Prompted by changes in stock exchange listing standards, most US public companies have appointed an independent, non-executive director to lead the independent board members. Whether called lead or presiding director or non-executive chairman, these independent board leaders play a vital role in strengthening corporate governance.
The Lead Director Network (LDN) is a group of leading independent directors from America’s most successful companies who share a commitment to improving corporate performance and earning shareholder trust through more effective board leadership. LDN members gather several times each year to candidly and thoughtfully address critical issues confronting their boards and their companies. The network is supported by King & Spalding.
Lead directors discussed the board’s involvement in major transactions, and identified several key components of effective oversight, including early board engagement on significant deals; a culture of openness and candor between the board and management; balancing strategy, changing conditions, and organizational capacity, paying particular attention to “mergers of equals," and being willing to walk away from a transaction. In a separate session, members were joined by King & Spalding partner Phyllis Sumner for a discussion of the board’s oversight of cybersecurity incident response. Ms. Sumner emphasized the need for the board to approach cybersecurity as an enterprise risk management issue, assessing not only the cybersecurity risks and threats the company faces but also its cyber security strategy, plan, system infrastructure, culture, talent, training, and budget.
Lead directors were joined by general counsel guests to discuss ways to detect, prepare for, and respond to crises. Participants suggested ways that boards and senior leaders can monitor their organizations for crises and identified strategies for building organizations that can effectively respond when a crisis materializes. Participants also discussed the challenges surrounding communicating during a crisis, and agreed that quickly elevating information to the top of the organization, speaking with a unified organizational voice, and paying close attention to the timing and pace of disclosure are critical.
Lead directors and general counsel were joined by King & Spalding partner Jim Woolery to explore the current environment of shareholder activism, including structural changes in the US equities market and new shareholder engagement strategies that could help firms to avoid a proxy battle.
Lead directors discussed how boards can help management navigate the opportunities and risks of innovation. They agreed that boards can encourage and guide innovations of strategic importance. Boards can also weigh in on the culture of innovation and the processes that produce incremental progress as well as transformative change. To play these roles effectively, the wisdom of directors with broad business experience remains important, even as boards seek expert insight from within and outside the company.
Lead directors discussed current pressures to buy back shares but underscored their determination to avoid buybacks that might jeopardize long-term growth. To manage pressures for buybacks, companies must broaden the search for investment opportunities, communicate the company strategy effectively, and adjust compensation programs to avoid a bias for buybacks.
Lead directors discussed how they manage CEO and director performance and leadership transitions. They reviewed some warning signs of CEO performance issues and shared approaches for improving performance while maintaining trust between the board and the CEO. Regarding individual directors, they noted the value of peer evaluations and touched on approaches to recruiting new directors. Finally, they discussed the challenges of CEO and lead director transitions, focusing on whether the outgoing CEO should serve as the board’s executive chair.
Glenn Booraem, fund treasurer and head of corporate governance at Vanguard, joined lead directors to discuss Vanguard’s investment philosophy, its engagement with boards, and several specific issues for engagement, such as proxy access, board composition, and activist investors. Mr. Booraem explained that Vanguard does not aim to be confrontational and rigid in its demands on companies and boards. Even as the firm seeks more rights for shareholders through tools such as proxy access, it also seeks to build a collaborative relationship with companies based on shared, long-term goals.
Andrew Ceresney, director of the Division of Enforcement at the SEC, met with lead directors and general counsel to discuss the ways that the Commission and public companies can work together to protect investors. The group discussed high priority areas for the SEC, the SEC’s enforcement policies, and the benefits and implications of self-reporting. In addition, lead directors and GCs held a separate discussion about dealing with whistleblowers.
Leaders at global enterprises recognize the opportunities to improve corporate performance by ensuring a positive corporate culture. Lead directors and GCs discussed what traits are critical to the success of an organization and how they can ensure those traits manifest themselves across sprawling enterprises. They also recognized that macroeconomic factors are forcing even the best, most established cultures to adapt.
Lead Director Network
Non-Executive Chairman, KBR