Virtually all large public US companies have appointed an independent director to the role of lead director, presiding director, or non-executive chairman. Regardless of title, these individuals play a key leadership role in ensuring effective, independent oversight of the company.
Much ink has been spilled debating whether boards should separate the roles of CEO and chairman and whether or not this would strengthen the board’s independence. However, the debate misses a critical point: in practice, the roles of lead director and chairman have converged in leading US companies. The lead director maintains core responsibilities, such as involvement in agenda setting, chairing executive sessions, providing feedback to the CEO after executive sessions, and helping to shape boardroom dynamics.
Lead directors are quick to point out that effective board leadership is situation-specific. However, strong board leaders are highly effective communicators who help keep board dialogue focused on the most strategic matters. They ensure that individual directors’ full expertise is brought to bear in the board’s oversight of strategy. And they ensure the board’s views are synthesized and communicated clearly to management.
Leading the board toward superior performance
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.
Board and management oversight of corporate culture
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.
Audit committee composition
EACLN members met with Dominic Schofield of Korn/Ferry International to discuss audit committee composition and recruiting. Participants noted that the growing responsibilities of audit committees have expanded the range of skills and expertise needed in the committee, even as core skills remain critical. To secure these skills in an environment of gender quotas and other constraints, boards are turning to longer term succession planning and alternative pools of candidates.
Effective board and committee leadership
Members of the Lead Director Network and Audit Committee Leadership Network met jointly in June 2013 to discuss effective leadership of boards and committees. The directors focused on committee coordination, how to match directors with board roles such as audit committee chairman and lead director, and the issues surrounding director rotation, retirement, and removal.
Case study: Proxy battle at Canadian Pacific Railway
Canadian Audit Committee Network members explored the Canadian Pacific Railway proxy battle with a focus on how the company's board responded to the challenge posed by an activist investor. Members offered each other lessons learned about performance assessment, board dialogue with the CEO about performance, board access to shareholders' views, and the critical role board culture plays in the face of major change.
Enhancing audit committee effectiveness
Boards, shareholders, and regulators are all raising the bar on their expectations for audit committees. Audit chairs are working to enhance their committees' effectiveness by improving processes, ensuring that high-quality information flows to and from the committee, and strengthening relationships with management and the external audit firm, according to members of the Southwest Audit Committee Network.
The role and value of the lead director
The institutionalization of the lead director role has been called "the most important governance reform of recent years." Lead directors gathered to discuss the evolution and importance of their role, the challenges they face, and key issues in becoming effective board leaders.