The Directors Manual: A Framework for Board Governance

THE FRAMEWORK DIRECTORS TURN TO FOR IMPROVING BOARD PERFORMANCE

"With the continuing focus on board practices and governance The Director′s Manual: A Framework for Board Governance is a timely and useful reference and guide for directors and senior management."
Erskine Bowles, co–chair of the National Commission on Fiscal Responsiblity and Reform, lead director at Morgan Stanley and on the boards of Facebook, Inc., Belk, Inc., and Norfolk and Southern Corp.

"The real–world insights that Browning and Sparks provide are an invaluable guide to how one becomes an effective director."
Bob Ingram, Former Vice Chairman, Pharmaceuticals GlaxoSmithKline, currently serving on the boards of Edwards Lifesciences Corporation, Regeneron Pharmaceuticals, Inc., and as lead director of Valeant Pharmaceuticals International, Inc., and Cree, Inc.

"The Director′s Manual provides a thoughtful reference and practical guide for all current or aspiring directors and members of senior management."
Julie Daum, leads the North American Board Practice for SpenserStuart

"Serving on a corporate board today is a tremendous challenge. Directors are under constant pressure to keep up with rapid changes in markets, regulations and technology, and to lead through these changes with confidence. The Director′s Manual provides an indispensable tool that will become standard reading material for every well–run board."
Mike McGuire, CEO, Grant Thornton LLP

"The authors get behind the externals of board structures and bring focus on how outcomes are really generated. At the same time we are reminded of why we serve and our priorities."
John Williams, CEO, Domtar Corporation and lead director, Dow Corning Corp

"Meeting the new dynamics and demands of today′s boards, The Director′s Manual is a perfectly executed and perfectly timed work."
Ray Milchovich, Former Chairman and CEO, Foster Wheeler AG, lead director, Nucor Corporation, and board member, Dow Chemical Company

"With the increased focus on expanding duties of boards of directors, this book by two experienced experts on board governance is quite timely and well worth reading."
Jim Hance, former Vice Chairman, Bank Of America, currently serving on the boards of Carlyle Group LLC, The Ford Motor Company, Duke Energy, Cousins Properties, Inc., and Acuity Brands

"Peter and Will put forth an outstanding framework for building a high–performing board. The Director′s Manual not only puts today′s board challenges in proper context, it provides a very practical and usable roadmap for creating an engaging, value–adding board."
Steve Macadam, CEO, Enpro Industries

"Peter is the consummate expert on board governance and this book is a must–read for any executive or director grappling with the ever–expanding regulations governing today′s corporate environment."
John Ferriola, Chairman, President and CEO, Nucor Corporation

"Sound leadership and governance is critical toward a company′s success and The Director′s Manual is a great foundational book with thoughtful and practical guidance for board members and aspiring board members. It should be on every director′s desk."
Jeff Brown, CEO, Ally Financial, Inc.

Acknowledgments ix

Peter C. Browning ix

William L. Sparks x

Preface xi

Why We Wrote This Book xi

Chapter 1 The Changing World of Board Governance: How We Got Here 1

What s in This Chapter? 1

How and Why Boards Have Changed 2

Why These Events Are Important 3

A Barometer for CEO Compensation 5

2002 A Board Governance Tipping Point 9

Impact of the 2008 Financial Meltdown 14

Chapter Summary 17

What s Next? 18

Chapter 2 Role of the Board 19

What s in This Chapter? 19

Home Depot s Leadership Question 20

Two Key Guiding Principles 22

Why Boards Exist 23

Three Critical Questions That Boards Ask 24

Is the Right CEO Running the Company? 25

Is a Robust Succession Plan in Place? 29

Determining the Right Strategy 30

Chapter Summary 31

What s Next? 32

Chapter 3 Key Board Leadership Roles 33

What s in This Chapter? 33

Public Outcry for Action 35

Changes in NYSE Listing Requirements 36

The Debate over the Separation of Roles 37

Nonexecutive Chairman, Lead Director, or Presiding Director 40

The Challenge of Board Leadership 42

Chapter Summary 45

What s Next? 45

Chapter 4 Board Culture 47

What s in This Chapter? 47

Understanding Board Culture 48

Examples Illustrating Schein s Model of Culture and Board Dynamics 50

The Three Elements of Board Culture 51

The Leadership and Board Performance Cycle 58

Transforming Board Culture 63

Chapter Summary 66

What s Next? 67

Chapter 5 Group Dynamics and Board Decision Making 68

What s in This Chapter? 68

Why Working in Groups Is Difficult 69

Groupthink: Managing Conflict in the Boardroom 72

Understanding and Avoiding Groupthink 74

Getting Past The Abilene Paradox 76

Chapter Summary 81

What s Next? 81

Chapter 6 Board Structure and Schedule 82

What s in This Chapter? 82

Board Size 83

Meeting Requirements and Preparation 84

Effective Meetings and Service 90

Chapter Summary 91

What s Next? 92

Chapter 7 Assessing Board Performance 93

What s in This Chapter? 93

The Evolution of Board Assessments 94

Customizing the Assessment Process 96

Finding Your Own Best Practice 98

Chapter Summary 101

What s Next? 101

Chapter 8 The Challenge of the Disruptive Director 103

What s in This Chapter? 103

Disruptive Members a Common Issue 104

The Ying and Yang of Conflict 105

An Effective Dissenter 106

Five Types of Disruptive Directors 107

Dealing with Disruptive Directors 109

How Assessments Help 110

Chapter Summary 111

What s Next? 112

Chapter 9 The Other Succession Challenge: The Board of Directors 113

What s in This Chapter? 113

Why a Board Needs to Plan for Succession 114

Demographics and Board Service Realities 115

Enron, the 2008 Financial Collapse, and Dodd–Frank 115

Building a Board Succession Plan 117

Educating, Onboarding a New Member 123

Chapter Summary 124

What s Next? 124

Chapter 10 What s Next in the Boardroom? 125

What s in This Chapter? 125

Ongoing Scrutiny of Executive Compensation 127

Continuing Demands for More Proxy Information 129

More Shareholder and Investor Activism 130

Greater Demands for Proxy Access 132

Sharper Focus on Risk Management 133

Ever–Increasing Scrutiny of Board Composition 134

The Way Forward 134

Chapter Summary 135

What s Next? 136

Appendices Board of Directors Assessment Forms 137

Appendix A Board of Directors Self–Assessment 138

Appendix B Audit Committee Assessment 152

Appendix C Compensation Committee Assessment 154

Appendix D Governance/Nominating Committee Assessment 156

Appendix E CEO Assessment 158

Appendix F Lead Director Assessment 163

Appendix G Nonexecutive Chairman Assessment 165

Appendix H Peer Assesssment 167

Notes 169

About the Authors 179

Index 183