What You Need to Know After You Know It All
from
November/December 2006
by John Ward
Not so long ago—just back in 1999, in fact—Roger W. Raber, president and CEO of the National Association of Corporate Directors, came to expect an injured response when he talked to board members about director education, or, as he prefers to call it, professional development. “It wouldn’t be unusual for a director to say, ‘Hey, I didn’t get to this point in my life to have to go through education. I’m a director.’”
Not anymore. According to Raber, the NACD alone conducts “hundreds” of education programs, triple the number, he estimates, of 2002. Many other outfits today also provide director education, and it comes in many forms. They include university-based programs from schools such as Harvard, Stanford, the University of Chicago, and the Wharton School of the University of Pennsylvania; private seminars; specialized courses, like those on governance issues offered by law firms; and customized programs, such as a 10-hour session the NACD recently did for a major financial institution on matters particularly relevant to its board.
“I think most directors prefer it when somebody comes in-house and does a program on issues specific to their company,” says Paul Lapides, 50, director of the Corporate Governance Center at Kennesaw State University in Georgia and a member of three boards. “At the same time, in a public forum you’re going to get to meet a lot of directors you don’t know, and you’re going to learn from them, not from the speakers. There are advantages to both types, and it’s not like you have a limit.”
“Even someone who’s been the CEO of a public company and has served on four or five boards should be getting continual refreshers,” says Marilyn R. Seymann, 63, associate dean of the Arizona State University law school and a director of the consulting company Maximus Inc. “You need to know what’s new, what’s current. What are the changes in the laws? How are they going to affect you if you chair a committee? How are they going to affect your own personal liability as a director? I think these are a big motivation for people to get educated. You always walk away with one or two good ideas. I don’t think I’ve ever been at a program that I’ve taught at or attended where I didn’t come away with something I didn’t know.” For example, Seymann says, she learned and now teaches how to structure a board calendar for committee reports more efficiently. “You take every committee charter—audit, compensation, and so on—lay out a year’s worth of agendas, and assign a report on each agenda to a specific board meeting. It’s a very well-thought-out way to calendar so that every director is assured that the items that need to be covered by each committee are covered.”
Seymann prefers interactive programs in which the participants get involved with one another and “get a chance to learn best practices from people in the field. That’s the most practical.” She also likes those that use a lot of case studies but dislikes, as do many others, the condescension and lecturing tone of some programs. “A lot of director education,” she says, “is not being done in an appealing enough format that makes people excited to go—for example, when you have six lecturers in a row, each talking for an hour to an hour and a half, to the audience but mostly to themselves.”
The new interest in training plainly owes a lot to the Sarbanes-Oxley Act. “Right after SOX, public-company directors and general counsel realized how complicated the regulation was and how director education was so important,” says Nashville attorney Aubrey B. Harwell Jr., 64, a director of Piedmont Natural Gas. But he adds that the need goes well beyond one law: “Best board practices are evolving. It’s important for each of us to know what others are doing. I try to attend at least one director-education event a year”—most recently the annual Boardroom Summit sponsored by the New York Stock Exchange and
Corporate Board Member
. Among other valuable governance practices, he says, “I learned there how successful companies have established protocols and policies to identify and recruit new board members, rather than relying on the good-old-boy network.”
On the list of recently offered courses were a two-day NACD seminar (the topics included “What Has Changed: Directorship in the New Environment,” “Fiduciary Duties and Legal Liability Considerations,” and “The Changing Landscape of Director and Executive Compensation”), at a cost of $1,900 for NACD members and $2,400 for nonmembers, and a two-and-a-half-day program at the Directors’ Education Institute at Duke University (“Board Leadership and Effective Communication With Management” and “Recruiting, Evaluating, Compensating, and Replacing Board Members” were part of the agenda), for a fee of $3,750.
“This is a very fluid environment,” says Raber, “so you have to stay up on matters. Governance is not static—it is ongoing and is affected by the economic environment, by corporate malfeasance, by crisis and risk. Performance matrix. Where to go for outside advice. We never talked about those things a few years ago; now they’re on the front pages of newspapers. Backdating options is a big issue. A while back you could go to some directors and they’d say, ‘What the hell? Backdating
what?
’”
Adds Charles Elson, 46, director of the Weinberg Center for Corporate Justice at the University of Delaware and a member of the Alderwoods Group Inc., AutoZone Inc., and HealthSouth Corp. boards: “There’s a lot more awareness of governance issues in the general marketplace. I think for that reason we may have seen a proliferation of director-education courses. I also think the courses have gotten a lot better. They’re much more focused.”
Some programs are taught by professors. Others give practicing directors a leading role. “I think you learn as much from your peers as you do from someone outside the field,” Elson says. “To me, every director goes through common experiences. And you suddenly have an idea of how others deal with such things, and I think you’re able to respond more effectively. I think people pay more attention because there isn’t the view, ‘Oh, these are just academics who don’t have experience teaching me.’ These are actually people who went through these experiences. The world has changed quite a bit in the last couple of years, and I think it’s a good idea to go back for more education—whether on SOX or new judicial standards or, certainly, changes in investor attitudes and shareholder concerns. Investor expectation and legal duties are so important for directors to know.”
No figures exist to indicate what percentage of U.S. public-company board members have attended these courses. Paul Lapides and Roger Raber estimate it at only 10% at best. “Part of professional maturity,” says Lapides, “is knowing that you don’t know everything.” He has worked for years to establish how much directors need continuing education, alleging on the basis of anecdotal experience that a surprising number can’t answer such elementary questions as, “What is a director’s duty of care?” and “What is the business-judgment rule?”
Lawyer Bruce Mann, 70, is senior partner at Morrison & Foerster in San Francisco, a former member of the National Association of Securities Dealers board of governors, and a director of CEVA Inc., which licenses digital intellectual property to semiconductor and electronics companies. He concedes that “some directors clearly would not benefit from certain courses because of their own background and experience. For example, I know of directors who are corporate governance experts, and I certainly would not expect them to attend courses in governance by people who may have been their former students. But most directors are not people trained in corporate governance or in legal requirements. They are scientists, engineers, CEOs of other companies, people who have a wealth of practical experience but have not studied governance matters, for example. To be rounded directors and fulfill their obligations, they need to find out what best practices are. I think that the director-education programs today are better than any that have ever been available during my entire career.”
And more important than ever, too.
