns

12 NACD Directorship November/December 2015 underscore the growing demand by development. According to coverage of investors for boards to craft situation-spe- the acquisition in The Wall Street Journal, cific succession plans for their executives. Korn Ferry CEO Gary Burnison is seeking Publications such as The Wall Street Journal to double revenue from fees by provid- and The Economist put a spotlight on CEO ing consumer-facing skills-development succession planning shortly after Blankfein’s products. The combined company will also diagnosis, especially the requirement for consolidate some offices to save on real strategic, vetted communications about the estate costs. executive’s health to assuage shareholder and market concerns. A similar issue was Shareholder Lawsuit Claims Director Pay taken up at United, which appointed gener- at Facebook Is Overly Inflated al counsel Brett J. Hart as interim CEO while A Facebook shareholder filed a lawsuit Munoz recuperates. Munoz has been on the claiming directors paid themselves too job for about a month, since the unexpect- much for their board service—$461,265 on ed ouster in September of former CEO Jeff average for outside directors in 2013. That Smisek that was linked to ongoing internal amount is 43 percent higher than director and federal probes associated with the Port pay among Facebook’s peer companies. Authority of New York and New Jersey. The lawsuit raises questions about how much pay is appropriate for directors, who Interest Rate Tango are now expected to do more than they Global financial and political unrest have in the past, partly because of—in ultimately prompted the Federal Reserve the case of public companies—increased to hold off on hiking interest rates. This regulatory requirements such as Sarbanes– strategy will allow the U.S. to wait and Oxley and Dodd–Frank. Many now argue see whether the Chinese yuan settles that directors are underpaid for the level of in value; it will also allow the European work they do. Directors on average dedi- Union to evaluate courses of action in light cated about 248 hours toward board-relat- of Greece’s debt default. Media outlets ed matters over the past year, according are speculating as to when an increase to data from the 2015–2016 NACD Public might happen. Traditionally, increases are Company Governance Survey. announced after quarterly Federal Open Market Committee meetings, the next of Icahn Funds Super PAC to Change Tax which is scheduled for mid-December. Policy, Eliminate Inversions While billionaire investor Carl Icahn takes Korn Ferry, Hay Group to Merge aim at AIG to break the company into Hay Group is to be acquired by Korn Ferry three parts, he is also targeting U.S. law- pending regulatory review and approval, makers. In late October, the 79-year-old which is expected by the end of the year. Icahn launched a $150 million super PAC The merger will combine Korn Ferry’s to force change in corporate tax policy. Leadership and Talent Consulting practice Specifically, Icahn wants Congress to pass with Hay Group’s work in human resources legislation that would prevent U.S. compa- talent management and development un- nies from moving profits overseas for lower der the Hay Group brand. The acquisition, tax rates in what have become known which is valued at $452 million, will position as tax inversions. Forbes recently valued the merged organization as an internation- Icahn’s personal net worth to be north of al leader in recruitment and human capital $20 billion. D Washington Update

Is a ‘Corporate Compliance Crackdown’ Coming? By Alexandra R. Lajoux Is the U.S. federal government planning ees to 1,106. According to the SEC’s pro- pany complies with federal regulations, but a massive crackdown on corporations and posed 2016 budget, most of the employees the U.S. Department of Justice (DOJ) has their directors and officers to ensure full will be devoted to “foster and enforce com- announced a new policy that may have an compliance with the growing number of pliance with federal securities laws.” The impact on how boards fulfill this obligation. regulations? This theory may be overstated, SEC also states that “the OCIE will con- Legal developments over the past four but reading federal budget tea leaves and tinue its efforts to meet with senior man- decades—all of which are still in force— weighing recent developments in Wash- agement and boards of entities registered either require or incentivize this oversight: ington can raise valid concerns. To best with the SEC…to discuss how each firm The Foreign Corrupt Practices Act of 1977 survey the situation, here is a close look at identifies and mitigates conflicts of interest requires corporate record keeping; the Fed- corporate compliance developments across and legal, compliance, financial, and oper- eral Sentencing Guidelines of 1987 set all three branches of government. ational risks. This initiative is designed to forth corporate compliance program re- evaluate firms’ control environment and quirements; the famed 1996 Caremark de- Closing the Tax Gap tone at the top, understand firms’ approach cision asserts that directors must ensure in- Washington is likely to have more troops to conflict and risk management, and ini- ternal reporting on compliance; and rules and a bigger war chest to pit against per- tiate a dialogue on key risks and regulatory promulgated under the Sarbanes-Oxley Act ceived corporate scofflaws: double-digit requirements.” of 2002 require whistle-blowing programs, increases and new programs seem to be the ■■ On a parallel track, the Department ethics codes, and, in a listing rule of the order of the day when comparing compli- of Labor’s Office of Federal Contract Com- New York Stock Exchange, make compliance enforcement from year to year. The pliance Programs (OFCCP) has asked for ance oversight a function of the audit or federal government’s 2016 fiscal year began a budget of $113.7 million—an increase of other independent committee. To top it on October 1, and while the usual squab- $7.2 million—and to increase its work force all off, rules under the Dodd-Frank Act of bles still plague the budgetary process, it’s by 10 people to 650 full-time employees. 2010 offer whistleblower bounties. clear that corporate compliance will be a Given the pressure to cut budget numbers, As a result, many corporations have es- focal point in the coming year. these increases are hardly paltry. And note tablished dedicated compliance programs, The federal budget as proposed by Presi- that $3.3 million of the OFCCP budget will and the DOJ has placed high value on these dent Barack Obama aims to close the tax be earmarked for a new enforcement data- programs and board oversight of them. The gap—the difference between taxes owed base, as well as another $1.1 million for a DOJ’s Principles of Federal Prosecution of and taxes paid—by improving tax compli- new initiative that aims to enhance pay dis- Organizations, as currently posted, makes ance by businesses, thus saving $89 million crimination protections. The agenda at is- this clear: “Compliance programs are estab- in 2016 and $10.4 billion by 2025 by col- sue is the broader enforcement of antidis- lished by corporate management to prevent lecting more tax revenue from businesses. crimination laws to ensure fair treatment of and detect misconduct and to ensure that Of course, the only federal budget that women, persons with disabilities, and vet- corporate activities are conducted in accor- matters is the one that Congress approves, erans, as well as “new protections for lesbi- dance with applicable criminal and civil typically a series of appropriations to each an, gay, bisexual and transgender workers.” laws, regulations, and rules. The depart- of the federal agencies rather than a single Since 2009, the OFCCP has resolved over ment encourages such corporate self-polic- omnibus bill. Two appropriation requests 500 cases “remedying discrimination.” ing, including voluntary disclosures to the stand out: government of any problems that a corpo- ■■ The Securities and Exchange Com- Compliance Oversight Gets Personal ration discovers on its own.” The DOJ also mission’s (SEC) Office of Compliance In- Meanwhile, compliance oversight may states that when “determining whether to spections and Examinations (OCIE) seeks entail a new focus on people rather than pro- bring charges, and negotiating plea or other to increase its work force by more than 14 grams. Under various legal rubrics, direc- agreements,” they will consider “the exis- percent, going from 964 full-time employ- tors have a duty to oversee how their com- tence and effectiveness of the corporation’s

14 NACD Directorship November/December 2015 pre-existing compliance program” and “any bringing in a strong dose of decisive justice. efforts to implement an effective corporate In February, Judge Richard Leon of the compliance program or to improve an exist- United States District Court for the District ing one,” among other factors. of Columbia rejected a DPA in a case in- But this emphasis on corporate programs volving Fokker Services BV, a Dutch aero- yielded to a more personal approach this space firm with some U.S. presence that fall. On September 9, DOJ Deputy Attor- sells U.S.-manufactured parts. The United ney General Sally Quillian Yates issued a States had accused the company of violating memo to all United States attorneys and trade sanctions and endangering national heads of DOJ departments, including anti- security by selling aircraft parts to Iran, Su- trust, civil, criminal, environmental, nation- dan, and Burma, and offered a DPA, which al security, and tax. The memo outlines the Judge Leon denied. Some legal experts are key steps to “strengthen our pursuit of indi- concerned that if a court can abrogate a vidual corporate wrongdoing.” DPA, the DOJ will have no choice but to Historically, the DOJ’s prosecution prin- take a harder line in prosecutions, which, ciples provided that the corporate identi- taken into consideration with the Yates fication of wrongdoers was not a required memo, heightens concerns surrounding condition of leniency. Furthermore, corpo- crackdowns on alleged corporate crimes. rations charged with legal violations, or di- (A similar pattern of judicial activism is oc- rectors or officers sued for failure to detect curring in the European Union. On Octo- and/or address violations, could get some ber 6, the European Court of Justice gave a credit for having good systems in place. green light to national regulators in Europe However, according to Yates’s memo, even to enforce their data privacy laws more strin- if corporations have strong compliance gently. This could increase legal exposure programs, they cannot get any legal credit for more than 4,000 companies worldwide, with prosecutors for those programs with- including U.S. technology leaders such as out naming names. The memo states that Alphabet, provider of Google.com.) “in order to qualify for any corporate cred- The U.S. Court of Appeals for the D.C. it, corporations must provide…all relevant Circuit is now reviewing this decision in a facts relating to the individuals responsible ruling still anticipated at presstime. In ear- for the misconduct.” This new approach ly arguments as reported by the Wall Street may foster scapegoating, creating new chal- Journal, Justice Department lawyer Aditya lenges for employee relations. Bamzai told the three justices on the appeals bench that Judge Leon intruded “into the Deferring Prosecution Agreements discretion that is properly allocated to the Meanwhile, the U.S. Court of Appeals for prosecutor.” Protecting prosecutorial discre- the D.C. Circuit Court is poised to make a tion may indeed be important, but given the decision on the DOJ’s deferred prosecution “get tough” spirit that seems to be pervasive agreements (DPA) for corporations, which in Washington, it is unclear how this discre- show some leniency to corporations: if they tion will be exercised going forward—with or admit wrongdoing, pay fines, and agree to without DPAs. probation, they can avoid criminal convic- Given all these developments, mostly tion. The DOJ has also used non-prosecu- trending toward crackdown, boards would tion agreements for a similar effect. be wise to keep compliance oversight in But if the DOJ seems to err on the side of mind when wrapping up planning for mercy in these arrangements, the courts are 2016. D Delaware Watch

Director/Attorney Privilege: Communications Are Not Always Confidential By Francis G. X. Pileggi Most directors harbor the view that their attorneys. This privilege can be waived not the product of a mathematically pre- communications with their lawyers or with where, for example, the communications cise equation. Rather, that decision de- the company’s lawyers are privileged from that would otherwise be privileged are at pends on what the court views as necessary public disclosure. A recent decision by the issue, either because a party injects those as a matter of fairness. The fairness con- Delaware Court of Chancery serves as a communications into the litigation, or cept is designed to prevent a party from us- reminder that there are exceptions to that because an issue in the litigation requires ing privileged communications as both a general rule. In the matter of TCV VI, L.P. an examination of those communications shield and sword. v. TradingScreen, the court found that cer- in order to resolve the dispute. tain communications between a special Scope of Waiver committee of the board and its lawyers had In determining the scope of the waiver in to be disclosed. this case, the court addressed the sub-issue of whether a waiver by the board’s spe- Privilege Waived cial committee members regarding advice In this case, investment fund TCV alleged they received extended only to the docu- that TradingScreen, an electronic trad- ments and other information communi- ing solutions company, ignored a contrac- cated by the attorneys to those committee tual obligation to redeem preferred shares. members. To resolve this issue, the court TradingScreen in its defense asserted that identified the documents containing priv- the board acted in good faith because the ileged advice that the directors voluntarily advice of their attorneys supported their disclosed in order to use that advice as a refusal to redeem the shares. potential weapon in defending against the The court was called upon to address claims in the case. the extent to which the attorney-client privilege was waived. Not only was the sub- Waiver Rules ject matter of the waiver disputed, but the Delaware Rule of Evidence 510(c) gov- scope of the waiver was also contested. In erns whether the inadvertent disclosure addition to the waiver, the court addressed of otherwise privileged documents consti- whether the redaction of approximately In this case, there was no question tutes a waiver of attorney-client privilege. 1,900 documents was based on the same that there was a waiver at least to some This rule provides that a disclosure does subject matter and scope of the privilege of the documents, which contained ad- not operate as a waiver if three conditions that was waived. vice on which the special committee re- are met: lied, but there was a disagreement about 1. the disclosure is inadvertent; Shield or Sword other communications for which privilege 2. the holder of the privilege took rea- The purpose of the attorney-client privi- might also have been waived as a result of sonable steps to prevent disclosure; and lege, as articulated in Delaware Rule of four memoranda from lawyers being vol- 3. the holder promptly took reasonable Evidence 502, is to protect certain com- untarily disclosed. steps to rectify the error, including following munications from discovery in litigation. Directors must understand that a court any applicable court procedures to notify This rule is based on the rationale that pro- decision that asserts that certain otherwise the opposing party or to retrieve or request tection from disclosure encourages candid privileged communications between a destruction of the information disclosed. communications between clients and their board and its lawyers must be disclosed is The court found in this case that those

16 NACD Directorship November/December 2015 requirements had been satisfied and at- why the privilege applies and the issue to torney-client privilege had not been which it pertains. waived. It reasoned that the legal advice Thus, even if a particular communica- provided to the board’s special commit- tion is not disclosed, the foregoing infor- tee members should define the limita- mation about the document withheld must tions on the scope of the waiver. This be described in order to allow the oppos- decision also relied on reasoning that ing party to make their own analysis about cautioned against creating a waiver rule whether privilege was properly asserted. that would chill non-directors and man- Failure to adequately describe the withheld agement from seeking legal advice if the documents might result in a waiver of the waiver was too easily imposed. privilege for those documents. In prior decisions, the court ordered disclosure only for the advice presented to the Be Judicious board members who received it even if offi- In sum, even if a letter from an attorney cers of the company received the same ad- to a member of the board is withheld vice. Nor did the court allow for the waiv- based on an assertion of attorney-client er of underlying attorney notes and other privilege, certain details about that com- attorney work-product beyond the actual munication, as opposed to the document communication to the directors. itself, will need to be disclosed. And even Thus, the court held that the only waiver if parts of a document are privileged, the of the attorney-client privilege was for the circumstances of the case and practical- advice that was actually presented to indi- ity considerations may, however, require vidual members of the special committee. that censored documents be described on That waiver extended to several law firms a separate redaction log. that sent legal advice to those directors. Although the attorney-client privilege is still an important principle in the law, care- Privilege and Redaction Logs ful directors will realize that their commu- Delaware case law is clear on the require- nications with their attorneys may, in some ments for drafting a privilege log that situations, be disclosed for the world to see. describes documents withheld based on a Even if the actual document or e-mail that claim of privilege. However, the standards contained the communication is not pro- applicable to redaction logs for documents duced, precise details about that commu- partially redacted is not as well defined. nication will always need to be provided When preparing a privilege log, even if on a privilege log. attorney-client communications are with- This should serve as a useful reminder held and not waived, the following infor- about the need for board members to be mation must still be disclosed about those judicious in what they include in their communications: communications with their attorneys. D 1. the date of the communications; 2. the parties to the communications, Francis G. X. Pileggi is the member in including their names and corporate posi- charge of the Wilmington, Del., office of tions; Eckert Seamans Cherin & Mellott. His e- 3. the names of the attorneys who are mail address is fpileggi@eckertseamans. parties to the communications; and com. He summarizes the key corporate and 4. a description of the subject of the commercial decisions of Delaware Courts at communications that sufficiently shows www.delawarelitigation.com. Verbatim Frank Heemskerk

Staying True to a Mission Audit Chair at World Bank Lends His Expertise Interview conducted and edited by Ashley Marchand Orme

As Minister for Foreign Trade for the Netherlands from 2007 to when the bank makes major policy decisions. 2010, one of Frank Heemskerk’s primary missions was to promote The second governing body—of which Heemskerk has been a trade investments from and into the Netherlands. His portfolio now part since 2013—is the board of directors, comprising 25 executive expands far beyond Dutch borders. Heemskerk, a trained econo- directors plus the World Bank president. Each executive director mist, chairs the audit committee of the World Bank Group in Wash- represents the interests of a group of member countries. Heemskerk ington, D.C., a global nonpartisan organization that aims to end represents the interests of 13 countries, including Armenia, Croatia, extreme poverty and promote shared prosperity. Israel, the Netherlands, Romania, and Ukraine. Executive directors Established in 1944, the World Bank Group is composed of 188 are responsible for policy issues that affect daily operations and for member nations and five institutions: the International Bank for Re- the approval of loan and credit proposals. If a country is unhappy construction and Development, which provides financial assistance to with how that executive director is representing their interests, they middle-income families; the International Development Association, can seek representation by a different director. And, when a country which makes interest-free loans and grants to the poorest of countries; leaves the umbrella of one director, they take with them their vot- the International Finance Corp., which makes financing and advisory ing weight based on the shares they own. Thus, when that director services available to private businesses and governments; an agency goes to the table to help make major decisions, he or she has less that offers political risk insurance to investors and lenders; and an ar- of a voice. bitration and resolution service for international investment disputes. It’s an unusual system to be sure, and the challenges that The economic and political interests of the member nations vary Heemskerk faces are multifaceted, interconnected, and extremely greatly, which makes governing the World Bank Group no simple delicate. The World Bank Group navigates geopolitical risks around task. Members—all of whom provide the investment capital to the globe, balancing its humanitarian mission with the real-world advance the bank’s goals—select a governor, usually a country’s obligations that come with being an operational bank. Heemskerk minister of finance or head of its central bank, to hold a seat on offered his thoughts on addressing those challenges in an interview the bank’s board of governors. These governors become involved with NACD Directorship magazine in late summer.

The World Bank is a mission-driven organiza- zation in a political environment. On the other hand, we’re tion. How does its humanitarian focus affect a bank. We have a lot of business lines, but also we have the work of the audit committee? important known financial obligations. We need to The World Bank is a complex organization. manage our non-performing loans. We need to man- We have goals to end extreme poverty and age our funding strategy. It’s finding that balance be- boost shared prosperity. We also work in a tween these two elements that makes the committee political, non-financial environment. And work very interesting. we have a lot of passionate people who want How do you keep the World Bank’s mission top PHOTO COURTESY OF FRANK HEEMSKERK to do well and are convinced that the work of mind when the audit committee’s work can be so they’re doing is so important that the money quantitative? should follow their goals, and that the organi- The audit committee has the advantage of a balanced zation should be driven by our mission and membership. Some members do have a strong fi- not by our financials. That makes nancial background, other members have the work for the audit committee a more political or governmental back- complex because, on one end, ground. Those worlds already come to- we are a mission-driven organi- gether in the committee [composition].

Verbatim Frank Heemskerk

Because we are a bank, we can’t afford not to make decisions. We structure projects in Africa that, in the end, acts toward eliminating have to meet deadlines. We have to have a financially stable busi- poverty and boosting prosperity. ness model. It’s an advantage that we’re not purely political, we’re not just financially driven, but we are that strange animal that com- How do you ensure the audit committee focuses on all critical bines those two elements. agenda items? There’s a difference between briefings and information exchange What has been the most surprising thing that you’ve learned since on the one hand and committee meetings on the other. I try to make becoming audit committee chair? sure that information exchange is done as much as possible before The fact that we have to balance those two elements. [Also], we’re a committee meeting, in writing or in technical briefings. When a multilateral institution, so we’re not regulated. Of course, we do we come together for meetings, we insist that management does the use the highest standards and we do source in a lot of knowledge kick-off. Management should be very explicit on what they expect through the capitals that are represented at the board. But, ultimate- from the audit committee. The audit committee should stick to the ly, the audit committee has final oversight. topic of the meeting and be focused with their questions.

What makes an audit committee effective? “We’re an institution where Israel is a [First,] make a distinction between information and discussion member, Pakistan is a member, Iran is a and decisions. On the one hand, you have information exchanges and briefings. On the other, you have committee meetings where member, the U.S. is a member, Russia is you really take positions. Second, have formal gatherings with self-as- a member, Ukraine is a member, China is sessments. You can always learn. Third, make sure management understands that there’s an open door. If they have an issue with a member, and we’re nonpolitical.” the internal auditor, the executive vice president, or the risk officer, —FRANK HEEMSKERK they can approach the chair, the co-chair, or any member of the audit committee. Fourth, make sure you get information not only from management, but also from outsiders—most importantly, the What risks are top of mind for you? external auditor, but also through other networks and news sources. Country counterparty risks in a geopolitical setting. We lend What I really appreciate is operating in a high-trust environment. money to countries facing difficult geopolitical circumstances. And high trust means that we should not sit in the chair of manage- [There are also] market risks—funding, interest rate sensitivities. I ment. We should not check everything they’re doing. But also take also think it’s important from time to time to take a deep dive into op- responsibility for management to come back to the audit commit- erational risks—risk in our financial priorities, but also risks in how tee and to address challenges or problems that they face. If some- we structure our lending to countries, for example, through concrete thing really goes wrong, they should tell us the bad news first. It also investment projects or budget support. asks for management to be transparent on the issues they face. But What is the most difficult to grasp, is our reputational risk. There, they should know that we’re not on their backs all the time. I think it helps that I have a political background. It’s about thinking, “Am I able to explain things that appear on the front page of How do board members cultivate that trust? the Financial Times to all these different shareholders?” We’re an It has to do with personal integrity. All the committees have to institution where Israel is a member, Pakistan is a member, Iran is make clear to management what the key issues are that we worry a member, the U.S. is a member, Russia is a member, Ukraine is a about and say, “Please come back to us if things go wrong. If you member, China is a member, and we’re nonpolitical. make a mistake and things go wrong, that happens, we won’t ask you immediately to come up with a solution.” It’s [about] being open on How do you balance short-term goals with longer-term goals? delicate matters. And that’s difficult. It means also that you have to We have two long-term goals: ending extreme poverty and boost- share the same agenda. It also means that you have to be able to call ing shared prosperity. Our short-term goals feed into that. If we mod- each other in the evenings or over the weekend when it’s needed so ernize our procurement strategy, that adds to our longer-term goals. that if there would be a negative thing in the newspaper tomorrow, If you get value for money in the way you do your tendering for infra- that there are no unpleasant surprises. D

20 NACD Directorship November/December 2015 The Compensation as Catalyst Series Interview #1 How to use compensation as a tool to drive value creation.

Our Compensation as Catalyst (CAC) interview series explores how innovative new approaches are leveraging executive compensation as a powerful tool for driving value creation. In our first installment, we hear from David Swinford, President and CEO of Pearl Meyer.

CAC: What is the biggest challenge for Boards in terms of embracing compensation as a mode of value creation?

Dave Swinford: It’s changing the historical perspective. Until fairly recently, the concept of compensation has been viewed primarily as a cost of doing business. But we are beginning to see leading organizations change their compensation philosophies. They’re thinking about it as an effective tool for the Board to reinforce behaviors that drive the company’s business goals. Then it actually becomes a point of differentiation in how a company operates and executes. When there’s clear alignment between corporate strategy and the compensation program, everyone can be more precise in short- and long-term goal- setting and most importantly, successful in achieving those goals. And that’s going to set them apart from the vast majority of their competitors.

CAC: How can Boards begin to align pay and business strategies?

Dave Swinford: First, move away from the idea that conforming to the norm, or matching best practices, is a healthy approach. You want to incorporate market intelligence and data, “Of course you want but let it inform, not dictate your compensation program. This is to incorporate market especially important when new regulations introduce complexity. As the intelligence and companies we work with begin this journey, we suggest maintaining a data, but let it inform sharp focus on what’s best for the organization and adopting a long- and not dictate your term mindset. Where you can truly achieve success is by identifying compensation program.” the unique compensation approach that drives value for your company.

Balancing Priorities: Governance Pro Meets Lead Director

To write that Ronna Romney has led a full and varied publicly traded logistics and manufacturing company

Edited by ILLUSTRATION BY JT MORROW life would be an understatement. This Michigan where she chairs the compensation committee. In Judy Warner mother of five grown children is the lead director of addition, Romney is an author and has hosted both Molina Healthcare, where she chairs the transaction radio and television issues-oriented programs. She committee and serves on the compensation and was appointed by President Ronald Reagan to serve corporate governance and nominating committees. as chair of the President’s Commission on White She is also a director of Park-Ohio Holdings Corp., a House Presidential Scholars and President George H.

22 NACD Directorship November/December 2015 W. Bush named her chair of the President’s Commission on White experience and that’s why the journey is more important than House Fellowships, making her the first woman to hold this role. In what’s happening in the near term. The interesting thing about you, 1996, she was the Republican U.S. Senate nominee, but lost to the Ronna, is that you did some very different things with your political incumbent, Democratic Sen. Carl Levin. While she is emphatic that she activities. How do you think politics helped shape your career? is proud of all her children, her namesake, Ronna Romney McDaniel, Romney: Well, politics opened up doors and that surprised was elected in 2014 as the Republican National Committeewoman me and a lot of others. When I was elected Michigan’s National for the State of Michigan, a position Ronna Romney held from 1984 Republican Committeewoman there were very few expectations to 1992. They were the first mother and daughter in the history of from the people who tapped me to run. It came as a happy surprise Michigan to serve in this position. Her daughter was elected chair of that I could actually lead, organize, and fundraise. the Republican Party in Michigan earlier this year, the fourth woman I look at people like you, Paula, and you are well rounded. You elected to this position. have had a chance to experience so much that you can give back Paula Loop is the leader of PwC’s Center for Board Governance later in your career. That’s what women bring who stepped off the and Investor Resource Institute. Prior to her appointment in July, fast track. Loop was the New York metro regional assurance leader. She Loop: It’s rare for women to be able to succeed in a straight shot. also served as U.S. and global talent leader at PwC, where she It just doesn’t seem to work that way. You’ve demonstrated how set strategy for the recruitment, onboarding, and management you can use those talents from different sectors, and apply those of the firm’s talent around the world. Together, these two women now in your board roles. at the top of their chosen professions compare notes on their Romney: As I look forward, you and I and others like us will careers, the role of the lead director, and what they see working open doors for women. I told my daughter, who was just elected for board renewal. chair of the Republican Party of Michigan, that she stands on many shoulders. I basically stood on men’s shoulders to get to Pathways to the Boardroom where I am today. She is standing on the shoulders of men and Loop: Please share some elements of your background. It must women, and then she will be there for the next generation. have shaped who you are today and what you do now in your board Many men have a way of getting things done head-on, and roles. I’ve learned through the years that strategically, the head-on Romney: I’ve given it a lot of thought, how I got from being approach doesn’t always work. I’ve often told women that I talk a young woman who got a degree in education just in case my to, my daughters included, that you should have several tactics husband died to where I am today. My life has been sequential, with in your arsenal. If the head-on approach works for you, use it, each chapter opening up new paths that I took without knowing but I have found that end runs can be very effective to get to where they would take me. I’ve found that great opportunities were the goal line. afforded to me, and that help came from men because I’m of that era where women weren’t in key roles. Intentional Board Service Loop: I can relate. I always think about my career as being Loop: It takes a lot of time and energy to be on a board. It’s hard to circuitous because I left it midstream for eight years to raise my be on one board, and certainly multiple boards, especially if you children and then came back. I have moved forward, but it hasn’t also have a full-time day job. I do think that the shift in demograph- been a straight shot. ics is going to change the way boards approach refreshment and Romney: What you did was very brave. You knew when you renewal in the future. What do you think? decided to step off the career track that there was a good chance Romney: Park-Ohio and Molina’s directors work hundreds of you would not have the same success or the same rate of promotion hours. We need people who can give us time, and that is now as your male counterparts, didn’t you? moving toward a much older director. People who are employed Loop: Yes, you’re absolutely right. There is risk associated with it. in significant positions don’t have time for more than one board, Romney: And you decided to accept the risks. Was the reward and many can’t even do one. We’re watching for the leaders in worth it? corporate America, academia, government, and less obvious Loop: The reward was very worth it. With different phases of a areas who are nearing retirement, and are contacting them ahead career, different things matter more, and you have to weigh and of time. balance those. A career is a journey, right? It’s not a short-term Loop: Some of the large pension funds have come out and said

November/December 2015 NACDonline.org 23 Repartee | Paula Loop and Ronna Romney

Paula Loop that in their wish list, they did not want any board up to the lead director and/or the CEO to take that member that had been on more than four boards. I person aside and say, “You’ve had a great run, you’ve imagine, Ronna, that the scheduling alone would be done a great job, but we want to refresh the board really challenging work. and I would like to thank you for the great work you Romney: It is unless you decide you want to be did as a board member.” And then you move on. a full-time director. You will be in the air and on I want to just go back to directors because we had conference calls all the time. If that’s what you want this discussion earlier about cybersecurity and I told to do, that’s fine—as long as you are willing to put in you that my personal philosophy is you hire expertise. the work that is necessary. You don’t bring somebody on a board because he or I believe that I represent a lot of companies when she is a cybersecurity expert. You hire a consultant I say that we want directors who bring value to the for things like that. board—not to themselves, but to the board and Loop: So you prefer to have directors that have shareholders, and we spend a lot of time trying to broad skills? The first find them. We bring them in, maybe have them Romney: And strategic skills. It’s what makes person to come in and speak. We’ll have them to dinner. We them wise. Yes, they were great in their industry, “live to 150 want to make sure that this candidate is going to work but beyond that they are thoughtful and strategically well with the board. minded. They know that collaboration is important. years old has Loop: I’ve heard you talk about board roles being It’s a unique set of skills beyond what they did already been somewhat like a marriage. How so? corporately. born. ...If Romney: If you have a person who is disruptive, your board can become dysfunctional and the work On Being a Lead Director we’re going to that you’re doing on behalf of the shareholders is Loop: Let’s talk about your work as a lead director. live well over diminished. I have experienced it, and because of There aren’t many women lead directors, and it’s not 100 years, we that I’m sensitive to it, and so are my fellow board tokenism because your fellow board members elect members. you. Do you think you made it here because of the are going to We do not have just one interview. All board skills we talked about earlier? want to work members will interview potential directors, and we Romney: I don’t know many other female lead longer and will look at them for a long period of time because directors so I can’t speak to that, but I can tell you seek new, we want to be a collaborative body that is unafraid that an essential ingredient for being a good lead to dissent, and works on behalf of the shareholder. director is having a strong relationship with the chair challenging If you have one person who is disruptive and causes and CEO and with your fellow board members. You opportunities. trouble, the board as a whole brings less value. Like don’t always have to agree, but as liaison, you have to I certainly a marriage, let’s say it isn’t working out. You have to have mutual respect. end it. So, isn’t it better to do the hard work ahead of Both the chairs in my companies are so busy they think that time and get the right fit? couldn’t possibly put in the amount of time that I do being a board Loop: Right. It’s really important at a board level staying in touch and keeping directors informed. So, member to make sure that everybody is comfortable in the if there is a problem to be conveyed to management, room, that they can and should ask questions, that oftentimes they will call me, I will run it by the qualifies. they should feel comfortable contributing, and they CEO, and vice versa. My goal is to have no surprises can make sure that everybody feels that this is a wide- in a board meeting. A good lead director anticipates ” open opportunity. You’re hoping and wanting to get landmines, or tries to make sure that if there are contributions from everyone. What are some signs going to be any problems, that they are resolved that a director is losing energy or interest? diplomatically before meetings. Romney: When you see that the director isn’t Loop: And does that require you to have one-on- bringing the same enthusiasm, fresh ideas, and one conversations with the board members before commentary over a period of time to a board, it is the meeting?

24 NACD Directorship November/December 2015 Romney: I probably speak to some of my fellow addition to a board.” What I tell people is that it is a Ronna Romney board members once or twice a week, depending on real commitment. If you’re joining a board, you have what’s happening in the company. It’s all about being to join to add value. Because there’s so much work, in constant contact so they feel very comfortable you’re going to have to like being on this board and calling me anytime. Every director should feel like working with the people. You’re going to have to buy they are fully informed. What does not work in a into the mission and believe that you can help evolve boardroom is if you enter a meeting and it becomes change. I believe the average age on the board of the clear that only one or two directors are in the loop. future will be older because of the time it takes to be At Molina, we also added an interim phone call a contributing board member. between board meetings for the full board to keep I also believe that boards will begin to resemble everyone abreast of developments. the population more because corporate America is Loop: That’s another sign of strength--that you becoming more diverse. It’s a United Nations here, think preparedness is so important, that you work and boards will begin to evolve to that naturally. The extra hard at it. skill sets needed are going to come from those who My goal is Romney: Absolutely. One of the things I remind are collaborative, strategic, and trustworthy, and I to have no our independent directors is to resist the natural place integrity at the top of the list. “surprises inclination to micromanage. Our main jobs are Loop: Yes, that’s the collective vision of crystal oversight and strategy. You’re always going to think ball gazers. Meanwhile, the first person to live to in a board about adding value with advice, and looking at the 150 years old has already been born. It is interesting meeting. A big picture, but you can’t micromanage. to see what opportunities there are going to be for good lead Loop: You have to step back and be in your people who will want to work longer. If we are oversight role. going to live well over 100 years, we are going to director want to work longer and seek new, challenging anticipates A Broader Approach to Diversity opportunities. I certainly think that being a board landmines, or Loop: When we talk about diversity in the board- member qualifies. tries to make room, a lot of times we talk about gender or racial Romney: You’ll see more directors coming from diversity, but maybe we should be thinking on a nontraditional backgrounds, and not necessarily a sure that if broader scale. corporate background. You might also see people there are Romney: Having served on boards for a while, within the company wanting to join the board going to be we’re always looking to the future for a new director. that you would not have expected. I hope that We don’t start out by saying we want a woman or companies and boards will begin to encourage any problems, a diverse candidate. We start out identifying a skill such people to learn more about board service and that they set we need and then whoever that person happens elevate that person. are resolved to be, they’re in the mix. We’re really looking for Loop: When you talk about more people from someone who can really add another dimension to diverse backgrounds joining boards in the future, diplomatically the board. their service alone will address the diversity-on-the- before I’ll add one more point about diversity in a board concept. Their differing prior experiences will meetings. boardroom: Age is important to have. I think, for get that diverse thinking on the board. example, that in most cases age limits are silly Romney: Yes, that’s exactly right. This is the next ” because the skill sets that older directors bring to the great place to be, especially for somebody who’s board are real wisdom and historical knowledge that leaving corporate America, or academia, or the others might not have. government, or running a household. It’s another Loop: Where do you see the board roles going in chapter in a person’s life. By the way, that’s the way the future? women are. We keep having new chapters. How Romney: A lot of people call me to say, “Hey, exciting is that, to bring value from all these different I’m retiring. I’d love to get on a board. I’d be a great segments of your life into the boardroom? D

November/December 2015 NACDonline.org 25 Boardroom Guide to Shareholder Communications

Stuart R. Levine on the Complexities of Modern Shareholder Communications

The 2008 financial crisis and resulting federal regulations have rein- actions reinforce and advance the value of the company. Stuart R. forced the primacy of public-company shareholders. Consequently, Levine, a director of Broadridge Financial Solutions and chair and shareholders are demanding more information about company CEO of Stuart Levine & Associates, spoke with NACD Directorship strategy, operations, directors, and governance principles in action. about current trends in shareholder communications. He provides For boards, this creates the challenge of learning the composition his well-tested and proven advice for directors trying to navigate of their shareholder base and effectively communicating how board this increasingly complex area of governance.

From a director’s perspective, how do you define meaningful and thing to consider all of your total shareholders, not just the few robust shareholder engagement? that may initiate direct communications with you. I think everything that resides in the boardroom and in the culture of the board must focus on the shareholder—that relent- Are there differences between how the board reaches out to insti- less focus on the creation of long-term value. And so, questions tutional investors and retail investors? around strategy and creating value really start with a focus by the Because of technology, we have better tools out there today. For board on the shareholder. This creates higher-level strategic dis- example, when you engage in a virtual shareholder meeting, an cussions, because focusing on the shareholder moves conversa- individual does not have to travel out of state to attend the meeting. tion away from tactical discussions and gets the board focsued in A virtual meeting opens up the doors to all people, and potential the right direction. investors as well. It gives people a chance to hear from the CEO The way you ensure a respectful relationship between share- about corporate governance and about the strategic direction of the holders and the board is by focusing on important forms of com- corporation, all through an intelligent technology portal. munication. For example, there’s a powerful opportunity for respectful communications that add value in how a proxy is written Shareholders want more and more data, but doing a data dump is and in how the candidates for election or re-election are submitted not the most helpful way of presenting that information. How can for a vote. It’s important that those communications reflect activi- directors approach creating meaningful communications that are ties that directors are involved in personally and professionally so on-point but also provide investors with the breadth of informa- that shareholders get a better sense of how their representatives tion they want? are helping to ensure shareholder interests. We should be moving I’m a great proponent of crisping up communication so people away from boilerplate and going to focused communication that can have information presented in a clear way. When you talk gives shareholders better insights into the candidates. about unloading volumes of data, it’s interesting, but it doesn’t get to the core issue, which is letting shareholders understand what We are on the eve of the 2016 proxy season. What should boards your strategy is, the metrics behind those decisions, and how you’re be doing right now in regard to shareholder outreach? deploying capital, be it financial or intellectual. It’s very easy to focus on institutional investors, but the reality is that if you look at the underlying accounts of brokerage firms, this Activist investors have become almost omnipresent. From a com- year 32 percent of outstanding shares are actually held directly by munications standpoint, how can directors anticipate and ap- retail investors. I think it’s important to stimulate the discussion proach their engagement with activists, and what can they do to of reaching out to retail investors through communication and remain in touch with and represent the entire shareholder base? information that engages with those people, because one-third At the end of the day, all directors have to look at themselves of your base is comprised of actual people—not entities or in- in the mirror. They need to define how the board is functioning, vestment companies—that are investing and showing incredible how the charter reflects the particular responsibilities of board faith in your service and in your company. It’s the responsible members, and drill down on whether the right questions are being

26 NACD Directorship November/December 2015 asked around strategy and the deployment of capital before an ac- retail investors need to be reminded why it is in their best interest tivist even comes in. We must be proactive in communicating the to vote. The more engagement, the better it is for the well-being of company’s strategy and governance principles. Activist investors can the corporation. I think developing programs on a regular basis that be divided into two broad categories—those who want value now allow the company to share its strategy and results is critical, where and those who have broader questions about your corporate gov- appropriate. ernance. We shouldn’t need the motivation of an activist banging on the door or acquiring shares of stock. Another hot topic right now is the issue of proxy access, i.e., share- Each director has the responsibility to ask focused questions holder director nominations. What do you think boards need to on strategy, succession planning, and deployment of capital. be thinking about in terms of composition? Those robust discussions are really important. When you hear Board composition is a really important conversation because other colleagues talk about activists, some people are threatened you cannot afford to have underperforming assets as board mem- by them and not welcoming. Personally, I think activists are bers. When you talk about board recruitment and retention, I raising very important questions and some of them are incred- strongly believe that the board should begin to reflect the compa- ibly effective in analyzing corporations and understanding how ny’s customer base. For me, it’s hard to believe that there still are to add shareholder value. So before you start talking about activ- large percentages of corporations that lack diversity. It’s hard for me ists, look internally and ask, “If I was an activist, what are the to understand how current demographics in this country—if not three or four questions I would be asking at this table?” When an the world—are not represented at the board level. activist comes through the door, they know if there’s been a good This conversation needs to start with a robust discussion about strategic discussion—they can tell by the direction the company criteria at the board level. Look to see, for example, if you have is taking. Every director has an obligation to ask intelligent ques- enough technology knowledge and strength on the board. And tions and share intelligent strategic perspectives. And directors that becomes a good conversation, because, when you talk about have to get past their fears. shareholder value, you are making sure that you have somebody on that board or some “bodies” on the board that can add new insights You mentioned strategy. What general questions would you ad- and new experiences to the conversation. The resiliency of a board vise all directors to ask? comes from a discussion of where is the Strategy is based on many things, including changes and com- world going, how are we adding to plexity in the regulatory world and in the world of the company’s the conversation, and what the consumers and customers. Strategy is a subject that deserves to be recruitment process looks like. on every board agenda and it’s not a matter of doing one strategy retreat once a year. I think that those days should be over because a Your board experience spans more hands-on approach is needed. When we talk about strategy, both public- and private- we talk about increasing volatility in the consumer’s market and im- company service. Are there pact on brand. So for me, strategy is a living, very vital conversation differences in how public and and it’s certainly not a one-off event—that’s for sure. That’s a big private companies approach change. Directors can no longer fake it. The details matter. shareholder communications? In my experience, at publicly What is the benefit of using technology in a shareholder commu- listed corporations there’s nications program and are there pitfalls that directors may need a greater un- to look out for? derstanding of Technology is a very cost-effective way to reach out to share- regulatory reali- holders, number one. And shareholder communications are be- ties, foreign cor- coming far more efficient and data driven. From a strategic point rupt practices, of view, asking the CEO and the independent chair of the board Dodd-Frank, how we’re deploying technology to increase the strength of our and so forth. relationship with our shareholder base is a really good question. I think some

PETER KEOUGH Many of us now walk around with devices all day long, but most of the smaller Boardroom Guide to Shareholder Communications

family-owned businesses are not as familiar with the implications The institutional shareholders study the corporation, they un- of these issues because their shareholder meetings are consider- derstand the balance sheet, and they’re going to ask strenuous ably different than how we engage in the public sector. questions. That stimulates discussion in the boardroom and I Having said that, I think there should be a more robust engage- think sometimes they bring ideas that really help move a discus- ment of family-owned businesses and private businesses to ensure sion around new strategies, new technologies, and intelligent that they are compliant with current regulations. For example, deployment of capital. As a director at Broadridge, I find those things like whistleblower protections and other relevant policies conversations really helpful; shareholders get deeper insight into are leading indicators of the culture of an organization. how we view issues of compensation and fairness and so forth. If management is not tracking whistleblowers in a private cor- And I think there’s a good dialogue. poration and reporting that data to the board, they are missing an Corporations are better served when they hear from all of their opportunity for that board to see how strong the company culture shareholders including their retail investors. Directors have an is around ethics and important compliance issues. obligation to talk to and encourage retail investors to vote their shares because the more that people engage, the more robust In your experience, what have been some of the biggest benefits those conversations become, and the corporation functions of shareholder engagement? better.

Is the In-Person Annual Meeting a Relic of the Past? By Jonathan Foster

For most publicly-traded companies, the annual report used to be Some companies host in-person annual meetings that are extrava- a detailed document printed on high-quality paper with first-class gant events. Berkshire Hathaway sets the standard for these corpo- graphics and photographs describing a company’s business and fi- rate celebrations. This year’s three-day celebration had numerous nancial results. Today, it is often just a few pages attached to the exhibits, a road race, various receptions and meals and, of course, Form 10-K required by the Securities and Ex- the core annual meeting component where the change Commission. It’s time that the in-person highlight was several prominent journalists posing annual meeting is streamlined into a partially or questions from shareholders to Warren Buffett and even entirely electronic meeting. Charles Munger. Not even at this extravaganza Although many companies incorporate in Del- did every shareholder question get answered. Wal- aware, all states require public companies to hold Mart has also elevated its annual meeting to the an annual shareholder meeting to elect the board level of an “event.” What do Will Smith, Taylor of directors and transact other business that re- Swift, Ben Stiller, Miley Cyrus, Mariah Carey quires shareholder approval. Notice of the annual and Tom Cruise have in common? They have all general meeting must be in writing and is subject participated in Wal-Mart’s shareholder meetings, to a minimum notice period that varies by state. as the embattled retailer has deployed celebrities For decades, it was a legal requirement under to improve its image. But unless you are a com- Delaware corporate law to hold a live annual pany of exceptional means, this model of “annual meeting. However, some corporations saw these meeting as extravaganza” is hardly a realistic way meetings as a waste of time and effort, in part Jonathan Foster to encourage shareholder attendance. And if any- because attendance was generally very low, except for maybe thing, most companies are looking to curb costs wherever possible. large companies or companies that were under pressure from In 2001, Inforte Corp., a technology consulting firm, was the shareholders. About 15 years ago, Delaware, under pressure from first company to host a virtual annual meeting. Before the meeting these companies, decided that companies could hold meetings began, 97 percent of shares were voted via fax and the company was electronically—even by conference call. prepared to respond to shareholder questions transmitted electron-

28 NACD Directorship November/December 2015 Preparing your board for the future?

Peter Military leaders bring Vangjel unique experiences and Lieutenant perspectives that enhance General (Ret.); Owner and CEO, the dialog and decision- V3 Strategies making in your boardroom. and Solutions

NACD Director Recruitment Services offers:

 More than 200 board-ready Boardrooms generals and admirals  Cost-effective alternative to require integrity traditional search rms  Successful track record working with Fortune 500s, and leadership. mid-caps, family-owned enterprises, and nonpro t organizations.

NACD Director Recruitment Services features more than 200 board-ready generals and ag o cers.

For more details, contact Rochelle Campbell at [email protected] or 202-747-7167. Boardroom Guide to Shareholder Communications

ically. Inforte kept with this format the following year and received to be considered for both shareholders who can forgo travel, and the few complaints. In 2002, another technology consulting company, company, which is freed of meeting production and security costs. Ciber Inc., held its meeting via webcast. According to then-CEO And finally, the environmental impact of hosting a meeting—from Mac Slingerland, no more than 10 people who weren’t employees transportation-related fuel consumption to resources expended to ever attended the in-person meeting, and he hoped that the new create print materials for the meeting—is drastically reduced. format would attract a larger portion of its 28,000 shareholders. The annual meeting is no longer the primary place to air share- Last year, Hewlett-Packard Co. became the largest company to holder concerns, as the growing—and vocal—activist investor com- host a virtual annual meeting. It joined a growing number of community has demonstrated. In fact, the Manhattan Institute this year panies foregoing ballrooms and conducting their meetings virtually. issued a report concluding, among other things, that only three According to Broadridge Financial Solutions, about 90 com- “corporate gadflies” were responsible for 70 percent of all- share panies in the United States held entirely virtual annual meetings holder proposals in 2014. in 2015. There are a number of benefits to consider. First, share- Some shareholders and their advocates assert that online-only holders who might not be able to attend a meeting in person due meetings limit shareholders’ face time with company executives and to their location or other factors are able to participate. Second, this directors, hinder relationship building, and give companies greater format encourages shareholder participation by providing a secure control over the questions that are answered—specifically because platform on which to vote directly. Third, there is also a cost savings they allow companies to guard against embarrassing protests or awk-

How the Numbers Add Up

KNOW YOUR INVESTORS. Boards need to know how their VOTING TRENDS. Although share ownership varies by market shares are held. Although the initial inclination may be to focus on capitalization, institutional shareholders vote at higher rates. institutional investors, the ratio of institutional to retail investors can Furthermore, there has been a decline in the number of retail vary radically depending on the company’s market capitalization. shares voted during proxy season: 28 percent of this segment’s To look at both ends of the spectrum, while retail investors own shares were voted in 2015, down from 31 percent in 2012. It remains 28 percent of shares in large-cap companies, they have a greater to be seen how virtual or hybrid annual meetings, which ostensibly presence in micro-cap companies, holding 72 percent of shares. offer all shareholders greater opportunities to participate in a company’s governance, will impact this trend. Shares Ownership by Company Size Proxy Season 2015 Shares Voted by Company Size Overall Proxy Season 2015 60% (-1) 32% (+1) 91% 91% 93% 92% Large (+1) (+3) (-1) (-1) 72% (-) 28% (-) 72% (-8) Mid 76% (+1) 24% (-1) 30% 29% Small 28% 28% 29% (-1) (-) (-) (-) (-) 65% (-) 35% (-) Micro Overall Large cap Mid Cap Small Cap Micro Cap 28% (-1) 72% (+1) Institutional Voting Retail Voting (% of shares held (% of shares held Institutional Ownership Retail Ownership

+/- Indicates percentage point increase or +/- Indicates percentage point increase or decrease from proxy season 2014 (-) Indicates no change year over year. Source: Proxy Pulse decrease from proxy season 2014 (-) Indicates no change year-over-year. +/- Indicates percentage point increase or decrease from proxy season 2014 30 NACD Directorship November/December 2015 (-) Indicates no change year-over-year. ward face-offs between management and shareholders. This format ing questions before, during, and after the meeting. also presumes that shareholders have an Internet connection and ■■ Archive and post the meeting to a location that can be readily the necessary digital savvy to participate in these meetings. accessed by shareholders. These concerns are impacting how companies make digital ac- Stringent disclosure requirements, extensive media outlets, and cess a component of the annual meeting. Several years ago, Procter a vocal activist community make the in-person annual meeting feel & Gamble Co. amended its bylaws to allow virtual meetings, only outdated. Do concerned shareholders wait for the annual meeting to to backtrack following objections from shareholders. After Sy- ask hard questions or air their grievances? A virtual or hybrid meeting mantec Corp. hosted an online-only meeting in 2010 and heard should satisfy the intent of the annual meeting and can be of greater complaints, it compromised by switching to a hybrid format where benefit to both companies and shareholders. D a physical event is held but investors can also “attend” online. Intel Corp. and Microsoft Corp. have followed suit. Jonathan Foster is the founder and a managing director of Current Here are a few suggestions to make virtual meetings inclusive Capital LLC, a private-equity investing and management services and productive: company. He has more than 25 years of investment banking, private- ■■ Establish procedures for shareholders to vote remotely. equity, and corporate director experience. He also served on the ■■ Establish guidelines for handling questions from shareholders 2015 NACD Blue Ribbon Commission on the Board and Long-Term who are participating electronically, specifically with regard to post- Value Creation.

STRATEGIC COMMUNICATIONS. With knowledge of the POWER TO THE PEOPLE. The battle for proxy access is gaining composition of the shareholder base and how they vote, companies momentum, however, not all shareholder are fighting to influence must then develop a communications strategy that will be impactful. board composition. Looking at the 2015 proxy season data, Considering the variety of shareholders and their voting habits, a 85 percent of votes cast by retail shareholders opposed proxy one-size-fits-all approach is not effective in many solicitations. A access proposals, while 61 percent of votes cast by institutional combination of targeted messaging, customized packaging, and shareholders were cast in favor of such proposals. Broadridge providing multichannel experiences, which demonstrates that the anticipates that by the end of 2015, more than 100 proposals for company understands its shareholders, do more to encourage proxy access will come to a vote. participation. Technology is impacting how companies engage with shareholders and directors need to consider how digital messaging Percentage of Shares Voted in Support can be used in communication efforts. Looking at data from the 2015 of Proxy Acess proxy season, electronic delivery of proxy materials to retail investors rose by 2 percent, while mailed materials dropped by 3 percent. Overall 57% Institutional 61% Retail Investor Proxy Delivery Methods Retail 15%

Mailed full set (-3) 37% ProxyPulse is a collaboration between Broadridge and PwC’s Center for E- Delivery 34% (+2) Board Governance. The analysis is based upon Broadridge’s processing of shares held in the name of a brokerage firm, which accounts for over Mailed Notice 29% (+1) 80 percent of all shares outstanding of U.S. publicly-listed companies. Shareholder voting trends during the proxy season represent a snapshot in time and may not be predictive of full-year results. For purposes of this report, the term “institutional shareholders” refers to mutual +/- Indicates percentage point increase or funds, public and private pension funds, hedge funds, investment decrease from proxy season 2014 managers, most managed accounts and vote agents. The term “retail shareholders” refers to individuals whose shares are held beneficially +/- Indicates percentage point increase or decrease from proxy season 2014 (-) Indicates no change year over year. Source: Proxy Pulse in brokerage accounts. Visit www.proxypulse.com for more information.

November/December 2015 www.NACDonline.org 31 DIRECTORS

32 NACD Directorship November/December 2015 A Pantheon of Power and Influence

Edited by Judy Warner, Alexandra R. Lajoux, Jesse Rhodes, and Katie Grills

The National Association of Corporate Directors’ (NACD) ninth annual Directorship 100 (D100) is a deep trove of influential directors and governance professionals—and special mentions of a few whose day jobs are allied to the boardroom. Since its inception, this listing of the most influential people in boardrooms and on corporate governance celebrates directorship by shining a light on those who we believe are tops in the profession. That said, we are pleased to introduce you to the four Corporate Governance Hall of Fame inductees, the NACD Director of the Year, the B. Kenneth West Lifetime Achievement Award recipient, the 50 exemplary directors and the 50-plus governance professionals or institutions that comprise our list. This year, we asked each D100 honoree to provide a short answer to the following question: “What is the best advice you would give to a first-time director?” We were pleased to read through the wealth of sage insights that flooded our inboxes, and we have edited those answers to their essence in these pages. Be sure to visit NACDonline. org/Magazine to read their many full responses.

November/December 2015 NACDonline.org 33 2015 NACD Directorship 100

CORPORATE GOVERNANCE HALL OF FAME

Noblesse Oblige JOHN H. BIGGS John H. Biggs vividly remembers when the 61-year-old headmaster which included the Boeing Co. of the private Thomas Jefferson School in his native St. Louis opted and JPMorgan Chase, serving on out of Social Security, played the stock market, and lost everything, the audit committees at both com- forcing him to rely on the school and its alumni for financial sup- panies. Prior to those roles, he was port. It was an experience that ultimately led Biggs to the Teachers a director of Ralston Purina Co. Insurance and Annuity Association-College Retirement Equities and McDonnell Douglas Corp. Fund (TIAA-CREF), a Fortune 100 company that stands as the na- He has published a number of tion’s largest pension fund, as it did under his tenure. papers on corporate governance, Biggs served as chair and CEO of the company from 1993 until variable annuities, social security, 2002, always keeping the interests of fund participants at the fore. the regulation and taxation of pen- In 1997, Congress sought to strip TIAA-CREF of its tax-exempt sta- sion plans, and demographic ef- tus. While the move would have opened up new and highly lucra- fects on pensions. tive markets for the fund, Biggs fought the bill, estimating that re- Biggs is currently an executive- tirees could lose as much as 15 percent of their annuity incomes. in-residence at the Leonard N. Congress ultimately favored the estimated $1.2 billion that would Stern School of Business at New come from taxing TIAA-CREF and Mutual of America. Neverthe- York University, where he teaches less, Biggs was able to continue to control costs and pass savings on courses on corporate governance, to pensioners. accounting, finance, and invest- Biggs brought that same level of dedication to his directorships, ments. —Jesse Rhodes

Living the American Dream ANDREW J. MCKENNA SR. McDonald’s Corp. Chair Andrew J. extraordinary career—lauded in 1993 by the Horatio Alger Society McKenna Sr.’s extraordinary Amer- as an example of the power of the American Dream—has included ican Dream story began in the executive tenure at private and public companies and prodigious ser- south side of Chicago, where his vice to several corporate boards. A McDonald’s director since 2004, father would tell him bedtime McKenna has helped guide the iconic American brand through stories about successful busi- some of its most disruptive challenges, including rapid-fire CEO ness and tradesmen. Inspired by successions, the effects of digital innovation on the enterprise, and his father’s tales of industry and the rise of competing fast-casual dining concepts. insistence on receiving an educa- In addition to serving as chair of McDonald’s, McKenna chairs tion, McKenna earned his college Schwarz Supply Source and two other private companies. He is also and law degrees while working advisory chair of Edgewater Funds’ executive advisory board. McK- sometimes up to four jobs. enna’s current and previous board service at the likes of Skyline McKenna’s first notable Corp. and Aon PLC make him a sought-out advisor in the Chicago business success was the business community and beyond. purchase of Schwarz McKenna is committed to directorship of Chicago organizations Paper Company, that enhance and improve the lives of his neighbors. His current now Schwarz Supply charitable directorships include A Better Chicago, Ronald McDon- Source, where he ald House Charities, and the United Way of Metropolitan Chicago. started his post-aca- He is also an advisory board member of Lyric Opera of Chicago and demic career as a of the Museum of Science and Industry. A proponent of keeping salesman. both mind and body active, McKenna is a director and co-owner of McKenna’s the Chicago Bears Football Club. —Katie Grills The Man in the White Hat CLASS OF 2014 Ilene Lang Barbara Hackman RALPH V. WHITWORTH Franklin Ralph V. Whitworth could have stepped right out of Myron T. Steele a classic Western movie, given his propensity for dry tion with Pickens to work for proxy voting reform, serv- delivery and decisive action. From pro bono share- ing as president without pay until he voluntarily closed CLASS OF 2013 Anne M. Mulcahy holder advocate, to activist investor, to corporate di- the organization, having achieved its legislative goals. David A. Nadler rector (dissident or otherwise), he has faced contro- As an outgrowth of his investment work, Whitworth John M. Nash versy with courage and integrity. And although not founded Relational Investors in 1996 and began serv- John F. Olson everyone in town would vote him in as sheriff, it’s ing on corporate boards, often as a part of his invest- generally agreed that the hue of his hat is white. ment strategy. He has been chair of Apria Healthcare CLASS OF 2012 With a Georgetown University law degree, Whit- Group and Waste Management and interim non-ex- James D. Robinson III worth began his career in the nation’s capital, serving ecutive chair of Hewlett-Packard Co., as well as direc- William B. Chandler III on the staff of Sen. Paul Laxalt (R-Nev.). He soon af- tor at Genzyme, Mattel, Sirius, Sovereign Bancorp, filiated with oilman T. Boone Pickens at Mesa Lim- and Wilshire Technologies. He has served on expert CLASS OF 2011 ited Partnership, an investment fund. When Pickens advisory panels formed by a variety of organizations, in- Norman R. Augustine turned to advocacy, Whitworth joined and succeeded cluding NACD, to further improve board-shareholder Warren E. Buffett him. He co-founded the United Shareholder Associa- relations. —Alexandra R. Lajoux Ann M. Fudge Charles T. Munger Raising the Bar Harvey L. Pitt E. NORMAN VEASEY Jack F. Welch Jr. “Raising the bar” may be a metaphor, but in the case fendants,” but allowed the case to proceed, reason- of this honoree, it is the literal truth. Throughout his ing that because they do not always have access to CLASS OF 2010 storied career as attorney, teacher, author, public all relevant facts, “[p]laintiffs must not be held to a H. Rodgin Cohen servant, and, most notably, a judge presiding over too-high standard of pleading.” The case ultimately Edward A. Kangas the highest court in the leading state for business found in favor of the defendants and resulted in the Alan G. Lafley jurisprudence, Justice E. Norman Veasey has worked famed Disney decision affirming the business judg- Carol J. Loomis tirelessly and successfully to elevate the practice of ment rule. Paul A. Volcker law in all its dimensions. Since his retirement from the high court, he has Veasey may be best known for his integrity on the remained active in raising standards for corpo- CLASS OF 2009 high court bench, which he served from 1992 to 2004. rate governance and the law, serving as a director Martin Lipton His opinions showed an unbiased mind focused on of NACD and senior partner at Weil, Gotshal, and Jay W. Lorsch truth, justice, and proper legal pro- Manges, and then special counsel with Gordon Pearl Meyer ceedings. In the case of Brehm Fournaris & Mammarella. He chaired the Business Thomas J. Neff v. Eisner (2000), he chastised the Law Section at the American Bar Association and plaintiffs for their pleading as a oversaw the sixth edition of the ABA’s Corporate CLASS OF 2008 “pastiche of prolix invective Director’s Guidebook (2011). In addition, he co-au- John C. Bogle against the director de- thored Indispensable Counsel: The Chief Legal William G. Donaldson Officer in the New Reality (2012). Arthur Levitt Veasey teaches at the University of Pennsylvania Ira M. Millstein Law School as an adjunct professor, one of his many Robert A. G. Monks distinguished academic appointments. In recogni- Michael Oxley tion of his public service, he has received the Order Paul Sarbanes of the First State from the Governor of Delaware, the state’s highest honor. —Alexandra R. Lajoux

November/December 2015 NACDonline.org 35 2015 NACD Directorship 100

DIRECTORS

B. Kenneth West Lifetime Achievement Winner BONNIE G. HILL Bonnie G. Hill’s more than 30-year career spans government, edu- when to be aggressive,” said former Home Depot chair and CEO cation, and media in addition to serving for more than 25 years as Frank Blake in a letter of recommendation. “As the CEO of a com- a director of several Fortune 500 companies, including A. K. Steel, pany going through major changes, I can attest that one of the most Hershey, Home Depot, and Yum! Brands. Her current sole direc- important elements of success is having a lead director who is a great torship is with the California Water Service Group. Described sounding board on decisions, a partner in deciding on the path by her peers as a mentor and role model possessing wisdom forward, and a leader in driving alignment on the board.” and integrity that raises the bar for director service and en- Since 1987, this annual award is given to a director who riches board and company culture, Hill is this year’s recipi- best exemplifies the work of former NACD Chair B. Kenneth ent of the B. Kenneth West Lifetime Achievement Award. West, whose leadership and consensus-building skills were Hill’s tenure as lead director of Home Depot coincided prodigious and inspirational. Each year, both the B. Kenneth with a global economic crisis. Nevertheless, aided by her West and Director of the Year honorees are nominated and vet- leadership, the retailer rose from a market cap low ted by a special committee and endorsed by the NACD of roughly $32 billion in 2009 to $150 billion to- board. Praise for Hill’s leadership excellence readily set day, returning some $50 million to shareholders her above her peers. in the form of dividends and buybacks. Hill is currently president of B. Hill Enterprises, a Her dedication to the company’s shareholders consulting firm focusing on corporate governance was further reflected in how she drove board align- and board organizational and public policy issues, ment and stressed the value of effective shareholder and co-founder of Icon Blue, a Los Angeles-based communications. “Hers was always a wise voice on brand marketing company. what needed to be done, when to be cautious, and —Jesse Rhodes

2015 Director of the Year CHRISTOPHER J. COUGHLIN Humble. Inclusive. Transparent. These are just a few of the charac- subject-matter experts. His peers at Dun & Bradstreet and other teristics listed in letters of nomination for Christopher J. Coughlin, companies commended Coughlin for his propensity to create a NACD’s 2015 Director of the Year. Honorees are nominated by boardroom filled with diverse backgrounds and opinions—then director community peers and selected for their exemplary display encouraging independent thought to thrive for the good of the of knowledge, leadership, and excellence in board service and business and shareholders. corporate governance. Coughlin is a familiar face in the industrial and healthcare Coughlin’s career as a fi- industries. He is currently independent director of Alexion nancial and operating exec- Pharmaceuticals and Allergan, and served at different times be- utive led him to his current tween 2005 and 2012 as executive vice president, CFO, CEO, role as independent chair of and chair of Tyco International. Coughlin was instrumental in the Dun & Bradstreet Corp., Pharmacia’s acquisition of Monsanto and the eventual spinoff of and as a senior advisor to its agricultural business, and also managed the breakup of Tyco as McKinsey & Co. Coughlin it spun off into six new companies. was instrumental in updat- “In my view, he exemplifies the ideals espoused by NACD in ing Dun & Bradstreet’s busi- how he conducts himself and how he represents shareholders,” ness approach to meet the said Thomas J. Manning, independent non-executive director of demands of a modern, digi- Dun & Bradstreet and lecturer at the Chicago School of Law. “He tal economy, an objective leads the board with a firm but sensitive hand. He is very thought- he achieved in part by hir- ful and deliberate. His contributions are always valuable and his ing CEO Robert P. Carrigan counsel is sought out by managers and board members alike.” and recruiting boardroom —Katie Grills

36 NACD Directorship November/December 2015 GARY E. ANDERSON agement from Stanford University’s Sloan Fellowship Chemical Financial Corp., Eastman Chemical Co. Program. Anderson joined Dow Corning, a diversified com- Best advice? “Make sure you have the right pany specializing in the development, manufacture, leader, the right controls, and are following and marketing of silicone and silicone-related prod- the right strategy.” ucts, in 1967. He served in various engineering and [attributed to attorney Martin Lipton] management assignments, including 25 years in executive capacities as president, CEO, and chair, before retiring at the end of 2005. He was a member of GARY E. ANDERSON VERONICA BIGGINS the Conference Board, the World Business Council Avnet, Southwest Airlines for Sustainable Development, and the World Eco- Biggins has served on the boards of publicly traded nomic Forum Chemical Council, and a director of Avnet since 1997 and Southwest Airlines since 2010. the American Chemistry Council and the Chemical At Avnet she chairs the corporate governance com- Industry Institute of Toxicology. He has also served mittee and serves on the compensation committee. as a director or chair of several nonprofit community She serves on the compensation and nominating and and university organizations. He has been a director of corporate governance committees for Southwest Air- Chemical Financial Corp. since 2001, serving as the lines. Biggins is a managing partner of Diversified board’s first lead independent director from 2006 to BETSY J. BERNARD Search and leads its board of directors’ practice. Ear- 2011. Anderson joined the Eastman Chemical board lier, Biggins served as director of presidential person- in 2007 and served as its first lead independent direc- nel under President William J. Clinton, leading the tor from 2011 to 2014. selection and hiring of all political appointees within Anderson earned bachelor and honorary doctor- the federal government including the placement of ate degrees in chemical engineering from Michigan agency heads, ambassadors, and members of presi- Technological University, and an MBA in finance dential boards and commissions. She and her team from Central Michigan University. He and his wife, built a talent pipeline, developing structure, organiza- Judy, have two children and three grandchildren. tion and process to successfully fill each of 4,000 open positions in just one year. Best advice? “Be yourself.” VERONICA BIGGINS Best advice? “Be curious about everything.”

BETSY J. BERNARD Principal Financial Group, SITO Mobile, Zimmer ANGELA BROCK-KYLE Biomet Holdings Infinity Property and Casualty Corp. The past president of AT&T, Bernard chairs the nom- Brock-Kyle currently serves on the audit and nomi- inating and governance committees of the Principal nating and compensation committees of Infinity Financial Group and Zimmer Biomet Holdings, and Property and Casualty Corp., an auto insurance firm. serves on each of their compensation committees. She She is on the board of United Way, where she current- is lead director of SITO Mobile, a mobile engagement ANGELA BROCK-KYLE ly chairs the nominating committee and is a mem- platform provider. Bernard serves on the advisory ber of the finance committee (audit function), and boards of GroTech Ventures, Innovate Partners, and led the CEO search and strategic review. She previ- the Silverfern Group. Bernard’s significant board expe- ously served on the administration committee (invest- rience spans more than a decade and includes United ment function) and the tri-state U.S. Hurricane Sandy Technologies, Serco Group, URS, and Telular, where Funds Oversight Committee. She is the vice chair of during her tenure as chair the shareholders saw a total the advisory board of Women in the Boardroom and shareholder return of 350 percent before concluding serves on the board of the Executive Women’s Golf a successful sale of the firm in June 2013. Bernard re- Association Foundation. ceived a BA from St. Lawrence University, MBA from Best advice? “Build relationships.” Fairleigh Dickinson University, and an MS in man-

November/December 2015 NACDonline.org 37 2015 NACD Directorship 100

DIRECTORS

RAYMOND BROMARK to FIT. She is a director of the Ralph Lauren Corp., CA Technologies, Tesoro Logistics, YRC Worldwide and a member of the Economic Club of New York. Bromark sits on the board and chairs the audit com- She is also an ambassador for The Climate Group mittees of CA Technologies, Tesoro Logistics, and and has served on statewide commissions and task YRC Worldwide. He is also a member of the merg- forces on the black family, childcare, and domestic ers and acquisitions and risk and compliance com- violence. mittees of CA and the conflicts committee of Tesoro Best advice? “Always be prepared...Bring Logistics. Bromark is currently a member of NACD’s your best listening skills to board meetings. Audit Committee Chair Advisory Council. Bromark RAYMOND BROMARK Do not attempt to micromanage company retired after 26 years as partner in 2006 from PwC. personnel...always remember that your real Best advice? “Don’t lose sight of the job as a board member is to represent the board’s role and responsibilities, best interests of the shareholders.” and be yourself.”

LESLIE A. BRUN JOYCE F. BROWN Automatic Data Processing, Broadridge Financial Ralph Lauren Corp. Solutions, CDK Global, Merck & Co., NXT Capital Brown is president of the Fashion Institute of Tech- JOYCE F. BROWN The chair and CEO of Sarr Group, an investment nology (FIT), a specialized college of art and de- holding group, Brun recently announced he would sign, business, and technology of the State Univer- step down as non-executive chair of Automatic Data sity of New York. Appointed in 1998, she is the col- Processing. He serves on the boards of Broadridge Fi- lege’s sixth president. She also serves as president of nancial Solutions, CDK Global, Merck & Co., and the FIT Foundation, an advisory and support body NXT Capital.

Methodology How Honorees Are Selected The selection of the D100 begins with an online poll that all ■■ Board leadership (i.e., these directors are appointed lead or NACD members are invited and encouraged to participate in committee chairs) when e-mailed a link to a write-in ballot at NACDonline.org. Once ■■ A sound ethical compass this nominations process is closed, an editorial advisory commit- ■■ Involvement in board-related issues and activities outside of tee composed of NACD Directorship editors, researchers, and the boards on which they serve (i.e., they train others on good gov- the senior leadership team led by Editor-in-Chief Judy Warner ernance practices) determine the 50 directors and 50 or so corporate governance ■■ Press and media citations (i.e., these directors are institutions or professionals who comprise the corporate gover- “spokes-models” for their peers) nance ecosystem. NACD’s board of directors then reviews the list The D100 also recognizes governance professionals and insti- of finalists. tutions that represent the various corporate governance spheres Directors, once named to the list, are not considered for future of influence. Honorees donate time and expertise to support lists. Once a D100 director, always a D100 director. The rationale NACD’s mission as members and active participants in the ongo- for this decision is to each year create a wholly new and unique ing dialogue about what constitutes leading boardroom practices. class of directors. Professional service providers play a vital, necessary, and integral In addition to the 50 D100 directors, we recognize the recipi- part in the development and exercise of corporate governance. ents of the annual Director of the Year and the B. Kenneth West Without attorneys, compensation consultants, audit firms, and re- Lifetime Achievement Awards and inductees into the Corporate cruiters, boards would be unable to exercise their duty in the most Governance Hall of Fame who, through their actions, deeds, and professional manner possible. Investors, journalists, and policy ad- words advance the cause of exemplary board performance. These visors all play a critical role, too, whether they inform or influence attributes include: judgments through proxies, newsgathering, or advocacy.

38 NACD Directorship November/December 2015 DONALD J. CARTY JR. ed company boards she serves. She is a member of Canadian National Railway, EMC Corp., NACD’s In-Boardroom and Board Advisory Ser- Virgin America vices faculty, where she teaches governance and Carty was elected to the EMC board in January. He facilitates board evaluations. Cholmondeley also is also is chair of Virgin America Airlines, where he former general manager of the specialty products chairs the nominating and corporate governance com- division of Sappi Fine Paper and was the first fe- mittee and is a member of the audit committee, and is male elected officer at Owens-Corning, where she a director of Canadian National Railway Co., where was general manager of the residential insulation he chairs the audit committee and is a member of the E. MICHAEL CAULFIELD division. corporate governance and nominating committee; the Best advice? “Directorship is an earned environment, safety, and security committee; the hu- privilege, not a right.” man resources and compensation committee; and the strategic planning committee. He previously served as vice chair and CFO of Dell from January 2007 to June JANET F. CLARK 2008, and as chair and CEO of AMR Corp. and Amer- EOG Resources, Goldman Sachs BDC, ican Airlines from 1998 to 2003. He holds a bachelor’s Texas Instruments degree in economics and mathematics and honorary The retired executive vice president and CFO of doctor of laws from Queen’s University in Kingston, PAULA H. J. CHOLMONDELEY Marathon Oil, Clark was this year named to the Ontario, and an MBA from Harvard Business School. Texas Instruments board, where she sits on the audit committee. Clark also sits on the board of EOG Resources, where she serves on the compensation E. MICHAEL CAULFIELD and nominating and governance committees. In ad- UNUM Group dition, she chairs the audit committee at Goldman Caulfield, who chairs the audit committee at Sachs BDC, a specialty finance company focused on UNUM and also sits on the finance and risk com- the middle market. mittees, served as president of Mercer Human Re- source Consulting from September 2005 until Sep- TERRELL K. CREWS tember 2006, prior to which he served as COO from TERRELL K. CREWS July 2005. He retired from Prudential Insurance Co. Archer Daniels Midland Co., Hormel Foods Intl., as executive vice president in 2000, after having held Rock-Tenn, WestRock Co. a number of executive positions, including execu- Crews retired in 2009 as EVP and CFO of Monsanto tive vice president of financial management, CEO Co., where he served in various leadership positions of Prudential Investments, and president of both Pru- for 32 years including as CFO of its seed business and dential Preferred Financial Services and Prudential director of internal audit. He currently serves on the Property and Casualty Company. board of Hormel Foods International, where he chairs Best advice? “Ensure the organization that the audit committee and is a member of the compen- you represent embraces your personal sation committee. He also chairs the audit commit- values and embeds them in its strategy and tee of Archer Daniels Midland Co., and in 2015 was all aspects of its business system.” elected to the board of WestRock Co., where he sits on the audit committee. In addition to these company boards, he is a member of the board of trustees for PAULA H. J. CHOLMONDELEY Freed-Hardeman University and Junior Achievement Dentsply Intl., Nationwide Mutual Funds, of Greater St. Louis, where he served as board chair. Terex Corp. Best advice? “After I retired from my job, Cholmondeley sits on the audit and governance an experienced board director advised me and strategy committees on the three publicly trad- to ‘stay relevant.’”

November/December 2015 NACDonline.org 39 2015 NACD Directorship 100

DIRECTORS

JEFFREY E. CURTISS GARY W. EDWARDS KBR Inc. Entergy Corp. Curtiss chairs the audit committee and sits on the The lead director of Entergy Corp., Edwards has also nominating and corporate governance committee of served on the boards of Sunoco and Sunoco Logis- KBR Inc., a NYSE-listed $6 billion engineering and tics. In addition to his public company directorship, construction company, with 25,000 employees and a Edwards is a trustee of The Methodist Hospital and market cap of $3 billion. He also served as a member Theater Under the Stars in Houston, where he and of KBR’s independent committee, which evaluated his wife, Peggy, live, and the Game Creek Club and aspects of the KBR split-off from Halliburton. Cur- JEFFREY E. CURTISS BRAVO Vail, both in Colorado. He is a director tiss received a BSBA degree from the University of emeritus of the Yellowstone Park Foundation. Nebraska’s College of Business Administration with high distinction, a JD degree from the University of Nebraska’s College of Law, and an LLM degree in JOHN V. FARACI taxation from the School of Law at Washington Uni- ConocoPhillips Co., PPG Industries, versity in St. Louis. He became a CPA in 1971, a United Technologies Corp. practicing lawyer in 1972, and a CFA charter holder Faraci spent his career of more than 40 years at In- in 2006. ternational Paper, the world’s largest pulp and paper Best advice? “Understand your role W. ROY DUNBAR company, where he held a variety of financial, plan- and responsibilities.” ning, and management roles including chief finan- [attributed to fellow director Richard Slater] cial officer. He ultimately served as chair and CEO of International Paper from 2003 to 2014. Faraci has been a director of United Technologies Corp. since W. ROY DUNBAR 2005. He currently chairs the finance committee and Humana, Lexmark is a member of the audit, executive, and nominating In 2015, Dunbar served on the board of iGate, where and governance committees. he chaired the compensation committee until the completion of its acquisition by Capgemini. He chairs GARY W. EDWARDS the board finance committee at Humana, which in MARGARET M. FORAN July announced it would be acquired by Aetna. He Occidental Petroleum Corp. also serves on the board of Lexmark, where he sits on Foran is chief governance officer, vice president, and the compensation committee. Dunbar is a founder of corporate secretary of Prudential Financial. A direc- private companies focused on renewable energy and tor of Occidental Petroleum Corp. since 2010, she property development. He served in roles as CEO and currently chairs the board’s corporate governance, chair of Network Solutions between 2008 and 2010. nominating, and social responsibility committee. In Network Solutions, subsequently acquired by Web. addition to her inclusion on the 2015 D100, her com- com, was the original domain name registrar and pro- mitment to board leadership has been recognized on vides a suite of Web services for small and medium JOHN V. FARACI other occasions. enterprises. He was formerly president of global tech- Best advice?“Listen and learn the business nology and operations at MasterCard from 2004, and and the industry as fast as you can. I read also served as a member of MasterCard’s executive multiple 10-Ks and analyst reports not only committee. Dunbar joined MasterCard from Eli Lil- on the company, but the industry. I read ly where he worked for 14 years, serving as president various experts on what they thought were intercontinental region, and earlier as chief informa- the key issues in the industry. I interviewed tion officer. former energy executives and analysts to Best advice? “Listen carefully… get their perspectives on the business. And ask open questions.” MARGARET M. FORAN then I did it again, and again, and again.”

40 NACD Directorship November/December 2015 JONATHAN F. FOSTER PATRICK W. GROSS Berry Plastics Group, Chemtura Corp., Lear Capital One Financial Corp., Career Education Corp., Masonite International Corp. Corp., Liquidity Services, Rosetta Stone, An experienced investment banker, private equity in- Waste Management vestor and corporate director, Foster has particular Gross co-founded American Management Systems, expertise in industrial and services companies. The a billion-dollar consulting, enterprise, and informa- founder and managing director of Current Capital, tion technology services firm in 1970 and served as he leads the firm’s private equity investing and man- principal executive officer from 1970 to 1974 and agement services efforts focused primarily on middle JONATHAN F. FOSTER then as a director of the company from 1974 until market and smaller industrial and services companies. 2002. He has chaired Rosetta Stone’s board since Best advice? “A director may have particu- 2013 and serves on the audit, compensation, and cor- larly thoughtful ideas; however, he or she has porate governance and nominating committees. In to convince colleagues of his or her position addition to his public company board service, Gross or these thoughtful ideas will not be imple- currently serves as chair of the World Affairs Council mented. First impressions are very impor- of Washington, D.C., and the Hitachi Foundation. tant. To be effective as a new director, you He is an elected member of the Council on Foreign must quickly become respected and accepted Relations, Washington Institute for International Af- by management and your colleagues. Good HELENE D. GAYLE fairs, International Institute for Strategic Studies, preparation, voicing thoughtful input, and be- Federal City Council, Economic Club of Washing- ing personable will position you well to be an ton, and the Chief Executives Organization. effective director in your new board seat.” Best advice? “[A mentor] advised to take extra time to learn the business and to engage with the company management HELENE D. GAYLE as early as possible and ask whatever Coca-Cola Co., Colgate-Palmolive Co. questions came to mind without hesitation. Gayle is CEO of McKinsey Social Initiative, a non- He suggested that I ask how the profit organization that implements programs that PATRICK W. GROSS company wished to be positioned in five bring together varied stakeholders to address complex years. He suggested that working back global social challenges. An expert on global develop- from that destination would help raise ment, humanitarian, and health issues, she spent 20 questions today that might be valuable years with the Centers for Disease Control, working contributions.” primarily on HIV/AIDS. Best advice? “A board that is thoughtful about its composition is a bit like an H. EDWARD HANWAY orchestra—nobody hires all piano players Marsh & McLennan Cos. or bass guitars, but everyone should Hanway is the former chair and CEO of CIGNA be familiar with the song that is being H. EDWARD HANWAY Corp., a role he held from 2000 until his retirement in played. So start with your instrument and 2009. He currently chairs Marsh & McLennan’s com- understand how it contributes to the tune. pensation committee. Through the years, Hanway In the process, you will get better at your has been active in a wide range of issues and initia- own instrument and you will learn more tives associated with children’s health, education, and about the tune and the other members international business, and serves on the board of the that make up the orchestra. Understand March of Dimes Foundation. as much as you can about the business and Best advice? “Always respect the role of what you bring to it from your own areas a director” and “always facilitate an open of strength and build from there.” and honest dialogue with management.”

November/December 2015 NACDonline.org 41 2015 NACD Directorship 100

DIRECTORS

RICHARD J. HARRINGTON reporting matters. He has been a director of Morgan Aetna, Xerox Corp. Stanley since 2012 and he currently chairs the au- Harrington is the retired CEO of the Thomson Re- dit committee. He is also an executive-in-residence uters Foundation, the information firm’s charitable and member of the faculty of the Columbia Business arm that runs programs to promote positive societal School and serves on the Standing Advisory Group change. He has been a director of Xerox since 2004, of the U.S. Public Company Accounting Oversight where he chairs the audit committee. He joined the Board, the Financial Reporting Faculty Advisory Aetna board in 2008, where he serves as chair. In 2002, Group of the Institute of Chartered Accountants in he was presented an Honorary Doctorate of Laws from RICHARD J. HARRINGTON England and Wales, and the Accounting Standards the University of Rhode Island. In 2007, he received Oversight Council of Canada. the Legend in Leadership award from the Yale Uni- Best advice? “Invest the time needed to versity Chief Executive Leadership Institute, the CEO get to know your fellow directors and of the Year award from the Executive Council, and the members of the company’s management Man of the Year award from the National Executive team, read as much as you can about Council for his philanthropic activities. the company and the industry, both from company materials and analysts’ reports and other third-party sources, LESLIE STONE HEISZ LESLIE STONE HEISZ and be collegial and constructive in board Ingram Micro, Towers Watson & Co. meetings, but don’t be bashful or hesitate Prior to her retirement in 2010, Heisz was a manag- to ask questions and probe issues.” ing director of Lazard Frères, a managing director of Wasserstein Perella, and a vice president and associate at Solomon Brothers. She currently serves as an inde- BETSY D. HOLDEN pendent director for two public companies and one Diageo PLC, Time Inc., Western Union Co. nonprofit. At Ingram Micro, she chairs the audit com- Holden is a senior advisor to McKinsey & Co., with mittee and serves on the executive and governance expertise in strategy, marketing, innovation, and committees. At Towers Watson, she serves on both board effectiveness. She is the former co-CEO of the audit and the risk committees. Heisz also serves ROBERT H. HERZ Kraft Foods and CEO of Kraft Foods North America. as a director of the Kaiser Foundation Hospitals and Betsy has extensive board experience and currently Health Plans, a leading provider and nonprofit health chairs Time Inc.’s compensation committee. plan, where she serves on the audit, governance, and Best advice? “Choose wisely. Select an community benefit committees. industry and company that you are really Best advice? “We’ve all heard the interested in, a management team that you philosophical question: if a tree falls in the believe in, and a board where your skills forest, and no one is around, does it make and experiences are relevant and will add a sound? Well, for a director to add value, real value.” he or she must find a communication style BETSY D. HOLDEN that is respectful, yet persuasive enough to engage the interest of colleagues and RICHARD J. HOWELL management so that robust deliberation Red Robin Gourmet Burgers and decision making can ensue.” Howell was an audit partner with Arthur Andersen LLP for 28 years of his 37-year career at that firm before retiring in 2002. Currently he is an independent ROBERT H. HERZ director of Red Robin Gourmet Burgers, where he Morgan Stanley, Workiva serves on the compensation committee and chairs the Herz is the president of Robert H. Herz LLC, a con- audit committee. He earned his BBA and MBA from sulting services company that specializes in financial the University of Wisconsin.

42 NACD Directorship November/December 2015 SHERRILL W. HUDSON ing as chair of the Kate Spade board, she chairs the CBIZ Inc., Lennar Corp., TECO Energy, compensation committee of Genworth Financial, and United Insurance Holdings Corp. the nominating and governance committees of Mas- Hudson chairs TECO Energy’s board, where he was terCard and Kimberly-Clark. executive chair from 2010 to 2012, after having served Best advice? “Accept that [directorship] is a as chair and CEO since 2004. He joined the board role different from anything you have ever in January 2003 and previously was chair of the au- done…Do participate and speak up from dit committee. Hudson is a member of the finance day one, but also observe and learn.“ committee, and as CEO was intimately involved in SHERRILL W. HUDSON overseeing TECO Energy’s operations and the implementation of new corporate strategies. He also serves CATHERINE P. LEGO on the boards of Lennar Corp., United Insurance Fairchild Semiconductor International, Lam Holdings Corp., and CBIZ, Inc. He is an investor and Research Corp., SanDisk Corp. board member of Itopia, Inc., a small, privately held Lego is currently the chair of the audit committee for information technology, cloud hosting company. In SanDisk Corp. She was a member of its board from April, he retired from the Publix Supermarkets Board 1989 to 2002 and rejoined in 2004. She was elected after 12 years of service. He retired from Deloitte & to the Lam Research board in 2006 and has since Touche in 2002 after 37 years of service, 19 of which KATHLEEN HYLE served on the audit and nominating and governance he was managing partner of its South Florida offices. committees. She joined the Fairchild Semiconduc- tor board in 2013 where she serves on the nominating and governance and compensation committees. KATHLEEN HYLE Best advice? “Remember you were ADT Corp., AmerisourceBergen Corp., Bunge Ltd. recruited because your experience is From 2008 until its 2012 merger with Exelon, Hyle valued and [the board] believes that you was senior vice president and chief operating officer of can make a contribution. Relax and listen.” Constellation Energy, a Baltimore-based energy company. She has served on the AmerisourceBergen board NANCY J. KARCH since 2010, where she currently chairs the audit and SIMON M. LORNE corporate responsibility committees and is a member Teledyne Technologies of the executive committee and finance committee. Lorne is the vice chair and chief legal officer of Mil- In addition to her corporate board service, Hyle also lennium Management, a global asset management serves on the executive and finance committee of the firm. He has been a director of Teledyne, a conglom- board of trustees of Center Stage in Baltimore and on erate whose subsidiary companies operate in the dig- the board of sponsors for the Loyola University Sell- ital imaging, instrumentation, engineered systems, inger School of Business and Management. and aerospace and defense electronics sectors, since 2004, where he currently chairs the audit committee. CATHERINE P. LEGO He is the author of two books: Acquisitions and Merg- NANCY J. KARCH ers: Negotiated and Contested Transactions, and A Di- Genworth Financial, Kate Spade & Co., Kimberly- rector’s Handbook of Cases. From 1999 to 2004, he Clark Corp., MasterCard was a partner in the law firm now known as Munger Karch is a former senior partner of the international Tolles & Olsen and was general counsel at the Secu- consulting firm, McKinsey & Co. During her 26-year rities and Exchange Commission from 1993 to 1996 tenure with McKinsey, she was managing partner of under then chair Arthur Levitt Jr. In addition, Lorne the retail and consumer industries sector, and through has been a visiting or adjunct professor at the Univer- most of her partnership years she was the most senior sity of Southern California Law School, University of woman at the firm. Since retiring in 2000, Karch has Pennsylvania Law School, and the New York Univer- pursued a career in board service. In addition to serv- sity School of Law.

November/December 2015 NACDonline.org 43 2015 NACD Directorship 100

DIRECTORS

DOUGLAS MACLELLAN Best advice? “Do your homework. You have ChinaNet Online Holdings a duty to know as much about the company, As a senior international business executive, econ- its industry, your fellow directors, and man- omist, venture capitalist, and merchant banker, agement team as you can.” MacLellan has been working in China since 1983 and is a recognized authority on joint ventures and wholly foreign-owned enterprise structuring. He LISBETH R. MCNABB chairs ChinaNet’s audit and compensation com- Nexstar Broadcasting Group mittees. He is also chair and CEO for the MacLel- TIMOTHY MANGANELLO McNabb is founder and CEO of DigiWorks Corp., lan Group, a financial advisory services company that which creates software that helps companies track on- specializes in mergers and acquisitions, joint ven- line discussions. She is a director of Nexstar Broad- tures, business restructuring, private placements, line casting, a Texas-based telecommunications com- management, IPOs, and reverse merger transactions. pany, where she chairs the audit committee. She is MacLellan founded the company in 1992. He holds also a member of American Airlines Advisory Board an MA and BA from the University of Southern Cali- on women’s business segment strategy, the advisory fornia in economic and international relations. board of the University of Nebraska-Lincoln, and is a company advisor to digital, technology, and consumer MICHAEL J. MARDY companies including Sittercity.com and GenGreen. TIMOTHY MANGANELLO Bemis Co., Delphi Automotive Manganello is the retired chair and chief execu- NEIL S. NOVICH tive of BorgWarner, a worldwide automotive indus- Analog Devices, Beacon Roofing Supply, try components and parts supplier. He has served Hillenbrand, W. W. Grainger as a director of Bemis since 2004 and was elected Novich retired in 2007 from Ryerson, a Fortune 500 non-executive chair in May. He is a director of the company that specializes in the distribution and pro- Michigan Science Center and was a member of the cessing of metals, where he served as chair, president, University of Michigan College of Engineering’s and CEO. A private-equity firm purchased Ryerson, National Advisory Council. He was awarded the LISBETH R. MCNABB and Novich has since committed himself to board French Legion of Honor Medal in 2012. leadership at several manufacturing and distribution Best advice?“The best advice I received companies. He is director at W. W. Grainger, an inter- is, ‘Tim, be yourself, remember that is what national distributor of facilities maintenance supplies, got you here.’“ where he serves on the audit and nominating and governance committees. His other directorships include Analog Devices, where he chairs the compensation MICHAEL J. MARDY committee; Hillenbrand, where he chairs the com- Keurig Green Mountain, Tumi Holdings pensation committee and is a member of the merg- Mardy is executive vice president, CFO, and director NEIL S. NOVICH ers and acquisitions and nominating and governance of Tumi Holdings, a retailer of prestige luggage and committees; and Beacon Roofing Supplies, where he travel accessories. He joined Tumi in 2003 and led its chairs the audit committee. His interests outside of the initial public offering process in 2012. He also serves boardroom include advising startups of many kinds on on the board of Green Mountain Coffee Roasters, strategic product and market goals, and mentorship. where he is audit committee chair and a member of He also sits on the board of trustees of the Field Muse- the compensation committee. In addition, he serves um of Natural History and Children’s Home and Aid. on the board and is finance committee chair for the Best advice? “You don’t run the company Eden Institute for Autism in Princeton, N.J., where he but never forget that you sit in that room lives with his wife, Karen. because all the shareholders can’t.”

44 NACD Directorship November/December 2015 SARAH E. RAISS tion committees. She also serves at Vermillion Energy Canadian Oil Sands, Commercial Metals Co., as a member of the governance and human resourc- Loblaw Cos., Vermillion Energy es committees; Canadian Oil Sand on its corporate During her tenure at TransCanada Corp., Raiss was governance and compensation committees; and at responsible for an array of executive administrative Commercial Metals Co. as chair of the compensation functions from human resources to aviation and from committee and member of the nominating and cor- organizational excellence to branding and marketing. porate governance committee. Raiss is also chair of She ascended to the role of executive vice president Alberta Electric Systems Operator, a nonprofit orga- of corporate services before retiring in 2011. Raiss SARAH E. RAISS nization responsible for the planning and operation of currently serves on several public company boards the Alberta Interconnected Electric System. as independent director. Amongst them are Loblaw Best advice? “Find a person or two on Companies Ltd. as member of the governance, em- the board and ask them to be your ployee development, and nominating and compensa- ‘board buddy...’”

A Nod to the NACD Board

NACD had one of its most successful years to date thanks to the technology committee at Bank of New York Mellon, and is a di- leadership and oversight of its own board. While in service to rector of Liberty Mutual and The MITRE Co. Cole is a director of NACD, board members are rescinded from consideration for the Martin Marietta Materials and chair of its compensation commit- D100 and cast final approval on honorees. tee. She also serves on the boards of Biscuitville, High Point Bank, Reatha Clark King, NACD chair since 2013, leads the board with and Diversified Trust Co. She is founding director and past presi- passion and deep experience as a chemist, educator, and philan- dent of NACD’s Carolinas Chapter. thropist. The Hon. Cari M. Dominguez was recently elected vice They join distinguished NACD board members Dennis chair, and new members are Nicholas M. Donofrio and Sue W. Beresford, Raymond V. Gilmartin, Karen N. Horn, Richard Koppes, Cole. Donofrio chairs the innovation and technology committees William E. McCracken, Charles H. Noski, William J. White, and at Advanced Micro Devices and Delphi Automotive, chairs the NACD CEO Ken Daly.

REATHA CLARK KING DENNIS BERESFORD SUE W. COLE KEN DALY NICHOLAS M. DONOFRIO CARI M. DOMINGUEZ

RAYMOND V. GILMARTIN KAREN N. HORN RICHARD KOPPES WILLIAM E. MCCRACKEN CHARLES H. NOSKI WILLIAM J. WHITE

November/December 2015 NACDonline.org 45 2015 NACD Directorship 100

DIRECTORS

IRVIN E. RICHTER mitteewoman for the State of Michigan. She is the Hill International lead independent director of Molina Healthcare, Richter is founder and chair of Hill International, a a managed care company headquartered in Long construction management and consulting company. Beach, Calif., and an independent director of Park- Prior to becoming chair, Richter was chair and CEO Ohio Holdings Corp. At Molina, Romney chairs the of Hill’s former subsidiary, Gibbs & Hill, an inter- transaction committee and serves on the compensa- national power and transportation firm. Richter also tion and corporate governance and nominating com- serves on the boards of two private companies—he is mittees. She chairs the compensation committee at CEO and chair of the Millennium Energy Corp. and RONNA ROMNEY Park-Ohio. She is the proud mother of five children, chair of Proton Therapy. including her namesake, the current Republican Na- tional Committee chair for Michigan, Ronna Rom- ney McDaniel. (Ronna Romney is featured in a Rep- RONNA ROMNEY artee in this issue. See story, page 22.) Molina Healthcare, Park Ohio Holdings Corp. Best advice? “A board is most effective Romney is a distinguished national and Michigan when there is a collegial atmosphere. You state public servant whose terms of service have in- don’t have to agree all the time but mutual cluded chair of the President’s Commission on the respect and courtesy are essential...Kindness White House Fellowship, as appointed by President is powerful...even in the boardroom.” George H. W. Bush, and Republican National Com-

Exemplars of Chapter Leadership MICHELE J. HOOPER, LIANE J. PELLETIER The heart of NACD’s work is service to its members, The Chicago chapter pioneered a policy of allow- and this mission could not be fulfilled without ex- ing membership only after attending two chapter emplary leaders at each of NACD’s 22 chapters. As events, a policy that has deepened engagement a rule, NACD board members and chapter leader- among NACD members in the Chicago area and was ship cannot be considered for the Directorship 100. was consequently rolled out to all chapters this year. Nevertheless, NACD Directorship each year singles When asked about Hooper’s leadership, Kathy out exemplary chapter leaders. This year, a salute is Hendrickson, Chicago’s chapter administrator, not- due to two high-performing chapter leaders: Former ed an important value of any chapter leader: “She MICHELE J. HOOPER NACD national board member and Chicago chapter mentors everyone.” President Michele J. Hooper and Northwest chapter Hooper is independent director of PPG Industries, President and Director Liane J. Pelletier. where she chairs the audit committee and is a mem- Hooper has been a committed supporter of ber of the nominating and governance committee. NACD and its members since her first encounter Pelletier is a rising star among chapter leaders. A with the organization in 2000, and especially since member of the Northwest chapter board since 2011, assuming Chicago chapter leadership in 2002. The Pelletier was last year elected president. Pelletier Chicago chapter has flourished under Hooper’s began her directorship service in Alaska, serving as leadership, as she has committed the same depth CEO and chair of Alaska Communications. She is of wisdom and energy to developing chapter mem- LIANE J. PELLETIER currently independent director and chair of the nom- bership and programming as she did while serving inating committee of Atlantic Tele-Network. the national board. She led the Chicago chapter Hooper and Pelletier’s dedication to promoting to adopt policies to promote candid engagement NACD’s mission is evidenced by the innovation they between directors, a move made in response to re- both show in advancing the skills of directors in their quests for more frequent contact with peers. regions. —Katie Grills

46 NACD Directorship November/December 2015 WILLIAM A. ROSKIN KATHI P. SEIFERT Martha Stewart Living Omnimedia Eli Lilly & Co., Lexmark International Roskin is an independent director of Martha Stew- Seifert has forged a path for women in leadership. She art Living Omnimedia, and founder and president is senior managing director at Brock Capital Group, of Roskin Consulting Co., a human resources con- owner and president of Katapult, and an independent sultancy focusing on the media relations industry. director of Lexmark International and Eli Lilly & Co. Roskin’s career in mass communications extends She also serves on the board of several private compa- to 1971 when he served as a senior attorney for nies, including Fox Cities Chamber of Commerce & RCA Global Communications. He spent 21 years WILLIAM A. ROSKIN Industry and Revlon Consumer Products. She retired at Viacom, where he held various leadership roles, from Kimberly-Clark as an executive vice president af- including executive vice president of human re- ter 26 years, and she contributes knowledge of the in- sources. At Martha Stewart Living Omnimedia, ternational sales and marketing of personal products Roskin serves as an alternate member of the fi- to the organizations that she leads and has led. Seif- nance committee, member of the audit commit- ert chairs the compensation and pension committee tee, and chair of the compensation and nominat- and is a member of the executive committee at Lex- ing and corporate governance committees. Roskin mark, and is a member of the audit and compensa- also devotes his time to the Legal Aid Society, tion committees at Eli Lilly. Seifert is also an advisor where he serves as a director. KATHI P. SEIFERT for InterOrganization Network, a national consortium Best advice? “Pay strict attention to what dedicated to increasing the presence of women in the was being said and how it was being boardroom. said, and to agree or disagree in a style somewhat consistent with the culture of the board as you perceive it. Always do your OLYMPIA J. SNOWE homework and be prepared to participate, Aetna, T. Rowe Price Group but do not be shy to ask questions when Snowe, the former Republican senator from Maine some explanation is not clear.” and member of the House, is chair and CEO of Olympia Snowe, LLC, a self-started consultancy pro- OLYMPIA J. SNOWE viding communications and policy advisory services. FRANCESCA RUIZ DE LUZURIAGA She is also director of T. Rowe Price Group, where Office Depot, Supervalu she sits on the executive compensation committee Ruiz de Luzuriaga served for 11 years at Mattel, and is chair of the nominating and corporate gover- where she was a member of senior management, nance committee and at Aetna, where she is a mem- and currently has her own business consulting prac- ber of the audit and medical affairs committee. In ad- tice. Prior to her tenure at Mattel, she served in vari- dition, Snowe serves as non-voting observer of Syn- ous positions at Xerox Corp. Ruiz de Luzuriaga is chrony Financial, a former subsidiary of GE, and as independent director of Supervalu and Office De- a committee member of the Harvard University Insti- pot. She is chair and financial expert of Office De- tute of Politics. A storied and respected public servant, pot’s audit committee and a member of the finance Snowe frequently served as mentor for other women and integration committee. Ruiz de Luzuriaga also in politics until her high-profile retirement from Con- serves on the board of Sansio, a private company gress in 2013, and now commits her attention to cor- that provides software as a service to emergency porate directorship. care and response operations. Ruiz de Luzuriaga Best advice? “A good independent director formerly devoted her time to directorship of Chil- combines a collaborative approach with dren Affected by AIDS Foundation, which has since exercising independence and being merged with Keep a Child Alive to help more chil- prepared to ask the tough and probing dren internationally. questions.”

November/December 2015 NACDonline.org 47 2015 NACD Directorship 100

DIRECTORS

RONALD D. SUGAR formance of applications on virtual and private cloud Air Lease Corp., Amgen, Apple, Chevron Corp. computing solutions. A member of the Microsoft Sugar has kept busy since his retirement from Northrop board since February 2012, Thompson was elected Grumman Corp. in 2010—he currently serves as di- independent chair two years later. In addition to his rector at Chevron Corp., Air Lease Corp., Apple, and independent chair service, Thompson is also chair Amgen, and serves as senior advisor to several private of the governance and nominating committee, and investment firms, including Areas Management. He is member of the regulatory and public policy commit- lead independent director at Chevron, where he serves tee at Microsoft. He serves as a director on the boards as chair and financial expert of the audit committee, RONALD D. SUGAR of a number of privately held companies, including chairs the board nominating and governance commit- Liquid Robotics, Jovian Data, and Illumio. tee, and is a member of the management compensa- Thompson is an avid investor and advisor in early- tion committee. At Air Lease Corp., Sugar serves as stage technology startups in Silicon Valley, and also independent director, chairs the compensation com- acts as trustee of Wetlands America Trust. He is also mittee, and is a member of the nominating and cor- a former board member of Teach for America and of porate governance committee. Sugar is independent several governmental agencies, including the Finan- director of Apple, where he serves as chair and financial Crisis Inquiry Commission and the National In- cial expert of the audit and finance committee. Sugar frastructure Advisory Committee. is also an independent director of Amgen, where he is JOHN W. THOMPSON chair of the corporate responsibility and compliance committee, and a member of the executive and gov- SUSAN TOMASKY ernance and nominating committees. Sugar serves on Public Service Enterprise Group, the board of trustees of several high-profile nonprofit Summit Midstream Partners, Tesoro Corp. institutions, including the Los Angeles Philharmonic Tomasky’s energy industry experience spans private Association and the Boys and Girls Club of America. industry and government and she works to support He has also served as chair of the Aerospace Industries the Ohio business community. It’s no wonder she was Association and was a fellow of both the American In- awarded the Glass Ceiling Award in 2011 by Diver- stitute of Aeronautics and Astronautics and the Royal sity America—she has commendably broadened the Aeronautical Society. SUSAN TOMASKY reach of women in the energy sector over the course of Best advice?“In well-run companies, much her career, in the boardroom and beyond. Tomasky is of the time, board meetings enter a currently a non-board director of the Federal Reserve predictable rhythm, and are fairly routine. Bank of Cleveland. She is lead independent director It has been said that in routine times, the at Tesoro Corp., and serves as an independent direc- quality of a board doesn’t really matter— tor at Summit Midstream and at Public Service En- until suddenly those moments when it terprise Group. Tomasky’s committee memberships matters enormously…In those moments, include financial expert of the audit committee and the board’s collective wisdom, perspective, chair of the governance committee at Tesoro; chair and mature judgment can make—or of the conflicts committee and member of the audit break—a company.” committee at Summit Midstream; and member of the audit and corporate governance committees at Pub- lic Service Enterprise Group. Outside of her director- JOHN W. THOMPSON ship commitments, Tomasky is also an avid supporter Microsoft Corp. of the arts in her community and other civic matters. Thompson is independent chair, Microsoft Corp., She is currently a trustee of the Columbus Association and currently serves as CEO of Virtual Instruments, for the Performing Arts and previously served on the a privately held company focused on the efficient per- board of the Royal Shakespeare Company America.

48 NACD Directorship November/December 2015 2015 NACD Directorship 100

BY THE NUMBERS

JACQUELYN M. WARD DAVID A. WILSON Number of Honorees at Specific Age Sanmina Corp., Sysco Corp. Barnes & Noble Education, CoreSite Realty Corp. 6 64.8 Ward is independent chair of Sysco Corp., a food and A retired audit authority and academic who has served E Mean G beverage supply company, and is independent direc- as CEO of the Graduate Management Admissions A 65 I C 5 tor and consultant of Sanmina Corp. She retired as Council and as managing partner of EY, Wilson is a I F Median C E president, CEO, and chair of Computer Generation pioneer in the firm’s National Professional Develop- P 61 S

T Mode A in 2000 and has focused on directorship since. Ward ment Education program and of the concept of profes- 4 S currently serves as chair of the nominating and corpo- sional development at large. Wilson is a director and E R O rate governance committee and is a member of the JACQUELYN M. WARD chair of the audit committee at both CoreSite Realty N

O 3 H compensation committee at Sanmina Corp. She is Corp. and Barnes & Noble Education. He also serves F also chair of the executive committee and a member as director of two nonprofit organizations: the Atlantic O R of the compensation committee at Sysco. Ward is a Council of the United States and The Glitter Foun- E 2 M B U

committed member of the Atlanta community, where dation, which is committed to the funding of and ac- N she is a member of the Atlanta Action Forum and the cess to arts-based education and therapies. He has also 1 Atlanta Round Table. taught at Queen’s University, the University of Illinois, the University of Texas, and Harvard Business School. 53 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 77 Best advice? “What our attorney never told AGE MIKE D. WHITE MIKE D. WHITE me was how challenging it may be to hold DIRECTV, Kimberly-Clark Corp., Whirlpool Corp. fast when you are in the minority, but how Committee Chairs Education White led DIRECTV through a high-profile merger critical it is to our governance system that with AT&T, which was met with a 99 percent approv- Harvard 4% you do.” Audit 46% Loyola College 4% al rating from the company’s shareholders—numbers 7 Queens University 4% that are commendable and enviable. White is presi- NACD Top Compensation 23% Fellows UCLA 4% dent, CEO, and chair of the board at DIRECTV and Other Undergraduate DONA D. YOUNG 72% U of Manchester 4% serves on the boards of Kimberly-Clark Corp. and Aegon N.V., Foot Locker Nom/Gov Schools 21% U of Michigan 4% Whirlpool Corp. As an independent director, White Young retired in 2008 after a 30-year career in insur- U of Nebraska 4% serves on the audit committee at Kimberly-Clark and ance and asset management at Phoenix Cos., and Other* 11% is chair of the human resources committee and mem- DAVID A. WILSON one of only 24 female CEOs listed among the For- 29 ber of the corporate governance committee at Whirl- tune 1000 at the time of her retirement. She current- *Committee categories include Responsibility, Advisory Top Five pool. Before joining DIRECTV, White dedicated ly serves as an independent director and chair of the Human Resources, Conflicts, and Finance Council Post-Graduate Delegates over a decade to PepsiCo International and its affili- nominating and governance committee at Foot Lock- Qualifications ates, where he served in a variety of leadership posi- er. Young is also independent director at Aegon N.V., 80% tions, including as CEO and chair of the board from where she is a member of the audit and risk commit- Hold 1. MBA 2003 to 2009. White has also held senior leadership tees. She has served on the Save the Children board, 66 2. JD Advanced 3. MS positions at Frito-Lay North America and Avon Prod- where she is a member of the charitable organiza- Held Committee Chair Positions 111 Degrees 4. MA ucts. He was inducted into the GAMCO Manage- tion’s audit, development, executive, and U.S. pro- 5. PhD Public ment Hall of Fame in May 2015 and was previously DONA D. YOUNG grams committees. Johns Hopkins 4% 22% Companies Harvard 4% MIT 4% awarded the Corporate Responsibility Award from the Best advice? “Be yourself and be prepared Represented NYU 8% International Rescue Committee, a human rights and Chaired Two to contribute. It sounds trite, but it’s true.” Committees Northwestern 5% relief organization. Rutgers 4% Top Graduate Best advice? “Master the art of asking Other 35% Stanford 4% 11% Schools good questions.” Chaired Three 44% UCLA or more 12% Women 56% Committees U of Illinois Men 4% U of Michigan Wharton 5% 8% Source: BoardEx U of Southern Data Represented by D100 Directors California 4%

November/December 2015 www.NACDonline.org 49 November/December 2015 NACDonline.org 50 THEY SAY 2015 NACD Directorship 100 information is everywhere ALPHABETICAL LISTING DIRECTORS Gary E. Anderson Jeffrey E. Curtiss Kathleen Hyle Kathi P. Seifert Jacquelyn M. Ward WE FOCUS Betsy J. Bernard W. Roy Dunbar Nancy J. Karch Olympia J. Snowe Mike D. White John H. Biggs✦ Gary W. Edwards Catherine P. Lego Ronald D. Sugar Ralph V. Whitworth✦ on what you need Veronica Biggins John V. Faraci Simon M. Lorne John W. Thompson David A. Wilson Angela Brock-Kyle Margaret M. Foran Douglas MacLellan Susan Tomasky Dona D. Young to know Raymond Bromark Jonathan F. Foster Timothy Manganello E. Norman Veasey✦ Joyce F. Brown Helene D. Gayle Michael J. Mardy There’s no shortage of information available to your Leslie A. Brun Patrick W. Gross Andrew J. McKenna Sr.✦ organization today. But finding the most relevant Donald J. Carty Jr. H. Edward Hanway Lisbeth R. McNabb H NACD B. Kenneth West Lifetime information aligned to the realities of your business E. Michael Caulfield Richard J. Harrington Neil S. Novich Paula H. J. Leslie Stone Heisz Sarah E. Raiss Achievement Award Recipient is what actually matters. KPMG Board Leadership Cholmondeley Robert H. Herz Irvin E. Richter H J Center delivers timely insights to help directors turn Janet F. Clark Bonnie G. Hill Ronna Romney Director of the Year boardroom discussions and decisions into long-term Christopher J. Betsy D. Holden William A. Roskin J ✦ Hall of Fame value for the business. Get informed perspectives on Coughlin Richard J. Howell Francesca real issues that matter most – from risk and strategy, to Terrell K. Crews Sherrill W. Hudson Ruiz de Luzuriaga talent and innovation, to globalization and compliance – at kpmg.com/BLC GOVERNANCE PROFESSIONALS AND INSTITUTIONS Joseph Adams Phyllis Deiso Steven E. Hall Stephan J. Mallenbaum Anne Simpson Luis A. Aguilar James W. DeLoach Robert E. Hallagan Robert McCormick Michael W. Smith Charles M. Allen Lynne Doughtie Dayna L. Harris J. Michael McGuire Andrew Ross Sorkin Donna F. Anderson John Drzik Randy J. Holland Patrick S. McGurn Collins J. Seitz Jr. George M. Anderson Theodore L. Dysart Stephen R. Howe Jr. Joan E. Meyer Kara M. Stein Irving S. Becker Michelle Edkins Blair R. Jones Robert E. Moritz Leo E. Strine Jr. Wayne Berson John M. Engler Bess Joffe Alan Murray Darla C. Stuckey Glenn Booraem Steven Epstein David A. Katz John W. Noble David N. Swinford Amy Borrus Thomas Farley Mark Kelly Rose Marie Orens Shawn Tully Andre G. Bouchard Robin A. Ferracone Thomas J. Kim Donald F. Parsons Jr. Karen L. Valihura Brian V. Breheny Cynthia M. Fornelli David H. Kistenbroker Gregg H. Passin James T. Vaughn Jr. Catherine L. Bromilow Abe Friedman Jannice L. Koors Michael S. Piwowar William H. Voge Richard F. Chambers Dennis J. Friedman J. Travis Laster Jeffry Powell Charles Weinstein David Chun Daniel M. Gallagher Gregory E. Lau Michael Powers Dennis T. Whalen Larry Clinton Deborah Gillis James Liddy Becky Quick John W. White James M. Cudahy Sam Glasscock III Paula Loop Stephen A. Radin Mary Jo White Richard J. Daly Robert Greifeld Joann S. Lublin Veta T. Richardson Alex Wittenberg Julie H. Daum Holly J. Gregory Mark Lundvall Daniel J. Ryterband James K. Wolf Deborah L. DeHaas Bonnie W. Gwin Stephen P. Mader Anne Sheehan

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member and the U.S. limited liability partnership a Delaware KPMG LLP, © 2015 with KPMG firm of the KPMG network independent member firms affiliated NDPPS 369384 International Cooperative entity. (“KPMG International”), a Swiss 51 NACD Directorship November/December 2014 52 NACD Directorship November/December 2015 GOVERNANCE PROFESSIONALS AND INSTITUTIONS

AIG COMMERCIAL INSURANCE BLACKROCK Michael W. Smith Michelle Edkins Smith is COO for Global Commercial Insurance at Edkins is a managing director at BlackRock and AIG Property Casualty, responsible for advancing the global head of its Investment Stewardship team of global strategies of distribution, marketing, and strat- 22 specialists. In this role, she oversees her team’s en- egy. He also oversees operations and systems initia- gagement on corporate governance, including envi- tives for commercial insurance worldwide. Smith is MICHAEL W. SMITH ronmental and social impacts, with the companies an attorney who practiced law in the private sector in in which BlackRock invests on behalf of clients. She Atlanta and served on the in-house legal staff of a For- also serves on the firm’s human capital and govern- tune 500 firm. ment relations steering committees. An economist Best advice? “As you prioritize your by training, Edkins has also worked in a number of duties, put the company at the top governance-related roles in the United Kingdom and in government roles in her native New Zealand. of the list, but don’t lose sight of the JOAN E. MEYER risks to both the company and to you Best advice? “Commit to be engaged, to personally. Understand your role, listen, have the courage of your convictions, and and above all, ask questions.” to continually evaluate the effectiveness of the board and your contribution to it. High- performing boards require more time and BAKER & MCKENZIE focus, but are altogether a most rewarding Joan E. Meyer WAYNE BERSON experience.” The chair of Baker & McKenzie’s compliance, investigations and government enforcement practice in Washington, D.C., Meyer also is the office practice BROADRIDGE FINANCIAL SOLUTIONS chair of litigation and member of the firm’s Wash- Richard J. Daly ington Office Management Committee. She joined The president and CEO of Broadridge Financial Baker & McKenzie in 2008, with more than 20 years’ Solutions, Daly also is a member of the Broadridge experience in criminal and civil litigation. MICHELLE EDKINS board. He is a graduate of the New York Institute of Technology with a BS in Accounting. He is a founding member and honorary director of the Make-A- BDO USA Wish Foundation of Suffolk County. Daly serves on Wayne Berson the board of ADT Corp. and is a director of the SIF- The CEO of BDO USA, Berson also chairs the glob- MA Foundation and Fountain House. al board of BDO International. Before this appoint- RICHARD J. DALY ment, Berson was Atlantic Assurance regional managing partner and presiding member of the BDO board. CALPERS He supports the directorship and audit community as Anne Simpson a member of the nominations committee of the Amer- Simpson is senior portfolio manager of investments ican Institute of Certified Public Accountants, and as and director of global governance at CalPERS. She governing board member and chair of the oversight leads the organization’s sustainability project to inte- committee at the Center for Audit Quality. Berson ANNE SIMPSON grate environmental, social, and governance factors has also provided services to a range of BDO initia- across the total fund. Simpson is an advisory board tives, including the Alliance program, the Women’s member at the Center for Global Markets and Cor- Initiative, and the International Recruiting Initiative. porate Ownership at Columbia Law School and a di- Best advice?“I believe good leaders must rector of the Council of Institutional Investors. She also be good followers…No one creates a also is a member of the Investor Advisory Group of the successful organization alone.” Public Company Accounting Oversight Board.

November/December 2015 NACDonline.org 53 2015 NACD Directorship 100

GOVERNANCE PROFESSIONALS AND INSTITUTIONS

CALSTRS of the world’s richest and most influential investors, Anne Sheehan including Warren Buffett, Bill Gates, and Charlie Sheehan is the director of corporate governance for Munger. She is a regular contributor to Fortune mag- the California State Teachers’ Retirement System azine and CNBC.com. She is a seven-year veteran of (CalSTRS), the largest public pension fund for teach- The Wall Street Journal, where she covered various ers in the United States. In this role, she is responsible beats including retail, e-commerce, and the Internet. for overseeing all corporate governance activities for ANNE SHEEHAN the $4 billion fund including proxy voting and company engagements. Sheehan also serves as vice chair COMPENSATION ADVISORY PARTNERS of the Investor Advisory Committee of the Securities Rose Marie Orens and Exchange Commission (SEC). Orens is a founding partner of Compensation Advisory Best advice? “Know your shareholder base Partners (CAP) located in New York. She has consult- ed on executive and director compensation issues for and make sure your company has a robust ABE FRIEDMAN shareholder outreach program that enables more than 20 years, focusing on tying executive com- unfettered feedback.” pensation to business strategy and strengthening the link between performance measurement and rewards. Prior to founding CAP in 2009, Orens was a world- CAMBERVIEW PARTNERS wide partner in Mercer’s human capital business and Abe Friedman the market business leader in New York. Friedman is the founder and managing partner of CYNTHIA M. FORNELLI CamberView Partners, which advises public company boards and management on their investors in the CRAVATH, SWAINE & MOORE context of shareholder activism and engagement. He John W. White is the co-director of the Stanford Institutional Investor White is a partner in Cravath, Swaine & Moore’s Forum, and was appointed by then-SEC Chair Mary corporate department and chair of its corporate gov- Schapiro in 2009 to serve on the agency’s inaugural ernance and board advisory practice. From 2006 Investor Advisory Committee. BECKY QUICK through 2008, he served as director of the Division of Corporation Finance at the SEC that oversees disclosure and reporting by U.S. public companies. He CENTER FOR AUDIT QUALITY is a member of the Standing Advisory Group, which Cynthia M. Fornelli advises the Public Company Accounting Oversight Fornelli is executive director of the Center for Audit Board. He is also a member of the board of trustees Quality (CAQ), a position she has held since the or- and the audit committee of both the Practising Law ROSE MARIE ORENS ganization’s establishment in 2007. Fornelli supports Institute and the SEC Historical Society. the community of audit professionals in many other ways, including as director of the Financial Account- ing Standards Advisory Council, and has served on CROWE HORWATH the NACD Blue Ribbon Commissions on the Audit Charles M. Allen Committee and Risk Governance. Allen was recently named vice chair of Crowe Hor- JOHN W. WHITE wath and co-chair of Crowe Horwath International in addition to his role as CEO. Allen’s professional prac- CNBC tice has focused on strategic assistance to private in- Becky Quick vestors as they acquire and finance target companies. Quick is a broadcast journalist who serves as co-an- A respected member of the CPA community, Allen chor of CNBC’s weekday morning business affairs previously served on the governing board of the Cen- show Squawk Box and anchor of the nationally syndi- ter for Audit Quality and the Council of the American cated program On the Money. She has profiled some CHARLES M. ALLEN Institute of Certified Public Accountants.

54 NACD Directorship November/December 2015 THE DELAWARE COURTS Most major corporations are domiciled in established in 1792. He is supported by dispute over stockholders’ ability to ap- Delaware because of the Delaware courts’ vice chancellors Sam Glasscock III, J. point corporate officers. steadfast judicial approach to corporate Travis Laster, John W. Noble, and Donald Chancery decisions can be tested in litigation. F. Parsons Jr. Among the Chancery a higher court, namely the Delaware The Court of Chancery is led by Court’s most important decisions in 2015 Supreme Court, which continued to serve Chancellor Andre G. Bouchard, the twen- was Gorman v. Salmone, which upheld as the arbiter of important decisions that ty-second chancellor since the court was the concept of “director-primacy” in a affect boardroom practice. The court in May clarified a case (In re Cornerstone Therapeutics Inc.) regarding situations where independent directors are able to seek dismissal of claims against them in courts when challenged by shareholders. The ruling stated that directors could seek dismissal from a case if the board’s bylaws include exculpatory clauses protecting them from ordinary breach-of- duty charges. However, if sufficient alle- gations can be collected that a director acted in bad faith, gross negligence, or in breach of fiduciary duty of loyalty, the director can face trial. A set of cases clarifying director independence was also decided this fall on the same day. In re Sanchez Energy Derivative THE COURT OF CHANCERY From left: J. Travis Laster, John W. Noble, Chancellor Andre G. Litigation, written by the Hon. Leo E. Strine Bouchard, Donald F. Parsons Jr., Sam Glasscock III. Jr., was a rare reversal of a Chancery court opinion The chief justice reasoned that a THE DELAWARE SUPREME COURT Below from left: James T. Vaughn Jr.,Randy J. Holland, . Chief Justice Leo E. Strine Jr., Karen L. Valihura, Collins J. Seitz Jr. friendship of the defendant director had undue influence over his independent decision-making responsibilities to the company. A decision on the appeal of Corwin et al. v. KKR Fin. Holdings et al. affirmed the dismissal of shareholders’ argument that while the parent company was not a majority holder, it still had undue influence over directors and their capability to form independent decisions. Justices of the Delaware Supreme Court are appointed for 12-year terms. Strine is currently in his second year of service, and leads four associate justices: Randy J. Holland; Collins J. Seitz Jr., who was sworn in in April; Karen L. Valihura; and James T. Vaughn Jr.

November/December 2015 NACDonline.org 55 2015 NACD Directorship 100

GOVERNANCE PROFESSIONALS AND INSTITUTIONS

DECHERT has advised thousands of companies across industries David H. Kistenbroker and institutions such as banking, energy, higher edu- The co-leader of the white collar and securities litiga- cation, and healthcare on how secure, electronic action practice of Dechert, Kistenbroker is managing cess to board materials can improve effectiveness and partner of the firm’s Chicago office. He represents governance. publicly traded companies and their directors and of- “To understand the path DAVID H. KISTENBROKER Best advice? ficers in securities class actions, SEC investigations, forward, you have to understand the internal investigations, and corporate governance history of the company, and the players disputes. who will get the company where you want Best advice? “Be mindful of your moral it to go. Take the time to understand the compass. There may be times when a new company for what it is: a living, breathing, board member disagrees with the majority, growing organism, which needs your but they should not be afraid to voice their DEBORAH L. DEHAAS attention and guidance.” opinion.”

EISNERAMPER DELOITTE Charles Weinstein Deborah L. DeHaas Weinstein, who is CEO and a member of the exec- DeHaas wears many hats within Deloitte’s Center for utive committee, leads EisnerAmper. He has more Corporate Governance, including chief inclusion of- STEPHAN J. MALLENBAUM than 25 years of experience in audit, mergers and ac- ficer, vice chair, and national managing partner. De- quisitions, public and private financing, and indus- Haas guides Deloitte’s strategy to recruit, develop, and try consolidation with the company. Weinstein was promote a diverse workforce across her roles at the managing partner of Eisner as it merged with Am- firm. Prior to her work in the Center for Corporate per, Politziner & Mattia, a deal recognized in 2010 Governance, she was the Central Region Managing as “Deal of the Year” by the Association for Corporate Partner. DeHaas is a committed citizen of Chicago, Growth, and helped found EisnerAmper Global, an where she is a trustee of Northwestern University’s JEFFRY POWELL international network of independent financial firms. Kellogg Global Advisory Board and vice chair of Unit- He also is director and a member of the American In- ed Way of Metropolitan Chicago. stitute of Certified Public Accountants. Best advice?“It is important to realize that your presence on the board is a call to DENTONS action—an obligation to become involved.” Stephan J. Mallenbaum CHARLES WEINSTEIN The New York-based practice leader for Dentons’ U.S. corporate practice, Mallenbaum is experienced EQUILAR in advising C-level management and boards on stra- David Chun tegic matters, transactions, and policy issues, particu- The founder and CEO of Equilar, Chun has led the larly for global financial services, private equity, and creation of a well-respected research company that technology-driven companies. specializes in executive compensation data. Prior to DAVID CHUN founding Equilar, Chun was a vice president in the investment banking division of Donaldson, Lufkin DILIGENT CORP. and Jenrette, a global investment bank that has since Jeffry Powell merged with Credit Suisse. Chun currently serves As executive vice president and director of sales at Dil- on the advisory board of the Wharton Center for igent, Powell is responsible for the development and Entrepreneurship, is a trustee of the Committee for execution of client acquisition strategies throughout Economic Development, and a director of the Asian the Americas. During his eight years with Diligent, he Pacific Fund Community.

56 NACD Directorship November/December 2015 EY FORTUNE MAGAZINE Stephen R. Howe Jr. Alan Murray, Shawn Tully Howe is managing partner of the Americas Area at Murray is the editor of Fortune magazine, overseeing EY, a practice area spanning 30 countries and more the magazine, its conferences, and its digital prop- than 58,000 people. Howe has risen to the rank of erties. Prior to assuming this post in August 2014, managing partner of EY over his 30-year career in the Murray was president of the Pew Research Center in United States, and chairs the U.S. and EY Americas STEPHEN R. HOWE JR. Washington, D.C. He is the author of several books, operating executive boards. Additionally, Howe repre- including The Wall Street Journal Essential Guide to sents EY in its regulatory relationships and is the firm’s Management, Revolt in the Boardroom, and Show- executive sponsor for inclusiveness. down at Gucci Gulch, which he co-authored with Jef- frey Birnbaum. He is a member of the Gridiron Club, the New York Economic Club, and the Council on FARIENT ADVISORS Foreign Relations. ROBIN A. FERRACONE Robin A. Ferracone, Dayna L. Harris Tully is an editor-at-large at Fortune magazine, Ferracone is the founder and CEO of Farient Advi- where he covers Wall Street, banking, and healthcare. sors, an executive compensation consulting firm. She He joined Fortune as a reporter in 1979. In several cas- is the author of the book Fair Pay, Fair Play: Aligning es his articles have predicted some of the most influen- Executive Performance and Pay and the Forbes.com tial economic events in recent history, including the blog Executive Pay Watch. She is a member of the collapse of the tech bubble, the controversy surround- board of pet insurance company Trupanion and the DAYNA L. HARRIS ing file-sharing service Napster, and the stent wars be- boards of trustees at both Duke University and Oak- tween Johnson & Johnson and Boston Scientific. He’s tree Capital mutual funds. also developed a specialty in banking—chronicling, Harris is a vice president with Farient Advisors and for instance, Jamie Dimon’s comeback at Bank One has more than 20 years of experience providing advice and his tenure at JPMorgan Chase & Co. on executive and board compensation. She focuses on designing incentive programs that align compensation with business strategy and value creation for ALAN MURRAY FREDERIC W. COOK & CO. shareholders. She advises boards and senior manage- Daniel J. Ryterband ment of public and private companies across a variety Ryterband is CEO of Frederic W. Cook & Co and of industries. heads its New York office. He joined the firm in 1997, having previously spent five years with Towers Perrin as an executive compensation and benefits consultant FIDELITY INVESTMENTS and three years with A. Foster Higgins & Co. He is Mark Lundvall STEVEN EPSTEIN a certified employee benefit specialist and a certified Lundvall is vice president of investment proxy re- executive compensation professional. search for Fidelity Investments, which provides investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing, and FRIED, FRANK, HARRIS, SHRIVER & JACOBSON related products to more than 20 million individuals, Steven Epstein institutions, and financial intermediaries. Lundvall A partner and co-head of Fried Frank’s mergers and leads a team of analysts responsible for proxy voting acquisitions practice, Epstein has a diverse transac- research, analysis, operations, and policy develop- tional practice, which includes strategic mergers and ment for Fidelity and its affiliates. His team engag- acquisitions and private-equity transactions. He cur- es with hundreds of portfolio companies throughout rently serves on the board of Fordham University the year on corporate governance and executive com- School of Law and the advisory board of the Practical pensation matters. Law Company.

November/December 2015 NACDonline.org 57 2015 NACD Directorship 100

GOVERNANCE PROFESSIONALS AND INSTITUTIONS

GIBSON, DUNN & CRUTCHER tions and enhance the effectiveness of the relation- Dennis J. Friedman ship between the board and CEO. As part of this Friedman is a partner in the New York office of Gib- effort he works with these groups in the design and son, Dunn & Crutcher, where he leads the merg- development of reward programs to align execu- ers and acquisitions (M&A) practice. He has also tive efforts and results with the success of the com- served on the firm’s executive committee and its in- pany. His financial background provides him with ternational management committee. Friedman rep- DENNIS J. FRIEDMAN a grounded perspective on performance measure- resents both domestic and foreign entities, boards, ment and management. (As this issue was being pre- special board committees and investment banks in pared, Hay Group announced it had been acquired many of the world’s largest mergers, cross-border by Korn Ferry. See related story in NTK, page 10.) transactions, and unsolicited takeover offers. He also represents hedge funds and private investor funds in their M&A activity. In addition to a legal career that HEIDRICK & STRUGGLES spans more than 35 years, Friedman was an invest- ROBERT MCCORMICK Theodore L. Dysart, Bonnie W. Gwin ment banker at several major Wall Street firms. The vice chair of Heidrick & Struggles, Dysart is also a leader in the Global Board of Directors Prac- tice. He is an active member and functional expert of GLASS LEWIS & CO. the firm’s CEO search practice, with a focus on CEO Robert McCormick and board member succession planning. Dysart has McCormick oversees the policy development of J. MICHAEL MCGUIRE placed more than 600 executives on the boards of Glass Lewis’ proxy voting guidelines and the analy- companies of all sizes. sis of more than 20,000 Proxy Paper research reports Gwin is vice chair and managing partner, North on shareholder meetings of public companies in America, of Heidrick’s board practice. She focuses on more than 100 countries. McCormick also serves on both director and executive placement. Previously at the advisory boards of the University of Delaware’s the firm, Gwin was president, Americas, and corpo- Weinberg Center on Corporate Governance and rate officer overseeing all operations in North and Lat- Enlight Research. IRVING S. BECKER in America. She also serves on the Georgetown Uni- versity board of regents and is a trustee of the Chau- tauqua Institution. GRANT THORNTON J. Michael McGuire Named CEO of Grant Thornton, the American INSTITUTIONAL SHAREHOLDER SERVICES member firm of Grant Thornton International, last Patrick S. McGurn THEODORE L. DYSART year, McGuire has held leadership positions across McGurn serves as special counsel and the head of the organization before his assignation, including op- Strategic Research and Analysis at Institutional Share- erations, markets and industry, people and culture. holder Services (ISS), the world’s leading provider of He was managing partner of the firm’s Carolinas of- proxy voting services and corporate governance re- fice. McGuire is a board member of the Charlotte search. Considered by industry constituents to be a Chamber of Commerce and the Bechtler Museum leading governance expert, McGurn serves on the ad- of Modern Art, and is chair of Advantage Carolina. BONNIE W. GWIN visory board of the John L. Weinberg Center for Cor- porate Governance at the Lerner College of Business & Economics at the University of Delaware. HAY GROUP Best advice?“Check your preconceived Irving S. Becker notions—like your luggage—outside the Becker is the U.S. leader of Hay Group’s board boardroom door.” solutions business. He partners with boards and senior executives to create sustainable organiza- PATRICK S. MCGURN

58 NACD Directorship November/December 2015 KPMG Mader is vice chair and managing director of board Lynne Doughtie, James Liddy, Dennis T. Whalen and CEO services at Korn Ferry. A seasoned and cre- Over the course of her 30-year career at KPMG, ative thought leader in the talent industry, Mader has Doughtie has ascended the ranks to become CEO recruited and placed more than 300 board members and U.S. chair of the board. She previously was vice in the past 12 years since he entered the field of lead- chair of KPMG’s advisory business, a position she held ership talent after working in robotics early in his ca- from 2011 to 2015. Her contributions made the adviso- LYNN DOUGHTIE reer. His interest in that field continues professionally ry service the fastest-growing portion of the company. as he aids ambitious, smaller technology and product She is a governing board member of the Center for companies launch their products. Audit Quality, and is chair of the Advisory Board of the Pamplin College of Business at Virginia Tech. Best advice?“Complement the board’s LATHAM & WATKINS William H. Voge thinking without conforming to it.” JAMES LIDDY The chair and managing partner of the global law Liddy was recently appointed as Americas Leader, firm since Jan. 1,Voge had served in a variety of lead- Global Financial Services at KPMG and was previous- ership positions at Latham spanning more than two ly vice chair of audit. Liddy currently leads a research decades, including eight years on the executive com- project within KPMG to examine the efficacy and mittee. Based in the firm’s London office, he has led quality of audit in the financial industry—particularly a number of initiatives focused on global strategy and on domestic and global Systemically Important Finan- DENNIS T. WHALEN practice integration for markets outside the United cial Institutions. His career at KPMG spans 30 years. States. He is a strong advocate for pro bono service Whalen, who is the partner in charge and execu- and sits on several non-profit boards including the tive director, leads KPMG’s Audit Committee Insti- Ubuntu Education Fund. tute. He is also a member of KPMG’s National Audit Leadership team and sits on a group of senior partners that provide cross-functional advice on strategic MARSH & MCLENNAN COS. investments and business development for the firm. ROBERT E. HALLAGAN John Drzik, Alex Wittenberg Whalen has also served as the firm’s U.S. and Ameri- As president of Marsh Global Risk & Specialties, cas board, where he chaired the audit, finance, and Drzik oversees the firm’s global industry and practice operations committee. specialties as well as Marsh’s activities in consulting, captive solutions, risk analytics, and information businesses. He also chairs the global risk center for Marsh & McLennan Cos. He is the former CEO of Oli- KORN FERRY STEPHEN P. MADER Robert E. Hallagan, Stephen P. Mader ver Wyman Group, where he was responsible for all The vice chair of board leadership services at Korn management and economic consulting businesses at Ferry, Hallagan is managing director based in the Marsh & McLennan, which includes Guy Carpenter firm’s Boston office. Hallagan’s recent work includes (strategic advisory services), Mercer (talent develop- board succession planning in general, and has focused ment and recruitment), Marsh (insurance brokerage on niche board concerns such as spin-offs, carve-outs, and risk reduction), and Oliver Wyman (management and the building of boards of post-bankruptcy com- JOHN DRZIK consultant). panies. He has worked with companies including Wittenberg, executive director of Marsh & McLen- Lehman Brothers, Houghton Mifflin Harcourt, Gen- nan’s Global Risk Center, oversees research in the eral Dynamics Corp., and ConocoPhillips. Hallag- field of risk management, partnering with leading an has been a member of NACD for 14 years, was a organizations that in addition to NACD include the board chair, and was a co-founder of NACD’s Center Association for Financial Professionals, Organization for Board Leadership. He was also instrumental in the for Economic Cooperation and Development, World development of NACD’s Blue Ribbon Commissions. ALEX WITTENBERG Economic Forum, and the World Energy Council.

November/December 2015 NACDonline.org 59 2015 NACD Directorship 100

GOVERNANCE PROFESSIONALS AND INSTITUTIONS

MERCER NEW YORK STOCK EXCHANGE Gregg H. Passin Thomas Farley The senior partner of Mercer’s New York office, As president of the NYSE Group, Farley oversees Passin is the North American leader for executive re- the New York Stock Exchange (NYSE) and a di- wards consulting. He counsels public and private com- verse range of equity and equity-options exchanges, panies on global compensation and corporate gover- all wholly owned subsidiaries of Intercontinental Ex- nance issues relating to senior executives, boards, and GREGG H. PASSIN change (ICE). Farley joined the NYSE in 2013 when professional services firm partner and professional pop- ICE acquired NYSE Euronext. He served as COO ulations. Prior to joining Mercer, Passin was a partner and was named president last year. Prior to that, he with Sibson Consulting, where he managed the New served as SVP of financial markets at ICE where he York and London offices. He has also worked for Mer- oversaw the development of several businesses and rill Lynch and Frederick Cook & Co. initiatives across ICE’s markets. MICHAEL POWERS

MERIDIAN COMPENSATION PARTNERS THE NEW YORK TIMES Michael Powers, James K. Wolf Andrew Ross Sorkin A managing partner at Meridian, Powers has been Dealbook, the online daily financial report published consulting on executive compensation design issues by The New York Times, is a must read. Sorkin writes for more than 25 years. He has substantial experi- and edits with authority on the day-to-day issues con- ence at the board level. Powers has testified before JAMES K. WOLF fronting Wall Street and corporate America. Sorkin Congress, the SEC, and the Financial Accounting also co-anchors CNBC’s Squawk Box and is the au- Standards Board on executive pay and governance is- thor of Too Big to Fail, widely regarded as the defini- sues. Prior to joining Meridian, Powers was at Hewitt tive account of the 2008 financial crisis. Associates for 25 years, where he was global practice leader for executive compensation and corporate governance consulting. PEARL MEYER ROBERT GREIFELD Wolf is a managing partner for Meridian with 20 Jannice L. Koors, David N. Swinford years’ experience consulting to a variety of organiza- Koors joined Pearl Meyer in 2001 and currently serves tions in the areas of executive compensation, corpo- as managing director and head of the firm’s Chicago rate governance, and performance-based pay. Wolf office. She has more than 20 years of experience in serves as a lead advisor to board compensation com- all areas of executive compensation, including value- mittees, specializing in energy, engineering and con- based annual and long-term incentive plans, salary struction, and transportation industries. structure development, subsidiary pay programs and ANDREW ROSS SORKIN performance measure selection. She is the lead author each year of Pearl Meyer’s director compensation NASDAQ report, produced in conjunction with NACD. Robert Greifeld The president and CEO of Pearl Meyer, Swinford Greifeld has served as CEO of Nasdaq since 2003, has considerable experience in contractual arrange- leading the exchange through a series of complex ac- ments and incentive plan design. He provides a strong quisitions that have extended the company’s footprint JANNICE L. KOORS and seasoned focus on issues related to board inde- across the world, spanning all asset classes. Nasdaq pendence and oversight, talent development, and suc- owns and operates 26 markets, one clearinghouse, and cession planning. Prior to joining the firm in 1998, five central securities depositories in the United States he was a principal and worldwide partner of William and Europe. Its technology drives more than 70 mar- M. Mercer and national practice leader for execu- ketplaces worldwide. Greifeld has been a strong advo- tive compensation. Swinford also serves on Worldat- cate for modernizing the exchanges and financial reg- Work’s executive rewards advisory committee. ulation to keep America’s capital markets competitive. DAVID N. SWINFORD

60 NACD Directorship November/December 2015 PROTIVITI mergers that expanded revenue from $30 million to James W. DeLoach $300 million over the course of 13 years. Adams’ cli- The managing director of Protiviti’s Houston office, ent experience covers a broad swath of auditing and DeLoach is a member of the Protiviti Solutions lead- advisory services, including mergers, acquisitions, di- ership team. His work across 30 different countries vestitures, operations, and organizational and strategy and 35 years has focused on assisting companies and matters. organizations in their response to governmental man- JAMES W. DELOACH Deiso is director and national SEC practice leader dates, all with the goal of fusing risk and strategy to cre- for RSM. Deiso joined the firm in 2006 from PwC, ate value. DeLoach is a prolific writer on governance, where she served as managing director. Deiso helps risk management, and effective control processes. large, multinational leaders in broadcast, manufac- You can read his monthly blog posts on these subjects turing, transportation, and other industries navigate at NACDonline.org/Magazine. transactions including carve-outs and spin-offs and their regulatory implications. CATHERINE L. BROMILOW PWC Catherine L. Bromilow, Paula Loop, RSR PARTNERS Robert E. Moritz Gregory E. Lau Bromilow is partner of PwC LLP and leader of the Lau joined RSR Partners as a senior member of its board firm’s Center for Board Governance. Bromilow practice in 2013. He has more than 30 years of experi- works closely with audit committees to understand PAULA LOOP ence working with corporate boards, and works close- the growing and unique challenges they face, and ly with board chairs and nominating and governance helps increase the committee members’ capabilities committees to finesse compensation plans through tar- to weather changing requirements and regulations. geted recruiting. Lau was executive director of global Loop assumed leadership of PwC’s Center for compensation and corporate governance at General Board Governance and Investor Resource Institute in Motors and is a former NACD board member. July. Loop’s 32-year career at PwC has focused almost Best advice? “First, listen, and listen well. exclusively on service to retail and consumer product ROBERT E. MORITZ We have one mouth and two ears for a clients to meet their operational, technical account- reason.” ing, and regulatory reporting needs. She also serves on the board of PwC’s charitable foundation. Moritz is serving in his second four-year elected SEMLER BROSSY CONSULTING GROUP term as chair and senior partner of PwC. He current- Blair R. Jones ly manages the firm’s U.S. leadership practice, which Jones has more than 25 years of experience as an ex- JOSEPH ADAMS employs 37,000 professionals across the country. Out- ecutive compensation consultant. She has worked side of PwC, Moritz is an international advisory board extensively across industries, including healthcare, member of the Atlantic Council and chairs the gov- retail, professional services, and consumer products. erning board of the Center for Audit Quality. She has a particular interest and expertise working with companies in transition, linking executive compensation design to urgent business imperatives and RSM (formerly McGladrey) GREGORY E. LAU cultural mandates. Jones currently serves as a mem- Joseph Adams, Phyllis Deiso ber of the WorldatWork executive rewards adviso- Adams is managing partner and CEO of RSM. Since ry council. Prior to joining SBCG, she was practice assuming leadership, Adams has assisted in the pur- leader in leadership performance and rewards at Sib- chase of RSM McGladrey, and led his team to in- son Consulting and an associate consultant at Bain & creased profits and revenues. Adams was Great Lakes Co. She holds the designations of Certified Benefits regional manager before becoming CEO in 2011, Professional, Certified Compensation Professional, where he was responsible for one of the firm’s largest BLAIR R. JONES and Certified Executive Compensation Professional.

November/December 2015 NACDonline.org 61 2015 NACD Directorship 100

GOVERNANCE PROFESSIONALS AND INSTITUTIONS

SIDLEY AUSTIN Best advice? “Travel to and from board Holly J. Gregory, Thomas J. Kim meetings with a fellow director, if possible. Gregory serves as the co-leader of Sidley’s global cor- The time spent together on the margins of porate governance practice, and currently chairs the the meeting may prove invaluable.” ABA Business Law Section’s Corporate Governance Committee. She has been instrumental in the firm’s Daum leads Spencer Stuart’s board practice, retention as counsel in several important governance HOLLY J.GREGORY where her work ranges from consulting to directors assignments. Gregory is currently advising on the fu- of pre-IPO to Fortune 10 corporations. Daum is the ture governance structure for the Internet through the former executive director of the corporate board re- ICANN IANA transition. She is a founding member source center at Catalyst, a worldwide organization of the board of the American College of Governance focused on placing women in leadership positions. Counsel, and The American Lawyer named her one Daum has conducted more than 1,000 director as- of the Elite Lateral hires of 2014. She authors the gov- signments during her tenure at the firm, including THOMAS J. KIM ernance column for Practical Law: The Journal. the placement of independent directors at Amazon, Kim joined Sidley in 2013 after six years at the General Electric, and Wal-Mart. SEC, where he was chief counsel and associate director of the division of corporation finance. He now focuses his practice on advising companies, STEVEN HALL AND PARTNERS underwriters, and boards on registered and exempt Steven E. Hall capital markets transactions, SEC regulatory and re- BRIAN V. BREHENY The founding partner and managing director of the porting issues, and corporate governance, as well as eponymous Steven Hall & Partners, Hall has advised on general corporate and securities matters. senior management and board compensation committees in the planning and implementation of senior executive compensation programs and incentives for SKADDEN, ARPS, SLATE, MEAGHER & FLOM corporations, subsidiaries, business units, spin-offs, Brian V. Breheny and divestitures. He also serves as an expert witness Since joining Skadden in 2010, Breheny concentrates GEORGE M. ANDERSON and frequently consults with corporations and law his practice in the areas of mergers and acquisitions, firms on litigation matters. In addition to being an oft- corporate governance, and general corporate and se- quoted expert in national media outlets, Hall is co-au- curities matters. He advises clients on a full range of thor of Executive Compensation Best Practices. SEC compliance and corporate governance matters, including the Dodd-Frank Act, the SEC’s tender offer rules and regulations, and the federal proxy rules. T. ROWE PRICE ASSOCIATES JULIE H. DAUM Before returning to private practice, Breheny held a Donna F. Anderson number of leadership positions in the Division of Cor- Anderson manages corporate governance for T. Rowe poration Finance at the SEC. Price, an investment management firm with approximately $390 billion under management. In this role, she leads the policy-formation process for proxy vot- SPENCER STUART ing in addition to the firm’s engagement with port- George M. Anderson, Julie H. Daum STEVEN E. HALL folio companies. Anderson also serves as co-chair of A frequent speaker and producer of thought leader- the firm’s proxy committee. Prior to joining T. Rowe ship on board governance, Anderson leads Spencer Price, Anderson served as director of equity research Stuart’s board effectiveness services in North Amer- for AIM Investments. Anderson earned her under- ica. Before joining Spencer Stuart, Anderson was graduate degree in foreign languages from Trinity managing partner of Tapestry Networks. He now University and an MBA from the University of Texas. advises clients with boards in transition on gover- Between degrees, she worked as a newspaper reporter nance, composition, and leadership matters. DONNA F. ANDERSON and then for the U.S. Department of State.

62 NACD Directorship November/December 2015 NACD BLUE RIBBON COMMISSION REPORT

SECURITIES AND EXCHANGE COMMISSION Align Short-term SEC Chair Mary Jo White and her supporting com- Success With missioners had a full docket in the 81st year of the agency’s operation. In addition to implementing ma- Long-term Strategy jor Dodd-Frank provisions, the retirement of two commissioners opened the door to successors (see related story, NTK, page 10). Luis A. Aguilar (D) announced he would retire after two terms as soon as a successor MARY JO WHITE is confirmed.Daniel M. Gallagher (R) stepped down in October after four years of service. Michael S. Pi- wowar (R) and Kara M. Stein (D) complete the panel. The SEC completed 17 Dodd-Frank provisions, including pay-versus-performance and CEO-to-medi- PUBLISHED BY THE NATIONAL ASSOCIATION OF CORPORATE DIRECTORS an-employee-pay ratio disclosure, as well as clawback LUIS A. AGUILAR policies intended to retrieve erroneously awarded incentive-based pay. White also faced a series of new challenges in her second year of service. From federal district court investigations of the Commission’s use of in-house administrative judges, to critical pressure from Sen. Elizabeth Warren (D-MA) to take a harder line on prosecuting those in violation of policies, the DANIEL M. GALLAGHER chair and her team faced few days without challenge. In addition to rule making, the SEC issued a concept release on possible revisions to disclosures required by audit committees. The release cites con- “The relationship between cerns over whether audit committees are providing short-term results and enough disclosure in proxy statements about their ac- MICHAEL S. PIWOWAR long-term value should be tions in meetings, especially with respect to the over- viewed in terms of alignment, sight of external auditors. (In a comment letter on the not opposition.” matter, NACD suggested that the proposal concentrated too heavily on external auditors, asserting that KAREN HORN the suggested disclosures would not materially benefit Director, Eli Lilly, NACD, Norfolk Southern, Simon investors.) Property Group, T. Rowe Price Mutual Funds The theme of staffing changes continued into sever- KARA M. STEIN al other notable SEC functions. Pamela C. Dyson was officially appointed chief information officer (CIO) -af ter serving as acting CIO since 2014. Dyson has been instrumental in modernizing the commission’s information technology infrastructure. Andrew J. Donohue replaced Lona Nallengara as chief of staff, a senior ad- NACDonline.org/Value visory role to the chair on all policy, management, and regulatory issues. Donohue was joined by Michael Lif- tik, incoming deputy chief of staff. Wesley R. Brick- er was named deputy chief accountant, in support of Paul A. Becker, chief accountant, in accounting and auditing policymaking functions.

November/December 2015 NACDonline.org 63 2015 NACD Directorship 100

GOVERNANCE PROFESSIONALS AND INSTITUTIONS

TIAA-CREF WACHTELL, LIPTON, ROSEN & KATZ Bess Joffe David A. Katz Who leaves Goldman Sachs? Joffe did last year to be- The partner at Wachtell, Lipton, Rosen & Katz in come managing director of corporate governance at New York City is a long-time adjunct professor at TIAA-CREF, where she helps lead, shape, and drive New York University School of Law, a senior pro- corporate governance program and policies. Joffe led fessional fellow at New York University Center for Goldman Sachs’ outreach to institutional sharehold- BESS JOFFE Law and Business, and an adjunct professor at Van- ers on corporate governance policies and practices as derbilt University Law School. In addition to many a vice president in investor relations. In this role, she professional memberships, Katz sits on the board of engaged with asset managers, public pension funds, The Partnership for Drug-Free Kids and is an advi- proxy advisor firms, governance thought leaders, and sory board member of the John L. Weinberg Center academics. for Corporate Governance at the University of Del- aware. He writes a bimonthly column on corporate GLENN BOORAEM governance for the New York Law Journal. THE VANGUARD GROUP Glenn Booraem Booraem is a principal of the Vanguard Group and THE WALL STREET JOURNAL the treasurer of each of the Vanguard funds. He Joann S. Lublin has worked for Vanguard since 1989 and currently In the last year, Lublin, the WSJ’s management news oversees the firm’s corporate governance program, MARK KELLY editor, has bylined hundreds of stories chronicling covering approximately $2 trillion in equity market contentious succession, shareholder, and operational value. He has served on the New York Stock Ex- issues at numerous public companies. Her work alone change’s Proxy Working Group and Commission is reason to read the Journal each business morning. on Corporate Governance, and currently works Lublin also writes for the front page and “Market- with the Shareholder/Director Exchange Protocol place” section of the Journal, which remains one of working group, a collective of governance experts the most influential newspapers in the United States. dedicated to advancing the discussion of sharehold- DAVID A. KATZ er engagement. Booream is instrumental to the development and deployment of Vanguard’s “quiet di- WEIL, GOTSHAL & MANGES plomacy,” which is “maximized by taking our mes- Stephen A. Radin sage directly to those companies where we believe A partner in Weil’s securities litigation practice group, changes are needed.” Radin has litigated, counseled, written, and lectured for more than 30 years on corporate governance sub- JOANN S. LUBLIN jects, including the business judgment rule, fiduciary VINSON & ELKINS duties of corporate directors and officers, sharehold- Mark Kelly er derivative and class action litigation, controlling Chair of the global law firm Vinson & Elkins, Kelly shareholder and going private transactions, special maintains an active practice concentrated on M&A committee investigations, federal securities laws, dis- for public and private companies, capital markets, and closure requirements, and indemnification and insur- corporate governance. Since 2008, he has represented STEPHEN A. RADIN ance of corporate directors and officers. clients in more than 150 domestic and cross-border Best advice: “Understand how the debt and equity offerings. Kelly chairs the executive corporation makes money. Don’t be afraid committee of the Houston Museum of Natural Sci- to ask questions—even questions you ence, and is a director of the Houston Livestock Show think are stupid. One size does not fit all, & Rodeo and the Greater Houston Partnership. so don’t mechanically follow the latest corporate governance trend.”

64 NACD Directorship November/December 2015 SOCIETIES AND NONPROFITS ASSOCIATION OF CORPORATE COUNSEL COUNCIL ON INSTITUTIONAL INVESTORS Veta T. Richardson Amy Borrus Richardson is president and CEO of the Association Borrus is interim executive director and deputy direc- of Corporate Counsel (ACC), which is one of the lead- tor of the Council on Institutional Investors (CII), a ing global bar associations serving in-house counsel. VETA T. RICHARDSON nonprofit, nonpartisan association of employee bene- Under Richardson’s leadership, the ACC serves mem- fit funds and foundations with more than $3 trillion in bers who work at more than 10,000 organizations—in- assets under management. As deputy director, Borrus cluding 98 percent of the Fortune 100 and 51 percent assisted the previous executive director with the man- of Global 1,000 companies. Richardson is an attorney agement and development of CII strategy, policy, and and nonprofit association professional who started her operations. Borrus was an award-winning business legal career at Sunoco, where she counseled on corpo- journalist for 25 years at BusinessWeek before joining JOHN M. ENGLER rate governance, securities disclosures, financing, and CII. In that role, she covered international business, mergers and acquisitions transactions. finance, and politics. She has also served as director of the National Institute on Retirement Security, a nonprofit research institute, and the Sinai Assisted Hous- BUSINESS ROUNDTABLE ing Foundation, a transitional housing program based John M. Engler in Washington, D.C. Engler is president of the Business Roundtable, the DEBORAH GILLIS powerful association of CEOs who lead major U.S. corporations. Engler is a former three-term governor THE INSTITUTE OF INTERNAL AUDITORS of Michigan, and former president and CEO of the Richard F. Chambers National Association of Manufacturers. Engler’s lead- Chambers is president and CEO of The Institute ership across both organizations has focused on edu- of Internal Auditors (IIA). He has been leader of cation and workforce issues—he has drawn attention IIA for six years, during which he has led the asso- to the growing need for a specialized, high-tech work- AMY BORRUS ciation to record membership numbers internation- force to meet global competition, and also advocates ally—180,000 members in 170 countries. Prior to his for policies that drive economic growth and hiring. work with IIA, Chambers was Leader of U.S. Inter- nal Audit Advisory Services at PwC, inspector general of the Tennessee Valley Authority, deputy inspector CATALYST general of the U.S. Postal Service, and director of in- Deborah Gillis ternal review at the U.S. Army Headquarters. An ac- RICHARD F. CHAMBERS Gillis is the president and CEO of Catalyst, an inter- complished internal auditor and published author, national organization that provides leading research Chambers sets industry best practices and is a noted and advisory services around women in business lead- leader in the field. ership. Gillis was leader of the multinational organi- Best advice? “Not only must you ask zation’s Canadian branch, where she introduced the questions, you must ask the right questions concept of an international membership. Before de- that enable you to tackle the real and voting herself to the advancement of women in lead- timely challenges that the organization ership roles, Gillis spent over 20 years consulting to faces. Further, your questions may nudge leaders in the public and privates sectors, and served the board to capitalize on previously in management roles at multinational companies. unrecognized opportunities and to evaluate Best advice? “Listen carefully, and make decisions that may have gone unchallenged sure you’re informed about the broader in the past.” context of the business.”

November/December 2015 NACDonline.org 65 2015 NACD Directorship 100

GOVERNANCE PROFESSIONALS AND INSTITUTIONS

INTERNET SECURITY ALLIANCE in March, Cudahy was executive director and CEO Larry Clinton of the National Court Reporters Association. Cuda- The Internet Security Alliance (ISA) is a multi-sector, hy also possesses nine years’ experience working at international trade association with a sole focus: pro- the CFA Institute as vice president of marketing and tect organizations through cyber security best prac- communications. tices. Clinton joined ISA in 2003 as president and CEO from the U.S. Telephone Association, where LARRY CLINTON he served as VP of large-company affairs for 12 years. SOCIETY OF CORPORATE SECRETARIES & GOVERNANCE Clinton authored ISA’s “Cyber Security Social Con- PROFESSIONALS tract,” cited across the political aisle and by the Presi- Darla C. Stuckey dent’s Executive Order on Cyber Security. Clinton Stuckey has been senior vice president of policy and was also an author of Cyber-Risk Oversight, which is advocacy of the Society of Corporate Secretaries & part of NACD’s director handbook series. Governance Professionals since 2009. She also serves JAMES M. CUDAHY as the staff liaison to the policy advisory committee of the Society’s board. Stuckey joined the Society from NATIONAL INVESTOR RELATIONS INSTITUTE American Express Co., where she served as senior as- James M. Cudahy sistant secretary, and on the company’s nominating The president and CEO of the National Investor and governance and public responsibility board com- Relations Institute, Cudahy is a veteran of the asso- mittees. She has also served as corporate secretary at ciation world. Prior to his appointment to that role the New York Stock Exchange. D

Vinson & Elkins is proud to recognize Chairman T. Mark Kelly for his efforts in supporting clients in their corporate governance matters. To Mark and all of the accomplished corporate directors, corporate governance experts, policymakers, and influencers, we applaud your dedication to boardroom excellence!

Vinson & Elkins LLP Attorneys at Law Abu Dhabi Austin Beijing Dallas Dubai Hong Kong Houston London Moscow New York Palo Alto Riyadh San Francisco Tokyo Washington velaw.com 66 NACD Directorship November/December 2015

NACD Directorship Magazine Ad LMD15_F2.indd 1 10/29/2015 4:13:24 PM Entrepreneurial Governance

Small-Cap Governance’s ‘Aha!’ Moment? By Adam J. Epstein Few who have seen it can forest institutional investors spend more it is reviled. get the iconic scene in the 1987 fortunes on analyzing corporate Perhaps the path to more com- movie Wall Street when Michael governance in their portfolio mitted, fulsome small-cap corpo- Douglas’ character Gordon Gek- companies. Put differently, those rate governance lies in the carrot, ko stands up, microphone in who manage trillions of dollars and not the stick. What if small- hand, at Teldar Paper’s sharehold- believe that better governed com- cap CEOs were to realize that er meeting and says: “The point is, panies will put more money in public companies overseen by art- ladies and gentlemen, that greed, their clients’ pockets, yet scores fully composed, courageous, en- for lack of a better word, is good. of micro- and small-cap CEOs gaged, and truly objective boards Greed is right, greed works.” appear to believe that corporate tend to make more money? What Adam J. Epstein is a for- Could this stuff of cinematic leg- governance is a waste of time. if boards could be seen as a means mer institutional investor. end also be the key to better small- If this seems confounding, it is. of adding value instead of endan- He advises pre–IPO and cap corporate governance? How could this be the status quo? gering the CEO’s vision for the small-cap boards through Those ensconced in the mid- Founder’s syndrome. Many company? his firm, Third Creek- Ad and large-cap governance ecosys- small public companies are inex- I tested this “carrot” during a visors, and is the author tems often proclaim that the days tricably linked to their founders. panel discussion where my au- of The Perfect Corporate Board: A Handbook for of boards being predominantly Those founders often feel that dience was predominantly mi- Mastering the Unique comprised of friends of the CEO they themselves are uniquely suit- cro-cap CEOs and the advice Challenges of Small-Cap are in the rearview mirror. How- ed to guide the company forward. went over with a resounding thud. Companies (McGraw-Hill, ever, those who spend time in the (And sometimes they are right Or so I thought. 2012). vast majority of public company to feel that way.) In other words, Over the subsequent weeks, I boardrooms—those of micro- visionaries require unimpeded received numerous phone calls and small-cap companies—know views of the future, so all “non-vi- from the CEOs who attended. differently. But has governance sionaries” need to stay out of the One of them said he was cha- at smaller public companies im- line of sight. grined to admit that he’d never proved in the wake of Sarbanes- Self-fulfilling prophecy. When once thought that more effective Oxley and Dodd-Frank? The CEOs intuitively feel like they governance would put more mon- short answer is: a bit. benefit little from supervision, ey in his pocket. Another had a Institutional investors know they install board members who similar comment, and poignantly that, more often than not, the will default to “oversight-lite.” conceded that it’s impossible to boardroom efficacy of any given Corporate governance is thus re- square his view with BlackRock’s small-cap company is a reflection duced to a tautology. extensive analysis of portfolio of the CEO’s personal valuation of Regulations and activism. En- company governance. corporate governance. trepreneurs are oftentimes inde- Maybe a little greed is what’s Institutional investors lament pendently minded, and revel in required to change the paradigm that many micro- and small-cap upsetting the applecart. It’s not once and for all; i.e., “If better CEOs view corporate gover- surprising that they aren’t keen governance is going to financial- nance as an expensive, form-over- on Congress, stock exchanges, or ly benefit me, the CEO, and my substance, time-consuming, nec- hedge funds trying to tell them shareholders, then sign me up!” essary evil that adds little value. how to run their businesses. The Probably not greed in the Gordon Contrast that widespread per- more that rigorous oversight is Gekko sense. Maybe more like ception with the fact that the larg- foisted upon small-cap CEOs, the Warren Buffett greed.

November/December 2015 NACDonline.org 67 Sustainability

Late Congressman and Forest City board member Louis Stokes

At Forest City, Board Engagement Fosters Diversity and Inclusion A commitment to a diverse and inclusive culture began 15 years ago when the late Louis Stokes was recruited to the board. By Bob O’Brien

Forest City Enterprises, a real estate management and development Stokes continued to champion diversity during his tenure, both at company, is built on values instilled by its founders and embraced the board level and throughout the organization. This commitment by its associates every day. These values include integrity, commu- to diversity and inclusion illustrates the impact board involvement nity involvement, and entrepreneurial spirit, to name a few, and and oversight can have on the management of environmental, so- they were extended to include diversity by late Congressman and cial, and governance (ESG) topics. Forest City board member Louis Stokes. The belief that workforce diversity has a positive impact on an or- As an attorney, an early leader in the civil rights movement, and ganization’s bottom line has been substantiated by multiple studies. the first African American to represent Ohio in Congress, Stokes’ An interesting example, particularly for those in real estate develop- legacy of advocacy and leadership was already well established in ment, shows that in an analysis of more than 700 U.S. J.C. Penney 1999 when he accepted an invitation to serve on the company’s stores, having store employees mirror the racial and ethnic makeup board. Forest City grew significantly during his 15-year stewardship, of the communities where stores were located positively affected expanding into new cities across the country. His leadership helped productivity and customer satisfaction, resulting in an increase in the company to grow in part by recruiting, training, and retaining profits of more than $69 million. This study demonstrated a clear our now 2,900 employees. measure of the positive results of embracing diversity and inclusion Fifteen years ago when Forest City reviewed its long-term strategy within the workforce to our board. and plans, Stokes advocated for diversity, encouraging the board to A 2013 Harvard Business Review study determined that a team add it as a core value. He understood that maximizing success would with a member who shares a client’s ethnicity is 152 percent more require all associates’ experiences, perspectives, and styles in the de- likely than another team to understand that client. In the past three cision-making process. He advised us that an inclusive work environ- years, Forest City has increased its ethnic diversity of consumer- ment engenders acceptance, respect, engagement, and productivity. facing associates. From 2012 to 2014, we’ve seen an increase in

68 NACD Directorship November/December 2015 nearly every non-white ethnicity for sales workers, a number we minded us to remain steadfast in our commitment to diversity and hope to improve in the coming years. Understanding the needs inclusion. In response, management focused on building internal of diverse, urban populations drives innovation and improves cus- diversity awareness capacities that positioned the company to attract tomer service and business value. diverse recruits once the economy rebounded. Diversity is directly linked to our core business in urban mixed-use These efforts included developing and delivering business-case development. Today, 81 percent of people in the United States live and education materials on ethnic, gender, and generational diver- in urban areas; this figure is expected to increase to 87 percent by sity, all of which we integrated into our new-associate orientation. 2050. The trend in urban neighborhood rehabilitation shows no Associates also participated in diversity dialogues to develop conver- sign of declining, particularly in areas with the potential to provide sational skills that would engage diverse audiences. The company housing solutions to choice-scarce populations such as low-income simultaneously cultivated external relationships with the Commis- families, the elderly, multi-family households, and the disabled. sion on Economic Inclusion, the Consortium of African American Our commitment to diversity prepares us to be leaders in providing Organizations, and the National Black MBA Association to support timely solutions to society’s housing and property needs, and better our diversity outreach goals. positions us to undertake projects that qualify for rapidly expanding To collect enterprise-wide feedback from associates and measure funding assistance opportunities. our progress, we launched a survey called Voices in 2012. Admin- istered by management and assessed by the board each year, the Board Proposes Allocation of Resources survey enables associates to express their opinions about workplace By 1999, strides had been made to recruit a more diverse workforce, culture, personal and professional development, management rela- but we were not progressing as quickly as we desired. To reinforce tions, corporate communications, and personal satisfaction. our commitment to diversity and inclusion initiatives, in 2004 the first manager of diversity and outreach was hired. An internal diver- Engaging Executives and Associates sity framework was created with specific action steps to ensure that In 2011, David LaRue, the new CEO, led the company through compliance with government reporting and regulations related to a new strategic planning process. With diversity and inclusion a diversity were being met or exceeded. Diversity initiatives were inte- clearly articulated core value, the new plan provided us further grated into the hiring process with the goal of building a workforce opportunity to embed diversity and inclusion into the talent man- that mirrored the communities we serve. agement process. The team engaged DiversityInc and the Urban Our commitment to diversity was strengthened in 2006 by broad- League to provide benchmarking and integration strategies. ening its title to “diversity and inclusion.” This addition expanded One recommendation—to create executive-sponsored Associate our focus beyond recruitment to the development of a culture Resource Groups (ARGs)—was transformative. The purpose of the where all associates feel welcomed and valued. This culture has re- ARGs is to encourage an inclusive culture where diversity is cele- sulted in increased associate retention and encourages innovation. brated and to demonstrate tangible benefit to the business by pro- To codify and communicate the new, strengthened value to asso- viding personal and professional development resources, education ciates, Forest City developed a diversity statement. When hiring and engagement activities, and forums for collaboration and innova- slowed during the economic crisis in 2008, Stokes and the board re- tion between associates. Another initiative—Women’s Excellence in Leadership, Edu- Ethnic Diversity of Consumer-Facing FC Associates cation, Advancement, and Development (WE LEAD)—was launched to develop a network of women to improve knowledge 2012 2013 2014 sharing, provide personal and professional development resources, White 70% 62% 58% and leverage experiences to achieve positive, impactful results. African American 10% 16% 15% Since the inception of the first ARG in 2012, WE LEAD has grown Hispanic / Latin American 8% 6% 10% to 357 members. It has provided education sessions on investor rela- Asian 0% 5% 5% tions and retail leasing, networking events, and presentations from Hawaiian / Asian American 3% 3% 10% both internal and external female leaders on topics such as change management, life mapping, work-life balance, executive presence, American Indian 0% 2% 0% and talent development. 2 or more 8% 6% 11% The second ARG--African Americans Connecting & Creating

November/December 2015 www.NACDonline.org 69 Sustainability

Excellence & Leadership (AACCEL)--was Public Disclosure To this end, we have integrated diversity launched in 2013. AACCEL promotes an Forest City released its first Corporate So- initiatives into both our philanthropy and inclusive culture for African-American as- cial Responsibility report in 2013 using procurement strategies. In 2013, we began sociates through cultural awareness and the Global Reporting Initiative frame- measuring and allocating charitable dona- understanding to promote hiring, retention, work, the most widely used and accepted tions that support diversity initiatives in our and career advancement. Its programming framework for sustainability reporting. The core markets. We also launched a supplier

From left to right: Members of Forest City’s women’s, African-American, and Hispanic Associate Resource Groups.

focuses on three key concepts: professional report publicly disclosed associate gender diversity program to promote, increase, development, corporate engagement, and and ethnicity demographics for the first and improve the participation of diverse- community outreach. time, and also detailed diversity metrics for owned businesses in our supply chain. In Forest City continued to expand its its board, including age, independence, 2014, Forest City spent $41.7 million with ARGs in 2014 with the addition of Unidos gender, and ethnicity. Reporting of this diverse-owned suppliers, exceeding our goal and United Way Young Leaders, leveraging data helped generate meaningful internal by $11.2 million. We also formed partner- a skills-based volunteer format that encour- awareness and dialogue, and led to the ships with various minority suppliers and ages members across the company to serve identification of opportunities to share ad- business associations to identify additional and lead in their communities. In addition ditional information. diverse suppliers. to participation in fundraising races, walks, The report attracted attention from mul- and donation drives, members partner with tiple investors, including Trillium Asset Outcomes and Next Steps organizations to provide targeted, skills- Management. Trillium commended the Though WE LEAD and other ARGs are based services. company for its commitment to diversity dis- in early development, the results of a 2014 Membership in ARGs continues to closure, commenting that it allows investors annual membership survey are promising. grow, engage associates, develop talent, to track diversity efforts and assess the extent Within the WE LEAD membership, 74 and identify opportunities to add business to which a company can anticipate and re- percent of associates felt the group helped value across the organization. In the 2014 spond effectively to consumer demand. their skills development, 81 percent said it Voices survey, 78 percent of our associates expanded their network within the com- reported that they felt the company creates Supporting a Diverse Value Chain pany, and 88 percent learned more about an inclusive culture and values diversity in Our vision is to be the partner-of-choice the business. The metric that stands out to the workplace, a 7 percent increase since in creating distinctive places to live, work, management is that 44 percent of female as- 2012. Today, we continue to work to build and shop in our core markets, and we rec- sociates who received promotions in 2014 a culture in which all Forest City associates ognize that supporting community diver- were WE LEAD members. The group is are accountable for diversity and inclusion. sity initiatives makes us a stronger partner. fulfilling its mission to provide personal and

70 NACD Directorship November/December 2015 professional development resources to women, enabling them to sion initiative is overseen by the cross-functional Corporate Social contribute more meaningfully to the business, and we are confident Responsibility Advisory Council, which oversees the management that all ARGs will impact long-term employee satisfaction and reten- of environmental, social, and governance topics including diversity tion. and inclusion. Executive reports on diversity and inclusion were provided to Our continued focus on diversity and inclusion began with Stokes’ the board starting in 2014. We also welcomed Christine Detrick passion and interest in making diversity a core value. Through board to our board, increasing female representation to 23 percent. The oversight and endorsement, it has become a successful program dis- executive report encouraged leadership to re-evaluate our equal tinguished from its industry peers. employment opportunity, anti-discrimination, and anti-harassment policies, a process that led to the protection of gender identity and Bob O’Brien is CFO of Forest City Enterprises. Forest City Enter- expression, the addition of language on the prohibition of retalia- prises would like to thank BrownFlynn for its ongoing support with tion, and expanded reporting mechanisms. The diversity and inclu- our sustainability efforts.

Establishing a Climate-Competent Board By Richard C. Ferlauto

Investors’ expectations for boards have grown as the impact of cli- stitutional investors to press for expanded proxy-access rights to mate change on business risks and opportunities becomes more ap- nominate directors as part of the effort to push for boards’ climate parent. Large institutional investors, concerned with their own port- competency. New York City Comptroller Scott Stringer launched folio risks, are increasingly calling for climate-competent boards the Boardroom Accountability Project, filing 75 proxy-access reso- and directors. lutions. The 34 resolutions targeted at energy companies should The California Public Employees’ Retirement System command director attention: 26 of the resolutions received majority (CalPERS) is one very long-term investor. Anne Simpson, the votes, with most others failing by only a few percent. fund’s director of global governance, says: “We need to be able to The consensus proxyaccess formula—a group of three percent pay pensions for the best part of the next century, and when we’re owners, holding the stock for three years, can nominate up to 25 thinking about the sustainability of the fund, we’re not just thinking percent of the board—reflects the 2009 proxy-access rule by the Se- about the financial dimension, but we’re thinking about the envi- curities and Exchange Commission (SEC). In the coming months, ronmental dimension, because that’s important to risk and return, investors expect that proxy access will be implemented in good and we’re thinking about people.” faith where it received majority approval. Institutional shareholders The emissions software scandal at VW is the most recent and ex- including the New York City Public Pension Funds, CalPERS, treme example of what appears to be a corporate governance failure BlackRock, TIAA-CREF, and others that push these proposals view related to environmental malfeasance that has cheated stockholders board accountability--rather than prescriptive, precatory climate and stakeholders. Arguably, even the manipulation of emission tests resolutions--as the preferred approach to corporate transformation. by VW engineers has been more damaging to the environment While robust engagement remains important to investors, the than the BP Deepwater Horizon oil spill, spewing 60,000 illegal tons question is whether boards are competent to respond to climate and of nitrogen oxide into the atmosphere over the course of six years. sustainability challenges. As such, investors want to be able to ef- These were sins of commission, and not just mistakes or oversights fectively intervene with dysfunctional boards or replace dead-wood that will haunt the automaker for the foreseeable future. Charles members with more capable directors. Elson, director of the corporate governance program at the Univer- A usable proxy-access process emerged in 2015 as a basic sity of Delaware, describes insular and family-dominated boards building block of board competency. Large investors view the exis- like that of VW’s as “a breeding ground for scandal.” tence of proxy access as a fundamental characteristic of board com- Proxy season 2015 saw unprecedented collective action by in- petency because it makes boards more accountable to long-term

November/December 2015 www.NACDonline.org 71 Sustainability

shareholders. According to Stringer, “We are seeking to change would encompass specific industry know-how, understanding risk the market by having more meaningful director elections through mitigation, a background in science, new technology or regulation, proxy access, which will make boards more responsive to shar- and boardroom experience. eowners. With this right in place, we expect to see better long-term A bench of potential board candidates—highly independent di- performance across our portfolio.” rectors, who understand the science of climate change—would aid Boards and directors, especially those facing constraints due to boards in this process. Such a director’s bench of qualified climate- climate risks, need to improve their climate-related competencies. competent candidates ideally would be searchable by skill set, expe- That boards need the capacity to understand and manage risk, such rience, and industry sector. Boards should look at race, gender, age, as those posed by climate change, is an obligation under business and also include industry skill sets related to emerging regulatory law as outlined in the American Bar Association’s Model Business and environmental constraints when recruiting. Corporation Act. Boards are protected by the business judgment Sophie L’Helias, director of global initiatives and governance at rule under Delaware law, the typical rationale for not responding The Conference Board, believes that “director identification and to shareholders’ entreaties for action. Since operational and stra- selection channels use models that do not adjust to the pace of tegic judgment resides with the board, major shareholders are now change as new risks emerge. For instance, it took major security increasingly focused on director accountability and board refresh- failures before boards began asking for skill sets that include [cy- ment as a response to poor judgment or a lack of competency to navigate the business challenges of global warming. The National Association of Corporate Directors’ Oversight of Institutional shareholders view board Sustainability Activities Handbook asserts that: “Value creation, long-term business resiliency, strategic risk management and stew- accountability—rather than prescriptive, ardship represent the essence of the board’s role in overseeing cor- precatory climate resolutions—as porate sustainability activities.” Increasingly, boards are recognizing the preferred approach to corporate the need to hone their climate competency. With the involvement and under the direction of the board, transformation. BHP Billiton released its Climate Change Portfolio Analysis report, which explains how it could continue to create shareholder value in a carbon-constrained world. “We are providing more information bersecurity]. If companies heed the market’s warning as climate- than ever before about how we are responding to climate change related risks are priced in their shares, they will have to identify new and how climate risk might affect the portfolio,” said BHP Billiton’s channels to recruit directors with the requisite climate expertise.” Chief Commercial Officer Dean Dalla Valle. “The opportunities Nominating committees could consider giving search firms spe- and risks associated with climate change will not be spread evenly cific mandates to develop pools of director candidates with climate between businesses or sectors. More disclosure will allow investors, competency, and should support the bench concept developed in policymakers, and regulators to make more informed decisions. By conjunction with leading experts in the field. The development of sharing our analysis of BHP Billiton’s portfolio in a 2° C-world, we a director-support network for continuing climate education also believe investors will be able to decide how well BHP Billiton is would contribute to expanding competency. equipped to manage climate risk.” Audit, risk, and compensation committee charters ought to re- For many companies a robust refreshment process will be neces- quire directors with climate-competency skills. Director self-assess- sary to aid transitioning to a climate-competent board. Enhanced ments and third-party board evaluations might review climate com- strategies for identifying board candidates will have to be employed petency metrics to allow for analysis of missing skill sets. Enhancing as most nominating committees will be charting new areas of skills board climate competency can be achieved through director edu- and experience. Nomination searches need to move into new terri- cation, committee restructuring, or board refreshment. The rel- tory beyond the traditional sources. As an emerging practice, nomi- evant board committees might also require ongoing climate-risk nating committees create and disclose a matrix of current board education to keep up-to-date on the latest data and trends. skills, experience, and gender/ethnic composition to help highlight A standalone sustainability committee may not be necessary in gaps and necessary skill sets for new candidates. Climate compe- all cases, but could help focus the board. On the other hand, sus- tency skill sets will vary by industry. Candidate selection criteria tainability should avoid being siloed and climate-related decisions

72 NACD Directorship November/December 2015 should not be relegated to an organizational “sustainability ghetto.” should design pay plans that include rigorous holding and reten- An effective chief sustainability officer reports to the CEO, while tion requirements for performance-based stock awards. As another the board maintains oversight on risks and strategic opportunities. best practice, long-term incentives should be decoupled from total Board-level oversight consistent with the potential impact of climate shareholder return with a focus on no disproportionate upside due risk on strategic, legal, reputational, and operational decisions is a to the price of carbon. Bonuses should pay out over long-time ho- best practice. A newly released report by Ceres, View from the Top: rizons benchmarked to the Return on Invested Capital and other How Corporate Boards Can Engage on Sustainability Performance, metrics of efficient capital. Directors should think twice before based on case studies and interviews with dozens of directors, rec- agreeing to share buybacks that may further enrich senior manage- ommends integrating sustainability into board governance systems. ment with no improvement in operational performance, especially Climate-competent boards assess information regarding carbon when long-term investments in research and development are asset risk in their company business models and incorporate risk needed analysis into strategic planning. The relevant committee—whether Effective board oversight should include metrics for risk and asset it is risk, audit, or sustainability—owns risk assessment and provides valuation compatible with standardized financial benchmarks. board leadership; committee charters explicitly describe the skill re- For example, energy companies could emphasize carbon asset quirements of members as well as their scope of authority. risk metrics associated with capital expenditures related to explo- Climate-competent directors have the capacity to interpret sce- ration and production and track greenhouse gas emissions, water nario analysis of reduced demand, efficiency, and substitutes based use, oil reserves, energy efficiency, and the like. As a best practice, on the constraints of 2° Celsius agreed upon by experts to avoid the climate-competent boards might consider standardized metrics most serious consequences of global warming. Directors need the on industry-level sustainability topics now being created by SASB. skills to incorporate alternatives in their long-term plans regarding These standards are relevant to the industry, comparable to similar the nature of their products and services, particularly in the energy companies, and auditable by independent third parties. industry, where physical and operational risks of climate impact off- Climate-competent boards enhance lobbying disclosure and shore rigs, refineries, pipelines, and the like. philanthropic information so shareholders can evaluate busi- Climate-competent boards provide shareholders with clear and ness risks associated with efforts to influence the policy. Direc- relevant disclosures on potential company risks and vulnerabilities tors should be fully apprised of lobbying and nonprofit contribu- to regulatory and market conditions. Disclosures should reflect the tion policies. Governance committee charters as a best practice spirit as well as the letter of SEC guidance on the description of should have contribution guidelines that align lobbying and material risks. Regulation S-K and staff interpretations guide boards philanthropic policies with publicly disclosed sustainability plans. on effective disclosure. The Sustainability Accounting Standards Lobbying inconsistent with company-stated sustainability policies Board (SASB) potentially offers a framework for offering standard- can damage corporate branding, affect good will, and erode trust ized material disclosures by industry. Boards can streamline com- in company disclosures. Business strategies based on funding bad prehensive disclosures through the integration of financial and science will fail in the long run as faulty information is no substi- nonfinancial information. tute for value creation. Climate-competent directors understand how incentives moti- Directors are responsible for oversight, strategic planning, and vate executives. For example, top executives in the energy sectors risk management—all competencies central to the challenges of are among the most highly compensated of all publicly traded com- global warming and business sustainability. Shareholder calls for panies. High pay levels can maintain the status quo, even in the face board accountability and increased climate competency will con- of long-term threats to business stability. As financial metrics come tinue to mount as the business case for climate action becomes ever under review, and operational metrics are adjusted, metrics that in- more real. D centivize long-term sustainable growth will be needed. Operational metrics that reward increased production of carbon intensive prod- Richard C. Ferlauto is a member of the governing board of the 50/50 ucts (including those on reserve replacement) may exacerbate the Climate Project, an investor project that encourages boards of en- issue of stranded assets. Preferable metrics reward more-sustainable ergy companies to respond more aggressively to climate change products that reduce carbon risk. Likewise, risk mitigation should challenges. He is former deputy director, Office of Investor Educa- include environmental and worker safety-metrics. tion and Advocacy, at the Securities and Exchange Commission. To mitigate a short-term focus, compensation committees Contact him at [email protected].

November/December 2015 www.NACDonline.org 73 Readings

An Updated Classic Provides the ‘How’ And ‘Why’ for Independent Directors By Howard Brod Brownstein Escalating public focus on the need for strong corpo- anyone who may have ever felt that the fulfillment rate governance practices has placed the role of the of directors’ fiduciary duties sometimes seemed like independent director under similarly heightened “form over substance” or “regulatory overkill,” the scrutiny. Anyone considering joining or is currently author provides valuable context for understanding on a board—or any attorney who provides counsel and appreciating the “why” of corporate governance, to directors—would be well served byr reading the as well as the “how.” The role of Sarbanes-Oxley and updated and expanded edition of The Role of Inde- Dodd-Frank legislation is made clearer as the author pendent Directors in Corporate Governance by Bruce traces the historical developments that produced F. Dravis. The author acts of counsel to the leading those governance requirements. Sacramento law firm Downey Brand and is a leader of The author then places the concept of director in- the American Bar Association’s (ABA) Business Law dependence in a larger context, quoting fellow ABA Section–Corporate Governance. This is, however, no corporate governance leader Philip Khinda: “‘[I]nde- legal treatise or piece of law review writing. Instead, pendence’ is a proxy for the real policy objective: the he offers an eminently readable volume that provides selection of decision makers with integrity, who eval- an in-depth look at the tenets of corporate governance. uate facts without bias and make judgments without Dravis covers all the major bases of directorship, favoritism.” The legal definition of “independence,” from fiduciary duties, indemnification, and the busi- however, is less straightforward than might be expect- ness judgment rule to director and officer insurance ed, with state law, Sarbanes-Oxley, securities regula- and shareholder rights, just to name a few. Since tion, and stock exchange rules all offering their own much of a board’s activities occur through its commit- guidelines. While these guidelines can resolve most tees, he thoroughly discusses committee charters, du- questions about independence, Dravis explores how American Bar Association, ties, and composition. Although some content might to handle situations that may require case-by-case ex- 2015 make some readers think that this book is strictly for amination. public companies—such as Dravis’ exhaustive cover- New to the second edition are PowerPoint pre- age of securities regulation—all of the principles have sentations that boards can readily utilize to train new clear applications to directors of all companies. directors or provide a conceptual framework for ap- “Corporate governance,” Dravis writes, “emerged proaching the board’s work in general. These are ex- as a practice area at the unforeseen intersection of state cellent resources for a corporation’s general counsel— corporate law, federal securities law, and Delaware or a board or board committee’s special counsel—to tort law, as lawyers and their clients realized that no provide a context for a specific issue or decision facing single body of law covered the complex and inter-con- the board. The Role of Independent Directors in Cor- nected issues that modern publicly traded companies porate Governance is indeed a complete information face.” Directing a company is thus indelibly linked to package that every director should have on a shelf. the soundness of our nation’s capital markets—and in my work as a turnaround and restructuring profes- Howard Brod Brownstein is president and founder of sional and a frequent independent board director, I The Brownstein Corp., a nationally known turnaround can attest that strong oversight always adds value and management firm. Brownstein currently chairs two reduces the risks facing an organization. committees of P&F Industries: nominating and gov- Dravis provides illustrative legal and economic ernance, and strategic planning and risk assessment. situations in which governance issues can arise. For He is an NACD Board Leadership Fellow.

74 NACD Directorship November/December 2015 As an active NACD Fellow, I have confidence knowing I am staying current and I am supported by a well- respected credential and the best director education possible.

Dona D. Young

Director, Foot Locker, Aegon NV, and Save the Children NACD Board Leadership Fellow

Are you an NACD Fellow? NACDonline.org/Fellowship In Practice How Data Analytics in Audit Mitigates Risk, Unlocks Value By Christopher J. Mazzei, Roshan Ramlukan, and Ruby Sharma

In the past few years, the terms “big data” revolutionize the way that audits are actionable information is a key challenge and “analytics” have become hot topics in conducted. and opportunity for companies. Properly company boardrooms around the world. Both internal and external auditors are utilizing big data and analytics will be a dif- For many directors, embracing big data combining big data and analytics, and ferentiator for forward-leaning companies. and analytics is critical to keeping their greater access to detailed industry informa- organizations nimble, competitive, and tion, to help them better understand the The Board’s Role profitable. Board members need to under- business, identify risks and issues, expand Boards cannot be involved in the day-to-day stand the complexities and have a grasp of the scope of audit testing, and deliver valu- activities of managing big data and analytics the issues surrounding these technology able insights. Information and insights that and the associated costs. But in discussions trends. Equally important, they should be may be relevant to board members now with the CEO and other C-level executives, prepared to ask the right questions of the extend far beyond traditional financial board members should insist on clarity of executives in charge of big data and ana- vision and collaboration across all disci- lytics initiatives. plines to maximize the return on any invest- The sheer volume, variety, and velocity Properly utilizing big data ment in big data and analytics. at which data becomes available presents and analytics will be a First and foremost, board members technological challenges in how data are should gain a better understanding of how secured, stored, and analyzed. But com- differentiator for forward- the company is using big data and analyt- panies that can do so in an efficient man- leaning companies. ics and how that can drive the business. ner stand to uncover a treasure trove of Boards also need to ask management valuable insights that help drive growth about the resources being deployed to while enhancing risk management. transactional data in a company’s general capitalize on big data and analytics, and Management and boards can leverage ledgers and extends into data from e-mail, whether the company has the right talent these insights to better inform decisions social media, video, voice, and text— to effectively develop a quality big data and actions and help prioritize resources mountains of unstructured data. Insights and analytics management program. to create strategic value. gleaned from such data can and should In today’s business environment— extend beyond risk assessment. Action Items for the Board characterized by constant disruption, Integrating analytics into audits is not So how can big data and analytics slow growth, and uncertainty—boards without its challenges. Access to audit-rel- improve a company’s audit capabilities? face more challenges than ever in cre- evant data can be limited, the availability There are specific topics you should con- ating a risk-aware corporate culture and of qualified and experienced resources to sider as a board or discuss in more detail establishing sound risk governance and process and analyze the data is scarce, and with management: controls. integrating analytics into audit on a real- ■■ Decisions on what you want to time basis continues to be a challenge for achieve with your big data and analytics How Audit Can Leverage Data Analytics auditors. However, progress is being made practice—determination of what is relevant To keep pace in today’s increasingly on each front to enhance the process. ■■ Direction on what will drive value complicated governance and risk man- When properly developed, analytics can agement landscape, progressive external help internal auditors act as strategic advi- Embracing the Future audit firms and internal audit functions sors while holding the line on costs or even In today’s increasingly complex infor- are beginning to use technology to reducing them. Analyzing data to produce mation environment, data-driven risk

76 NACD Directorship November/December 2015 governance and controls are critical. Meaningful better financial reporting and better insights that in The Four Vs operational change comes from the top. C-suite turn can ultimately lead to strategic actions that can executives need to embrace this change, identify create value. D Big data refers to the the best talent to manage it, and empower other volumes of informa- senior executives and the rest of the organization to At EY, Christopher J. Mazzei is global chief analytics tion being created by adopt the best systems, technologies, and analytics officer; Roshan Ramlukan is audit transformation ana- people and machines. for their businesses. lytics leader, global assurance; and Ruby Sharma is It requires new, inno- To drive better decision making, boards must first principal, EY Center for Board Matters. vative, and scalable ask the right business questions and then be presented technology to collect, the answers from the data. host, and analytically Not only can the integration of big data and analyt- process the gathered ics into the audit function help mitigate compliance data in order to derive and reputational risks, but it can lead, ultimately, to real-time business insights that relate to consumers, risk, profit, performance, produc- Ensuring Your Board Reaps the Rewards of Big Data tivity management, and In discussions with fellow directors, the CEO, CFO, and other C-level executives, there are key questions that enhanced shareholder board members, especially audit committee members, should be asking to ensure that investments in big value. data and analytics are successfully leveraged. Big data includes information garnered Internal Audit External Audit from social media, Inter- net-enabled devices, Strategy: What are management’s plans for using Resources: What resources and technologies does and video and voice big data and analytics for auditing, compliance, and the external auditor have in place to capitalize on recordings. It is typically risk management over both the near term and long big data and analytics? Does the external auditor characterized by the term? Does the company have an enterprise risk have the right talent and technical competencies to four “Vs”: strategy around big data and analytics? develop a quality big data management program? Volume: The amount of Functional Areas: How are the company’s internal How is the external auditor coordinating with man- data being created is audit, compliance, and risk management functions agement on how data analytics tools are being used? vast compared to tradi- leveraging big data and analytics to achieve busi- Strategy: How is the external auditor leveraging tional data sources. ness objectives and maximize return on investment? analytics in the audit today, and what are the plans How is the company addressing talent implications for doing so in the future? Variety: Data comes from different sources and needs for data analytics tools? Data Capture: Data capture is often a key barrier and is being created Technology: Deeper data mining increases the com- in the big data and analytics process. Can the com- by machines as well as plexity and volume of big data and analytics. What pany’s external auditor determine the scope of data people. steps is the business taking to identify and capture currently being captured? How can the company’s the most-relevant data? How is the quality of the internal IT function and systems integrate with the Velocity: Data is being data assured? How is data governance managed to external auditor’s to streamline the data capture generated extremely ensure the data can be used efficiently? How is the process? quickly—a process that never stops, even while data secured? Cybersecurity: Effective use of big data and ana- we sleep. People: What new data and analytics talent needs to lytics for audit usually requires external auditors to be brought into the organization? How can the board access internal corporate data. But many compa- Veracity: Big data is create an analytics-focused mindset in the company’s nies have invested heavily in protecting their data sourced from many finance, risk, and compliance functions to ensure that with multilayered approval processes and technol- different places; as a data is consumed and analyzed in an optimal man- ogy safeguards. How can the company give exter- result, you need to test ner? How can the board balance audit judgment with nal auditors access to data while still maintaining the the veracity/quality of the findings and results from analytics? security of that data? the data.

November/December 2015 NACDonline.org 77 Private Company Insights

The Argument for Yearly Board Evaluations By Salvatore Melilli At the NACD Global Board several reasons why evaluations Here, management’s feedback Leaders’ Summit (GBLS) in can be critical to enhancing and analysis on what it deems to September, our lunch discussion oversight and improving board be necessary board skills can play at the private company board effectiveness. a role: How engaged is the board forum focused on board refresh- First, evaluations can help generally? What about diversity ment. Why do it? How should the board to vet company—and and expertise? boards go about it? boardroom—culture. What is Third, institutionalizing board While many of the more than the culture? How is it reflected evaluation processes encourages 100 private company directors in in the board, its composition, management and the board to en- attendance talked openly about and its demeanor? Is the board gage in difficult discussions. Eval- Salvatore Melilli is the the need for refreshing the board adjusting to mirror culture shifts uations can force the term-limit national audit industry to bring in diversity of thought in the company and its manage- or tenure discussion, or at least leader, Private Markets, for KPMG LLP in New and opinion; to add young (and ment? Evaluations also help the introduce the notion of board and York. young-at-heart) directors; and board, as individual members director life cycles. to introduce new skill sets to the and collectively, to build an “un- For private company boards board, in practice private com- derstanding of shared account- with independent and outside pany board evaluations do not ability, mission, objectives, and directors, evaluations “keep di- happen as frequently as in public execution.” rectors honest about their paid companies. Second, determining how to positions,” as one attendee put According to recent NACD structure and carry out an in- it. The evaluation process and governance surveys, 87 percent ternal or third-party evaluation, results can also ferret out fac- of public company directors said helps to spark a process for assess- tions within the board and allow that their companies conduct full ing the board. for an assessment of how voting board evaluations, 73 percent “It motivates current board blocks help or hinder company conduct them at the committee members,” said one attendee. progress. level, and 38 percent assess di- A 360-degree evaluation includ- Lastly, the evaluation process rectors individually. Meanwhile, ing peer evaluations will provide initiates the discussion on “who private companies are playing the widest perspective, but it is also should continue to lead and catch-up. Only 62 percent of pri- the most difficult to execute from why,” starting with the board itself vate company directors said that time and cost standpoints. Several and then on to management and they conduct a full-board eval- forum attendees said that deep senior executives. uation, 30 percent do so at the relationships on private company Of course, an evaluation for its committee level, and 32 percent boards make such intense evalua- own sake does little good. Writ- do so for individual directors. tions challenging. ing for the International Finance Of course, private compa- One attendee noted that this Corp., Simon Osborne stresses nies can conduct evaluations at same process also “helps [direc- that “evaluations must be support- their discretion or as specified tors] to understand the gaps or ive of the board and the directors, in charters, bylaws, or share- holes at the board level and the whilst being rigorous and even- holder agreements, but those appropriate use of board talent. handed in order to give the best attending the GBLS highlighted Who is being underutilized?” results.”

78 NACD Directorship November/December 2015 Postings

Oshkosh Corp. named president and COO Wilson R. Jones to succeed CEO Charles Szews, Honors for Women of Tech who will step down on Jan. 1. Dr. Cheemin Bo-Linn was in- Jones also sits on the board of ducted into the Hall of Fame for Thor Industries and the Associ- Women in Science and Technol- ation of Equipment Manufac- ogy, an outreach initiative turers. Jones joined Oshkosh launched in 1996 by Women in with 25 years of knowledge Technology International (WITI) about specialty vehicle manu- with support from the Clinton facturing at a critical point in its administration to recognize the operation—the company was Lorrie Norrington careers of extraordinary women recently awarded with a $6.7 in technology. billion Army contract to replace Colgate-Palmolive Co. She is In addition to Bo-Linn, 2015 the Humvee with Oshkosh’s the operating partner at Lead WITI Hall of Fame honorees are Joint Light Tactical Vehicle. Edge Capital Management Nichelle Nichols, the African-American actor cast in 1966 to play and previously was an execu- communications officer Lt. Nyota Uhura onStar Trek (the first role Nancy Killefer joined Cardinal tive at eBay, Intuit, and General for a black actress that was not in servitude); Pam Parisian, chief Health’s board in September. Electric. information officer, AT&T; Sheryl Root, president and CEO of Killefer is also a director of RootAnalysis, associate professor at Carnegie Mellon Silicon Val- The Advisory Board Co., Avon Daniel G. Kaye and Kristi A. ley, and a visiting lecturer at Stanford University; and Marie Wieck, Products, and Computer Sci- Matus were elected to the general manager, middleware, at IBM. ences Corp. She retired in 2013 AXA Financial board. Kaye Bo-Linn cultivated her technology and business skills during from McKinsey and Co., where enters his directorship after a a 25-year career at IBM, where she served as vice president. She she was senior partner, public career in auditing. Former posi- has since started Peritus Partners, a consulting firm dedicated to tions include interim CFO and increasing the valuation of companies, and is a director of Violin treasurer of HealthEast Care Memory. System and auditor at Ernst & Bo-Linn, who recently became an NACD Board Leadership Young. He is also a member Fellow, has an infectious enthusiasm for distilling the complexities of the board of Ferrellgas Part- of technology. “If we look at these new technologies, we have to ners. Matus is currently EVP discuss and understand their different opportunities and risks,” and chief financial and admin- Bo-Linn said during a recent interview. “What are the different istrative officer at athenahealth, strategies we need to think about? What are the resources and where she is responsible for tools that we may need as a board member to guide companies the oversight of technological to the future?” A skilled communicator, Bo-Linn is excited by the and financial operations. Matus challenge of asking the targeted questions in the boardroom that is also a director of Concordia Nancy Killefer lead to early action in a sector rife with disruptive innovators. Plan Services. Bo-Linn has devoted a decade of volunteer and philan- sector practice from 1992 to thropic service to TechGYRLS, a YWCA Silicon Valley program 2013. Additionally, Killefer Global investment manage- that fosters curiosity about STEM disciplines in young women served at the United States ment firm T. Rowe Price added from marginalized communities. When asked about the impor- Department of the Treasury in H. Lawrence Culp Jr. and Alan tance of technology for young people, Bo-Linn said, “For youth, several capacities. D. Wilson to its board. Culp technology is going to be one of the keys because it democra- is senior advisor to Danaher tizes opportunities.” —Katie Grills Lorrie Norrington was Corp., where he was CEO and elected to the board of president from 2001 to 2014.

November/December 2015 NACDonline.org 79 Postings

success in the industry, which was elected to the Verizon is frequently attributed to the Communications board. His family-friendly Wii gaming addition brings the company’s console. board to 12 members. Weaver joins the Verizon board with Steel manufacturer Nucor more than 40 years of exper- Corp. added Laurette Koellner tise in audit, finance, opera- to its board. Koellner was tions, and talent management most recently executive chair at Deloitte. of International Lease Finance Corp., formerly a subsidiary of Two new directors were elected H. Lawrence Culp Jr. American International Group. to the Kellogg Co. board: Car- Erin Selleck Laurette has nearly 30 years of olyn M. Tastad, group presi- military and aerospace engi- dent of Procter & Gamble North compliance, and loan com- neering industry experience mittees of Broadway. She from executive positions at The previously was senior execu- Boeing Co. and McDonnell tive VP and treasurer of Union Douglas Corp. Bank from 2002 to 2014. Sel- leck also serves on the boards AstraZeneca PLC appointed of a number of nonprofit Sean Bohen as the company’s organizations. incoming chief medical officer and executive VP of global med- Meg Whitman was appointed icines development. Bohen to the board of SurveyMonkey, Alan D. Wilson joins AstraZeneca after 12 years one of the largest providers Wilson was previously CEO of work in research and devel- of survey services to organiza- and chair at McCormick & opment at Genentech, a boon Noel R. Wallace tions of all shapes and sizes, Co., and is currently director to the company’s forthcoming in early September. Whitman of WestRock Co., the Grocery work in cancer treatment inno- America, and Noel R. Wallace, Manufacturers Association, the vation and diagnostics. president of Colgate-Palmolive National Association of Manu- Latin America. Tastad currently facturers, and the Greater Bal- Former Deloitte & Touche chair serves as a director of the Gro- timore Committee. and CEO Gregory G. Weaver cery Manufacturers Associa- tion. She begins her term Dec. Tatsumi Kimishima, former 1. Wallace previously served CEO of Nintendo of America, on the board of the American was named the successor of Cleaning Institute, as well as Nintendo Co. Ltd. CEO Satoru several other nonprofit boards. Iwata after Iwata’s sudden His term began Oct. 1. passing in July. Kimishima has Meg Whitman served as director of Nintendo Erin Selleck has been named since 2002, and chair of Nin- the seventh member of the was recently named chair, pres- tendo of America since 2006. Broadway Financial Corp. and ident, and CEO of the forth- Kimishima assumes execu- Broadway Federal Bank board. coming HP Inc. Whitman also tive leadership after one of the An independent director, serves on the boards of Arc- company’s longest periods of Gregory G. Weaver Selleck sits on the audit, Sight and Zaarly. D

80 NACD Directorship November/December 2015 20% of boards engaged with an activist investor in the past year. Yet 46% of boards have no plan for responding to activists.

2015-2016 NACD Public Company Governance Survey

Activist investors don't just attack a board's strategy and processes. They also attempt to divide the board into factions. NACD governance reviews Don't activate and board evaluations help you protect your company by: ``Benchmarking board the activists. practices and processes ``Assessing boardroom communications ``Analyzing board strengths and committee composition ``Facilitating dialogue and creating action plans NACD helps you build your best defense against activist investors: a unified board and performance that fulfills your NACD Governance Reviews strategic goals. and Board Evaluations Build your best defense against activist investors. Schedule a call to discuss a program for your board. Phone: 202-572-2081 E-mail: [email protected] Director Advisory

Compensation

Tailoring Your Executive Compensation Plans to Your Company’s Unique Characteristics By Ed Steinhoff The initial interview process is one of the Industry vehicles such as cash or equity). The busi- most important phases of an engagement Understanding the competitive positioning ness life cycle also helps to identify which between the management team and the of the company within its industry—be it a performance measures are appropriate as compensation committee, particularly at market leader, a niche player, or losing mar- well as how “stretch” the performance goals the beginning of a new working relation- ket share—helps to define what kinds of pay for the incentive plans should be. ship. This process involves individual con- programs are appropriate. This information versations with senior executives and board also factors into the relative ease or difficul- For-Profit or Not-for-Profit Status members, and these discussions are critical- ty of attracting and retaining executives. Whether an organization is for-profit or not- ly important to enable the tailoring of the Industry context also helps identify for-profit governs the design of executive executive compensation program recom- which incentive plan performance mea- compensation programs, both in terms of mendations to each specific organization. sures are appropriate. For example, if there pay levels and types of pay programs, and in There is no one-size-fits-all design, is a fair degree of certainty in the business how performance is defined. Both for-prof- which is why the best results are achieved planning process, there may be a tighter it and not-for-profit businesses will typically through tailored recommendations based range of performance goals from minimum have financial and operational performance on the factors below. to outstanding performance, while a high measures in their incentive plans, but not- degree of uncertainty might lead to a broad- for-profits may also include initiatives that Business Strategy er range of performance goals and/or the support the mission of the organization. Understanding the business strategy and use of relative performance measures. value drivers for each organization helps en- The Unifying Factor sure that the executive pay programs align Ownership Structure One area where all organizations are gen- with these key objectives. Although a com- Ownership structure plays a key role in erally aligned is their desire to create value. pany may operate in an industry with many shaping executive compensation programs. The best opportunity for maximizing re- competitors, each organization will have a Public, private, and family ownership struc- turns on executive compensation costs, and unique business strategy, as well as specific tures all present unique opportunities to potentially transforming those costs into a business goals that are tracked annually and design pay programs that support the own- source of competitive advantage, lies in the over the longer term. The executive com- ers’ outlook on business results in terms of depth of customization according to your pensation programs should support this time horizon, performance measures, and unique, dynamic business requirements. strategy and these goals—not the business the types of compensation vehicles that are strategy and goals of their competitors. available, such as cash or equity. Company Ed Steinhoff is a managing director in the ownership can also define the level of trans- Chicago office of Pearl Meyer with more Executive Talent Requirements parency of business goals, results, and com- than 25 years’ experience in executive com- Consider the competitiveness of the labor pensation plan detail, which may play into pensation. He works with directors and se- market for talent. Is there high demand the program design. nior management teams of public and pri- for executive talent in the industry? How vate companies ranging from small- and should pay be positioned relative to indus- Business Life Cycle middle-market firms to multi- try peers in order to attract and retain the Where a company is in its life cycle helps billion-dollar corporations. His talent needed for the company to achieve to further define an appropriate pay mix for focus is on designing pay pro- its goals? Should the focus of pay be on per- the organization (i.e., the emphasis on base grams that drive business performance, tenure, or a balance of the two? salary versus incentives and compensation formance and value creation.

82 NACD NACD DirectorshipDirectorship November/DecemberSeptember 2010 2015 Director Advisory

Risk Management

Guarding the Corporate Castle By Phyllis Deiso

Like the sentry of old, part of the board’s job rity-related expertise. Having directors who directors have to regularly update their is to protect the castle, defending against are smart, experienced businesspeople ask- knowledge base on key issues by engaging all manner of bad things. That’s no longer ing the right questions, whether on cyberse- with a range of experts. That expertise may as simple as pulling up the drawbridge or curity or any other critical topic, is of para- come from internal or external resources, pouring hot oil on the enemy from atop a mount importance. If the company’s cyber- both senior managers and outside consul- tower. Guarding the corporate castle is a security protocol isn’t being translated into tants who can brief the board on the latest complex task today because threats to the language that the board understands, it can- developments they need to be aware of, company are a much more diffuse, many- not properly oversee this crucial function. from compensation to cybersecurity to gov- headed monster. Many of the most serious ernance requirements. threats are only apparent when a great deal ■■ Loss of opportunity. This is a tough of damage, perhaps irreparable, is already Boards serve as a primary one because it’s hard to gauge what you done—to the business, company value, and line of defense against can’t see. It’s a sad irony that threats to even reputation. boards result not only from being insuffi- To get a handle on this challenge, boards threats to the company's ciently prudent, but also from being over- must identify major threats and establish a well-being, and they must ly prudent. The new market not explored; systematic way of managing them. Some maintain processes that the new product not developed; the oppor- new threats that should be on every compa- tunity lost because it was never pursued. ny’s radar include: enable them to remain While risk tolerance is something each ■■ Lack of board diversity. It’s not just ever vigilant. individual company determines regard- politically incorrect, it’s a major business less of the level set, it should not stifle in- risk. It stands to reason that a diverse board novation and investment. After all, com- where directors possess a range of skills and ■■ Shareholder activism. This is an area panies are in business to deliver value to experience will likely recognize a wider ar- where it is critically important for the board shareholders. ray of challenges and generate more varied to be informed and aligned. As companies These and other threats, depending on and valuable perspectives on how to tackle increasingly become targets of activists, di- the company and industry, should be on them. Depending on the industry and the rectors should be aware of red flags that boards’ dashboards and monitored on an strategy, the board should not only have the make them vulnerable, as well as how to ongoing basis. Boards serve as a primary expert guidance it needs now, but the guid- ensure that they are well positioned should line of defense against threats to the com- ance it will need to successfully pursue its they be caught in the crosshairs. The best pany’s well-being, and they must maintain strategy into the future. boards fortify their defenses by meeting reg- processes that enable them to remain ever ■■ Cybersecurity unpreparedness. Cy- ularly with key shareholder groups—with vigilant, guarding against threats new and ber threats are proliferating across industries one designated spokesperson out front—so old, and continually updating intelligence and should be a primary concern to boards they can address any concerns that can oth- so they can recognize those that continue everywhere. Boards must ensure that their erwise fester. Moreover, shareholders can to emerge. companies are prepared for the inevitable be sources of useful suggestions, such as breach with the best inside team to man- surfacing good director nominees, so every Phyllis Deiso is a partner and age it, following proven best practices and effort should be made to engage with major the National Public Company backed with the budget required to im- shareholders on a regular basis. Practice Leader for RSM US plement them. It’s often helpful to have at ■■ Inadequate director education. With LLP and a member of the RSM least one director who possesses cybersecu- global business changing at such a fast pace, US LLP board.

November/December 2015 NACDonline.org 83 Director Advisory

Internal Audit

Communication Has Never Been More Important For Internal Audit By Richard F. Chambers The relationship between internal audit of the organization. Having a strong under- traditionally been relied on by regulators. and its stakeholders is one of the most im- standing of the strategic plan helps build Management and the board will need to portant partnerships within any organiza- internal audit’s knowledge of the organiza- nurture a cooperative working relationship tion—and good relationships are built on tion’s risk appetite, priorities, and culture. between internal audit and external audit. mutual understanding and respect. This Once the plan is in place, communication Beyond the increased regulatory work- is why The Institute of Internal Auditors must continue throughout the year through load, internal audit must tread careful- (IIA) encourages practitioners to nurture formal and informal meetings between in- ly when doing work that could be viewed strong communications with stakehold- ternal audit and the audit committee. This more as serving regulators than serving the ers. Indeed, the value of internal audit to advice is not new, but the speed of change organization. The U.S. Department of Jus- the organization lies in its ability to provide in the modern business environment makes tice’s (DOJ) recently announced changes timely information, insights, and assurance it all the more urgent. on individual accountability for corporate on the effectiveness of the organization’s There is also a new dynamic on the wrongdoing offer one scenario where inter- internal control and risk management ef- horizon that makes it important for internal audit could be placed in such a position. forts. Internal audit also adds value through nal audit to remain plugged in to compa- The new DOJ standard for corporations its keen understanding of priorities set by ny stakeholders. Regulators are demand- seeking leniency in exchange for cooper- management, the board and audit coming more detail and more testing on finan- ation demands that corporations not only mittee on managing risk. cial reporting. As a result, they are relying provide all relevant evidence relating to Communication, therefore, is key, as more on internal audit to provide assur- those responsible for misconduct, it also re- both internal audit and stakeholders have ance on the accuracy of internal control quires the corporation to make all efforts to become more nimble in identifying emerg- over financial reporting (ICFR). This is uncover such relevant facts. Because priv- ing risks and preparing to mitigate them. not necessarily a bad thing, unless regula- ilege issues would limit general counsel’s It begins with developing an annual audit tors begin treating internal audit as their ability to conduct such investigations, inter- plan, which should reflect not just the orga- “boots on the ground.” nal audit would likely be tasked with carry- nization’s financial reporting, governance, We are already seeing fallout from this, ing them out. and compliance risks, but also operational as pointed out in a recent report by the IIA’s This could place internal audit in the and business risks that are integral to strate- Research Foundation (IIARF), A Global awkward position of working as de facto gic planning. Management and the board View of Financial Services Auditing. Authors DOJ investigators. Internal audit at times should invite the chief audit executive into Jennifer F. Burke and Steven E. Jameson struggles with its dual reporting relation- strategic planning discussions to allow inter- note that assistance provided by internal au- ship with the audit committee (functional) nal audit to build a more accurate risk-based dit to external auditors is growing, especially and management (administrative). Adding audit plan for the organization. within the financial and insurance sectors. a third master in the form of the regulator Some may consider internal audit’s par- Based on responses to the IIARF’s Common would further complicate an already chal- ticipation in such discussions as blurring the Body of Knowledge Practitioners Survey, 34 lenging balancing act. second and third lines of defense: functions percent of financial services auditors report- that own and manage risk, and functions ed spending more than four weeks annually Richard F. Chambers is presi- that provide independent assurance. On the supporting external auditors. dent and CEO of The Institute contrary, internal audit’s ability to provide Increased regulatory reliance on internal of Internal Auditors (IIA). For unbiased assurance on a myriad of business audit’s work already is changing the dynam- more information about the functions lies in its ability to know all aspects ic with external auditors, whose work has IIA, please visit www.theiia.org.

84 NACD NACD DirectorshipDirectorship November/DecemberSeptember 2010 2015 Director Advisory

Compensation

Incentive Plans: Goal Setting and Responsible Payout Patterns By Melissa Burek

A key priority of all compensation com- Over a five-year look-back period, LTI performance period associated with fore- mittees is maintaining an appropriate re- plan payouts showed casting performance, this also makes sense lationship between executive pay and per- ■■ a 95 percent likelihood of achieving from a design standpoint. formance through a company’s short- and threshold performance goals, Multiple factors inform the goal-setting long-term incentive plans. A company’s pay ■■ a 65 percent chance of achieving tar- process. For both types of plans, the annu- philosophy, pay program framework, and get performance, and al business planning process or long-term incentive plan goal setting all serve as foun- ■■ a 15 percent chance of achieving max- company strategic plan is most often the dations for an appropriate relationship. Of imum performance. basis for incentive plan target performance those elements, committees spend a signifi- ■■ Companies paid between target and goals. Most companies further consider cant amount of time and effort each year on maximum approximately 40 percent of the historical peer company performance, in- the goal-setting process. As the emphasis on time (one in every two-and-a-half years), and dustry standards and expectations, analysts’ longer-term—typically three-year—perfor- paid no bonus 7 percent of the time. estimates, and broader economic forces. mance plans has increased in recent years, Results show similar AI and LTI payout It is also extremely informative for compa- the importance of getting longer-term goals patterns. These very similar payout pat- nies to conduct look-back analyses in rela- correct has been magnified. Committees terns indicate that committees and compa- tion to performance goals and actual com- often look for best practices and parameters nies are doing an equally good job of setting pany performance compared with market to help guide their decision making around both AI and LTI plan goals, building in an norms, as a way to pressure test the goals. incentive plan goals. appropriate degree of stretch, and applying By doing so, not only is the pay relationship Research on incentive plan payouts. proper leverage to the awards above and be- validated, but the degree of stretch in the Our firm conducted research on histori- low target. Conventional thinking is that performance goals can be evaluated as well. cal annual incentive (AI) and long-term in- plans should pay at maximum and below Setting credible goals and appropriately centive (LTI) plan payouts over a five- or threshold roughly one in every five years, aligning performance and pay is viewed as six-year period among a sample of Fortune and these results show just slightly more very challenging for committees and com- 100 companies that used plans based on conservative practices at max, and less con- panies, particularly with respect to LTI pre-established performance goals. servative practices at threshold. plans. Our research findings, however, in- Over a six-year look-back period, AI plan Slight differences in LTI payout pat- dicate that goal setting over the last five to payouts showed terns make sense. With LTI payouts, six years has in fact resulted in very cred- ■■ a 90 percent likelihood of achieving the distribution shows, however, that ible and responsible incentive program threshold performance goals, it is somewhat less likely to get a payout payout patterns. As such, we suggest that ■■ a 70 percent chance of achieving tar- above target and somewhat more likely to these payout rules of thumb can serve as a get performance, and get a payout below target, compared with meaningful guideline for companies on a ■■ a 15 percent chance of achieving max- AI plans. In part, there is often greater prospective basis. imum performance. spread between threshold and maximum ■■ Companies paid between target and LTI performance goals, making it slightly Melissa Burek is a found- maximum approximately 50 percent of more attainable to “get in the game,” yet ing partner at Compensation the time (one in every two years), and paid not quite as attainable to receive a higher Advisory Partners, located in no bonus approximately 10 percent of the payout. This dynamic was consistent in all New York. time. but one industry group. Given the longer

November/December 2015 NACDonline.org 85 Director Advisory

Geographic Diversity

The Challenges of the Global Board By Alex Wittenberg The World Economic Forum’s Global the National Association of Corporate Di- sity are expansive. Global board meetings, Risks Report 2015, prepared with the sup- rectors, undertook research on the unique agendas, and locations are often set two to port of Marsh & McLennan Cos., noted: governance challenges and boardroom three years in advance, and meetings can “Faster communication systems, closer practices for boards of global companies. last up to one week when factoring in ex- trade and investment links, increasing phys- Through interviews, we captured the peer tensive site visits and meetings. In addition, ical mobility, and enhanced access to infor- insights of experienced U.S. and non-U.S. efficient board support is critical to manag- mation have combined to bind countries, domiciled directors of both U.S. and non- ing a diverse, international flow of informa- economies and businesses more tightly to- U.S. domiciled companies. tion on current trends and developments. gether.” Companies of all sizes have been Our research found that the global board Director skill sets. Serving on the board taking advantage of these opportunities. In- and its directors share many of the same re- of a global company requires two core ca- ternational revenue represents 35 percent sponsibilities, skill sets, and requirements ex- pabilities: the commitment of time and a of the revenues of the S&P500. Small and pected of all high-performing boards. How- true sensitivity to cultural differences. As medium enterprises make up 26 percent of ever, our interviews highlighted the need one director noted: “If you join a global all U.S. multinationals. for these boards to respond to specific global board, don’t expect to be able to put guard- Global risks and opportunities are pres- governance demands in three ways: compo- rails on your time or level of involvement.” ent in the boardroom of every company, sition, processes, and director skill sets. Time zones, travel, and a wider span of ac- regardless of whether they operate interna- Board composition. Boards, especial- tivities result in a greater time commitment tionally or not, and emerging risks acceler- ly those of global companies, should in- to effectively participate on a global board. ate at a greater pace. However, geographic crease their geographic diversity to enable Global directors must have the abili- diversity found on boards remains quite the board to function outside the compa- ty to transcend their regional views. Fur- low and most companies, both within the ny’s home country. Geographic diversity ther, they must be open to dialogue and United States and elsewhere, have boards adjusts the lens used to examine risks and willing to listen to contrasting views and that are primarily populated with individu- strategy, and provides insights into factors perspectives. Although these qualities are als from the company’s country of origin. that can be quite nuanced, such as the role important for all directors, they are espe- As boards increasingly consider all aspects of the government, regulators, or other cially critical for those who serve on global of diversity, geographic diversity in the stakeholders in the marketplace. For many company boards. boardroom will need to increase. companies, an increasingly geographically Does a global company need a global The potential for growing geographic diverse board of directors and the insights board? The answer, based on the feedback diversity in boardrooms raises a number of provided will be a vital mechanism to help and insights of directors around the world, key questions. For example, does a global companies identify and assess risks as they is an unequivocal “yes.” As boards increase company need a globally diverse board? emerge from around the world. their geographic diversity and the composi- Further, how do board practices and the Boards should, however, be cautious. tion of the boardroom evolves, boards and skill sets of directors adjust to meet rising Diversity can increase the challenges in directors must ensure that processes and global demands and a geographically di- managing group dynamics and coming to skill sets evolve to optimize the benefits of verse boardroom? And how does a board a consensus. An effective chair is essential this diversity. prioritize and accommodate geographic, to capturing the value of board diversity, cognitive, and gender diversity without capitalizing on different perspectives while Alex Wittenberg is the ex- significantly increasing the number of creating an environment of collaborative ecutive director of Marsh & directors? decision making. McLennan Cos.’ Global Risk Through the summer of 2015, Marsh Board processes. The processes to sup- Center. & McLennan Cos., in collaboration with port a board with broad geographic diver-

86 NACD NACD DirectorshipDirectorship November/DecemberSeptember 2010 2015 Director Advisory

Audit Committee Roundup

Refining Risk Oversight for a New Level of Volatility By Dennis T. Whalen Disruptions in the oil market and swings refreshing the board and/or recruiting ex- a good risk culture—marked by an open- in other commodity prices. A strengthen- pertise, coordinating (and reallocating) risk ness and transparency where employees ing U.S. dollar, a decelerating China, and oversight responsibilities among the board’s are comfortable providing feedback in struggling Brazil. Geopolitical unrest in committees, and/or changing the board’s open and honest discussions, and different Russia, Iran, and the Middle East. Ongoing committee structure. views are heard—hinges on the rank and challenges in the Eurozone from econom- Boards are also wrestling with other risk- file. Is it clear that risk management starts ic stagnation to unprecedented human mi- related challenges, including effectively with the front line? gration. Technology driving business model linking risk and strategy in boardroom dis- ■■ Cybersecurity is a critical business disruption and escalating cyber risks. In this cussion, devoting sufficient agenda time risk, requiring the full board’s attention. unprecedented mix of volatility and uncer- to cybersecurity, and communicating and Because cyber risk cuts across so many as- tainty, boards will need to closely monitor coordinating among the full board and its pects of the business, make sure all the key changes in the business landscape on an on- committees on oversight of the company’s players (chief information officer, chief in- going basis to understand the impact on the key strategic and operational risks. formation security officer, chief risk officer, company’s strategy and risk profile, and help To dig deeper, we interviewed seasoned chief compliance officer, and chief audit the company calibrate as needed. audit committee chairs and risk profes- executive, for starters) are in sync, and that Indeed, more than 80 percent of the di- sionals for their perspectives on how audit cybersecurity has sufficient time on the full rectors and executives responding to our committees and boards are refining their board’s agenda. recent global survey, “Calibrating Strategy oversight of risk in an increasingly volatile ■■ Are risk oversight roles and respon- and Risk,” said their board has deepened environment. Key takeaways include: sibilities clear and still appropriate? Chal- its engagement in strategy—e.g., consider- ■■ Good risk management is an ongo- lenging management on how the coming strategic alternatives, monitoring execu- ing business discussion that is dynamic and pany is responding to a dynamic risk en- tion, or recalibrating strategy. Connecting enterprise wide. Managing and overseeing vironment requires more and more time strategy and risk, and testing the continuing risk should be a dynamic process, starting and focus. Give a lot of thought to what validity of critical risk assumptions contin- with front-line management. Is the board gets discussed where, particularly when ue to be key areas of focus—and significant getting a consolidated, enterprise-wide view it comes to the agenda-heavy audit com- challenges—for many boards. of the company’s risks from various C-level mittee, which needs to remain focused on Given the role that many audit commit- perspectives—and outside sources—that financial reporting and internal controls. tees play in risk oversight, our survey find- helps connect the dots? The full interviews in the latest edition of ings offer insights into the challenges audit ■■ Risk and strategy go hand in hand. KPMG’s Global Boardroom Insights, along committees and boards face in their efforts While boards are clearly spending more with our global survey findings, offer a time- to refine their risk oversight processes to time debating risk, make sure it’s being ly look at how boardroom discussions are help their companies meet the challenges done in the context of making good deci- evolving to keep pace with the new glob- posed by the new level of volatility. Our sur- sions, not making no decisions. Understand al volatility. Read it online at kpmg.com/ vey shows that many boards have recently the risks around key input costs and growth BLC. taken steps or discussed ways to strengthen assumptions, and how much risk the com- their oversight of risk. This is mainly ac- pany is willing to take. Dennis T. Whalen is partner in complished by improving risk-related in- ■■ Getting the risk culture right starts at charge and executive direc- formation flowing to the board, but also the top, but succeeds (or fails) on the front tor, KPMG’s Audit Committee by hearing more independent views and line. The right tone at the top is a must; but Institute.

November/December 2015 NACDonline.org 87 Director Advisory

Board Composition

The Challenge of Adding Critical New Expertise to Boards By Dennis Carey and Robert Hallagan

We recently spoke with Martin Lipton, tise, says Lipton, who suggests the following: effective team dynamic to flourish. senior partner, Wachtell, Lipton, Rosen 1. Consider expanding the size of the 4. Find viable substitutes. Boards might & Katz and noted advisor to major cor- board. After years of consciously paring consider building access to advising di- porations on corporate governance, and down, 57 percent of KFMC100 boards have rectors, who would attend board meet- counsel to the NYSE committee that cre- 10 to 12 directors, and only 36 percent have ings and give advice, but would have no ated its corporate governance rules adopt- more than 13. But if new seats are not likely formal standing. “These people,” Lipton ed in 2003. We discussed the challenge to open up any time soon, and specific ex- says, “would most likely have a great deal of adding critical new expertise to boards. pertise is urgently needed, boards may find of experience.” Korn Ferry is witnessing stepped-up de- this concrete need takes precedence over 5. Maintain access to a wide range of mand for directors in a wide range of areas experts. Most large boards have sessions where boards are currently lacking exper- Each board should have where experts explain new trends to keep tise, including cybersecurity, online retail, directors current. This practice, Lipton ob- and a range of other functional, industrial, the experience and serves, “represents a fundamental change and geographic areas. expertise appropriate for in the way boards operate.” Lipton’s view is that boards require addi- Always candid, thoughtful, and prac- tional expertise to properly execute their du- the business. tical, Lipton cares less about what is po- ties on behalf of shareholders. “It’s a mantra litically correct and more about what of ours,” he says. “Each board should have the general requirement to maintain a cer- he believes really works. His suggestions the experience and expertise appropriate tain size. If deemed important, boards can are worth considering as boards struggle for the business.” “right-size” later on, perhaps after a director simultaneously with three challenges: But this begs the question: As a practi- steps down. smaller boards with less room to add cru- cal matter, how do boards make room for 2. Ramp up the director assessment cial new competencies; “a clear need for these new directors? This is a significant process. It may be time to address the sen- expertise to be added to advise manage- issue for many boards, particularly given sitive issues of director assessments and the ment on strategy and performing their the steady trend in recent years for boards adoption of more rigorous director quali- duties to pursue more appropriate risk to pare down in size, combined with rela- fications. It’s one way of creating room management practices and new technol- tively low turnover on boards. The latest for needed expertise and, as Lipton says, ogies”; and the need to maintain a col- Korn Ferry Market Cap 100 (KFMC100) “boards have to focus on evaluations. ISS legial, effective board team. While these report finds that 35 percent of directors on and major investors are paying attention.” requirements are not necessarily mutu- the boards of the largest U.S. companies by 3. Think about establishing term limits ally exclusive, they are somewhat in con- market capitalization have served for nine or adhering to a mandatory retirement age. flict, and fulfilling all of them may require years or more, and 20 percent have served While 42 percent of KFMC100 boards have some ingenuity. for 12 years or more. That doesn’t create a mandatory retirement age, 35 percent a lot of wiggle room to add new directors, provide exceptions. Some flexibility should Dennis Carey and especially when veteran directors, such as be built in so boards can retain particular- Robert Hallagan CEOs, still add tremendous value. ly valuable directors. Lipton cautions that are vice chairs of There are several ways to circumvent this a crucial balance needs to be maintained Korn Ferry. barrier and gain additional director exper- between refreshing boards and allowing an

88 NACD NACD DirectorshipDirectorship November/DecemberSeptember 2010 2015 Director Advisory

Cybersecurity

When Building a Cyber Defense, Companies Should Assume the Worst By Austin Berglas

Chances are, cyber attackers are inside your motivations. To this end, any available in- percent of data breaches often—but not firewalls, biding their time, planning the telligence sources should be engaged and always—unwittingly. what, when, and where of their next move. heeded. Attacks in your sector need to be Education therefore plays a key role in any They already know the how. carefully monitored. Where possible, in- cyber defense strategy. The basics of cyber- Even so, it’s never too late to set up viable dustry-wide information sharing should security such as proper password manage- defenses. As cybercrime continues to probe strongly encouraged. Independent in- ment, e-mail awareness, social media pol- liferate at alarming rates, advanced prepa- telligence sources can help set up an early icies, and two-factor authentication, must ration is crucial. The level of a company’s warning system—for a company, industry, be taught and retaught. One report suggests preparedness is the best predictor of how or both—identifying patterns that can sug- that with two years of employee training, the quickly and effectively it will recover from gest imminent threats. click rate for malicious phishing e-mails dra- these inevitable attacks—and assuming the matically drops down from 25 percent and worst results in the best outcomes. Threat Exercises can be held to below 5 percent. An expensive hardening of your net- While intelligence is undeniably important, works may be necessary, but this tactic is there is no substitute for the conscientious Taking a Holistic View ultimately insufficient. Even the most se- development of processes and procedures— Given the inevitability of cyberattacks on cure networks can be compromised by a both proactive and reactive—to deal with your assets, it is important to look at data well-meaning employee accidentally click- actual incidents. Moderated tabletop exer- security from every possible angle. A truly ing on a seemingly innocuous—but ulti- cises based on realistic scenarios from your holistic solution involves a continuously mately malicious—link. A truly effective industry can focus management on both the updated combination of intelligence gath- cybersecurity program involves the entire specific vulnerabilities of your business and ering, employee training, technical assess- company, top to bottom. the means of addressing them. ments, and the constant testing of processes With this in mind, directors must chal- Ideally, these exercises should cover and procedures. lenge their management teams to put the the entire incident life cycle—from pre- Weakness in any of these areas needs right strategies and procedures in place to incident preparedness to initial response, to be addressed, if not in-house, then prepare for, respond to, and recover from at- to investigation and containment, to post- through outside resources. By assuming tacks on their networks. incident remediation—and the learning the threats are inside your walls right now, from them should form the basis of poli- the company can take the steps necessary Where Are the Crown Jewels? cies and procedures going forward. to make a real difference in defending In building a strong defense, one must first against them. identify the company’s crown jewels—its Educating Employees most valuable digital assets. Then ask: How Most successful cyberattacks are the re- Austin Berglas heads the U.S. Cyber Inves- are they stored? Where are they located? sult of human fallibility. No investment tigations and Incident Response practice at How accessible are they? Just as important in network hardening can guard against K2 Intelligence. His investigative experience is understanding who might value these as- the kinds of “social engineering” ploys— spans counterintelligence, na- sets and who would pay large sums to ac- spear-phishing and the like—now being tional security, criminal cyber quire them. used to trick employees into compromis- investigations and incident re- Defense strategies should be formed ing cybersecurity. It is estimated that em- sponse. He can be reached at around a realistic view of an attacker’s likely ployee behavior accounts for up to 80 [email protected]

November/December 2015 NACDonline.org 89 Director Advisory

Litigation and Liability

Focusing on Individual Accountability for Corporate Wrongdoing By Joan E. Meyer, Trevor N. McFadden, and Geoff Martin

In recent years, U.S. prosecutors have In a significant change from prior pol- also have sometimes given an advantage continued apace in resolving substan- icy, the memo indicates that the govern- to individuals who are able to avoid pros- tial, high-profile criminal and civil cas- ment will go as far as to deny all coop- ecution because the statutory time period es against companies for fraud and other eration credit for companies that fail to lapsed during a lengthy corporate investi- misconduct. Convicting individuals who “learn of such facts [related to individu- gation. The government clearly wishes to perpetrated the wrongdoing, however, has al misconduct] or to provide the Depart- avoid this situation going forward. In do- proven more difficult. Historically, few ment with complete factual information ing so, the memo pressures prosecutors to corporate resolutions have been accom- about individual wrongdoers,” notwith- bring individual cases much more quick- panied by criminal indictments or civil standing any other cooperation that they ly. This is easier said than done. suits brought against individuals. Because may provide. This is effectively now a of a perception that individuals on Wall threshold requirement for receiving any Inability to Pay Street have yet to be held accountable for cooperation credit. In the past, the government has not tend- their role in the 2008 financial crisis, poli- ed to bring civil suits against those who ticians and commentators have been fo- could not afford to pay a significant fi- cused on this issue. The memo pressures nancial judgment levied against them. In this context, balancing corporate prosecutors to bring The memo instructs civil U.S. attorneys resolution of these matters with the pros- to look beyond the government’s financial ecution of individuals has become a top individual cases much recovery and consider bringing civil cases policy priority for the U.S. Department more quickly. against individuals based on other consid- of Justice (DOJ). On September 9, 2015, erations, such as the severity of the alleged Deputy U.S. Attorney General Sally Yates conduct. The objective of this significant issued a memo to all DOJ attorneys to Timely Resolution of Cases policy shift appears to be to increase the provide guidance to prosecutors handling The memo also states that “every effort number of cases brought, regardless of cases involving both companies and indi- should be made to resolve a corporate likely financial recovery, for the purpose viduals. There are several significant de- matter within the statutorily allotted time, of holding individuals accountable for velopments directors should be aware of. and tolling agreements should be the rare their actions—and to deter others. exception.” The government has histori- Corporate Cooperation Credit cally made extensive use of tolling agree- At Baker & McKenzie in Washington, D.C., Traditionally, the DOJ considers a com- ments in complex corporate enforcement Partner Joan Meyer chairs the Compliance, pany’s cooperation with the government cases to extend the time it has to investi- Investigations and Government Enforce- when resolving corporate criminal cas- gate and resolve these matters. The multi- ment Practice Group. Trevor McFadden is es. The department takes into account a year time line for resolving these cases is a partner and Geoff Martin is an associate number of factors, including the extent frequently a source of frustration for coop- in the group. of the company’s internal investigations erating companies looking to remediate a and voluntary disclosures in addition to historic compliance issue and move for- whether the company produced docu- ward with their business. mentation and made individual witnesses Tolling agreements entered into with available to the government for interview. companies to resolve their own liability

90 NACD NACD DirectorshipDirectorship November/DecemberSeptember 2010 2015 Director Advisory

Compensation

Why Relative TSR Will Not Align Pay and Performance Disclosure By Daniel Rodda Earlier this year, the Securities and Ex- would be replaced by the present value of Instead they would reflect one-year, two- change Commission released a proposed pension benefits earned based on one addi- year, three-year, four-year, or five-year -re rule that would implement the 2010 Dodd- tional year of service. Both changes may pro- sults, depending on the year of disclosure. Frank requirement to disclose the relation- vide better insight into compensation deliv- ■■ Differences in the calculation of TSR ship between executive compensation ac- ered by shifting focus from long-term incen- results. Most relative TSR performance tually paid and performance, with perfor- tive opportunities to payouts, and removing plans determine payouts based on the com- mance largely defined by the company’s “noise” created by changes in pension inter- pany’s percentile ranking relative to the total shareholder return (TSR). est rate and mortality table assumptions. peer companies, not based on the market- The proposed rule includes disclosure of The tabular disclosure of TSR under the cap-weighted results that would be shown how a company’s TSR compares to peers. proposed rule will be cumulative from the under the proposed rule. This has led some commentators to suggest beginning date of the disclosure. For exam- ■■ Impact of other pay components: that any company not using relative TSR as ple, the first year covered by the table will Even if a company grants long-term incen- a performance measure should strongly con- show one-year TSR results, while the third tives through a relative TSR performance sider adding it. However, companies should year in the table will show three-year results. plan, other components of pay—salaries, not rush to change their incentive plans, as Peer TSR must be based on either the annual incentives, retirement benefits— using relative TSR will not ensure perceived peer group used in the stock performance will not depend on or match relative TSR alignment under the proposed rules. graph, typically disclosed in a company’s 10- performance results. K, or a compensation peer group disclosed The Proposed Disclosure Requirements in the compensation discussion and analysis. Evaluating the Use of Relative TSR Plans Under the proposed rule, companies would Peer group results must be weighted based All companies, whether or not they use rel- have to provide tabular disclosure in their on each company’s market capitalization. ative TSR, will be challenged to disclose annual proxy statements that compare exec- why the table required under the proposed utive compensation totals from the summa- Pay and TSR Disclosure Disconnects rule does not fully reflect the relationship ry compensation table with compensation While it may seem that companies using between pay and performance. While rela- actually paid, as well as TSR and the TSR relative TSR as a primary performance mea- tive TSR can be an effective incentive, com- of a group of peer companies. Additionally, sure would show clearer alignment of pay panies should not implement relative TSR companies would need to provide a narra- and performance than others under the pro- plans solely in an attempt to improve their tive disclosure describing the relationship posed disclosures, there are several reasons potential disclosure under the proposed between these elements. The disclosure why that may not be the case, including: rule. Companies should continue to evalu- would initially cover three years, but would ■■ Misalignment of time periods. Pay- ate which performance measures and plan later cover five years’ of data. outs from relative TSR performance plans designs will be most effective at their organ- Compensation actually paid, as defined will typically be shown next to TSR results åization to meet their compensation objec- in the proposed rule, would have two pri- from a different time period. Take, for ex- tives and drive the creation of value. mary differences from the total shown in the ample, an award based on relative TSR per- summary compensation table: the grant- formance for 2016 through 2018 that vests Daniel Rodda is a lead con- date value of equity awards would be rein early 2019. The payout would be re- sultant in the Atlanta office placed by the value of awards on the vesting flected in actual pay for 2019, but the TSR of the executive compensa- or payout date; and the change in the pres- shown in the table for 2019 would in most tion consulting firm Meridian ent value of accumulated pension benefits years not reflect 2016 through 2018 results. Compensation Partners.

November/December 2015 NACDonline.org 91 Small Talk By Jesse Rhodes Lovin’ It Out of Gas

Although McDonald’s Toyota Motor Corp. recently announced that its vehi- will take time, due in large part to the widespread lack still stands as the cles powered exclusively by gasoline are on the road of infrastructure to support the new transport technol- world’s largest to extinction. The transition comes as part of the com- ogy. The Toyota Mirai, a hydrogen-powered car, will restaurant company, pany’s efforts to reduce emissions by 90 percent by the be rolled out in California in late 2015. Early adopt- sales have flagged for year 2050, which includes focusing on hybrid and hy- ers need to ensure that they can get to one of the 20 seven quarters straight. drogen fuel cell vehicles. Gasoline and diesel-fueled refueling stations throughout the state to stay on the Hoping to turn the cars account for 85 percent of Toyota’s global vehicle road. Owners of gas-powered cars have their pick of tide, the fast-food sales, but a transition to the new generation of vehicle some 10,000 stations. giant pared down its unwieldy menu and on Oct. 6 began offering Glass Half Empty breakfast foods all The announcement of a possible Anheuser-Busch Business Insider, however, noted the merger and ac- day long. According InBev merger with SABMiller has craft brewers all quisition activity in the microbrewery space: more to the Wall Street hopped up. According to NPR, the merger would than 12 craft breweries were snapped up by larger Journal, sales rose 0.9 mean that the combined company would control companies in the last 12 months, ostensibly expand- percent by Oct. 22 and more than half of the U.S. beer market. Some craft ing the availability of those products. The Busch/ share prices rose by brewers argue that the merger will make it more dif- InBev merger is currently awaiting shareholder and 8.1 percent, closing ficult for them to get their products on store shelves. regulator approval. at $110.87—their highest ever. Although other factors could Long Live the Brand be credited for these While there may be some question as to the relevan- a princely £1.155 million ($1.7 million in U.S. dol- immediate changes, cy and role of the British monarchy in lars) in 2015. Its analysis looked at factors analysts are predicting an otherwise democratic nation, one such as tourism revenue connect- that breakfast could thing is for certain: the royals do ed to the monarchy and businesses boost same-store sales wonders for the economy. Brand that advertise they serve the royal PHOTOS COURTESY OF TOYOTA AND MCDONALD’S, ROYAL FAMILY: ASSOCIATED PRESS by 1.5 percentage Finance, a brand valuation and family. The “Kate Effect” alone, points in the fourth strategy consultancy, recently defined as the “uplift to fashion quarter and 1 estimated the amount of mon- and other brands worn, used, percentage point over ey the monarchy contributes to or otherwise endorsed,” reined the next 12 months. the U.K. economy. Per their rein an estimated £152 million search, the grand total came to ($235-million plus). Forecasting Risk Tolerance Can risk appetite be influenced by early-life exposure were led by these executives, such as leverage, cash-to- to freak weather events? Researchers from Singapore assets ratios, and acquisition activity. Executives that Management University, University of Oregon, and experienced a disaster with extreme consequences McDonald’s Egg University of Cambridge looked at 1,508 public com- (e.g., high mortality rates) had a lower risk tolerance, McMuffin pany CEOs to see if they grew up in an area that was while those who experienced disasters with less devas- impacted by a natural disaster. They then looked at tating outcomes were less sensitive to the downsides of financial characteristics of each company when they dicey situations and had heartier risk appetites.

92 November/December 2015 Stay Connected. Announcing Protiviti Mobiliti for iPad and Android tablets

• Protiviti research where you need it, when you need it • Locate Protitivi training events near you • New Thought Leadership alerts • Create a personal Thought Leadership library • Protiviti social media and blogs at your fingertips • Browse career opportunities

Protiviti is a global consulting firm that helps companies solve problems in finance, technology, operations, governance, risk and internal audit. Learn more about Protiviti today and download Mobiliti at www.protiviti.com/mobiliti.

© 2014 Protiviti Inc. An Equal Opportunity Employer M/F/D/V. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services. PRO-0214 Is your company protected from the Internet of RiskSM?

With CyberEdge® cyber insurance solutions you can enjoy the Business Opportunity of Things. 20 billion objects are connected to the Internet, what everyone is calling the Internet of Things. This hyperconnectivity opens the door both to the future of things, and to greater network vulnerabilities. CyberEdge end-to-end cyber risk management solutions are designed to protect your company from this new level of risk. So that you can turn the Internet of Things into the next big business opportunity. To learn more and download the free CyberEdge Mobile App, visit www.AIG.com/CyberEdge

Insurance, products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Insurance and services may not be available in all jurisdictions, and coverage is subject to actual policy language. For additional information, please visit our website at www.AIG.com.