The role and value of the lead director

July 2008

The LDN brings together a select group of lead directors, presiding directors, and non-executive chairmen of Fortune 500 companies for private discussions about how to improve the performance of their corporations and earn the trust of their shareholders through more effective board leadership. 

Roughly one-third of LDN members are the initial lead directors at their respective companies. Of the remaining two-thirds, half were nominated relatively recently to the position. Given this mix of seasoned and newer lead directors, members were eager to hear their fellow lead directors’ diverse perspectives on the topic of defining the lead director role. Members focused on the topics summarized below:

  • The origins of the lead director role
    LDN members discussed the catalysts behind the development of the lead director role. External factors, such as New York Stock Exchange (NYSE) listing requirements and increasing pressure from various stakeholders to separate the CEO and chairman roles, as well as internal factors, such as changes to a company’s leadership and directors’ own efforts to ensure board independence, have contributed to the appointment of a lead director at most U.S. public companies.   

  • Value of the lead director role
    Members devoted a significant portion of the meeting to articulating ways in which lead directors add value to their companies that are rarely described in the charters or a company’s disclosure documents. Members identified three in particular: first, by helping to develop a high-performing board, second, by building a productive relationship with the CEO and between the CEO and their directors, and third, by supporting effective shareholder communication – a role that is likely to grow in the future.  

  • How the title affects the role
    Members analyzed the different meanings that lie behind the use of the three differing titles – “lead director,” “presiding director,” and “non-executive chairman” – and how the different titles relate to the responsibilities of the role. Although the title may signal differences in how the lead director is perceived by the board of directors, members concluded that lead and presiding directors often have essentially the same portfolio of responsibilities. The non-executive chairman, in contrast, usually assumes a larger role in company and board leadership.  

  • Current issues for lead directors
    Members identified five topics that they feel are important for lead directors and that they will discuss in more depth in future LDN meetings:
    (1) board engagement in corporate strategy
    (2) the lead director’s role in crisis management
    (3) the lead director’s role in succession planning
    (4) improving director and CEO evaluation processes, and (5) alternative governance models.