President and CEO
National Association of Corporate Directors
Dear Mr. Daly:
The proxy season is now over. Consequently, this is a good time to discuss service on public boards. First, thank you for the tremendous resource that is the National Association of Corporate Directors (NACD)—an invaluable source of information about company boards and good governance practices (nacdonline.org). In this country, public capitalism is run by boards elected by shareholders, not appointed by government. In two decades of service on large and publicly held company boards, this has always struck me as the way things ought to be. And directorships are sought-after roles; people often ask to be included on corporate boards.
It is widely estimated that there are approximately 15,000 publicly held companies in the United States. Using an average of eight directors per company, that means there are approximately 120,000 public company director slots. Are these worth your time and effort? Figures recently compiled by California-based research firm Equilar show annual median pay for outside directors of Standard & Poor’s 500 companies to be $239,000. Of course, a large number of companies pay considerably less than this, and very few directors serve because of the money involved. That is basically true for two reasons.
First, directors of public companies get sued, and any review of directors’ and officers’ liability insurance premiums will show that they are increasing—just ask your friendly broker. Regulatory enforcement proceedings have proliferated and they, too, make up a great deal of directors’ (unpleasant) time.
Second, time requirements for board service have gone up dramatically. Clearly, the amount of time required varies widely from company to company, but the annual surveys done by Spencer Stuart and other large consulting firms show that the number of board meetings and committee meetings has risen sharply in the last 10 years. My own experience is that a large publicly held company will have five or six board meetings a year, and committee meetings an additional eight to ten times a year. The total workload (not counting travel) will, in an average year, exceed 600 hours. So directors are seeing an increasing workload, without attractive pay levels (Enron was an exception). How do you find work like this?
It is certainly true that governance or nomination committees of public boards hire search firms to find potential directors. In my experience, however, the surest way to be considered for a board position is to know the CEO. Quality CEOs generally know their industry, and they are usually pretty astute about people who are in a position to add value to their boards. The executive directors of trade associations also are pretty good people to ask about potential board positions. Finally, there are a number of ways potential directors can be seen by a broad audience of potential nominating committees; one is being named an Outstanding Director at this magazine’s annual event. And there are organizations devoted to helping women and minorities achieve board positions that can be enlisted in one’s quest.
Financial and audit backgrounds are in great demand for audit committees. I believe, in a pinch, you could run a company out of the audit committee, because its duties have been so expanded by recent laws and regulations. Legal and regulatory expertise is a big plus and much in demand by any regulated industry.
Finally, shareholder activism is at an all-time high. Various organizations like Glass Lewis and ISS (Institutional Shareholder Services) rate directors and suggest an up-or-down vote by shareholders on their election. Executive compensation now gets a great deal more scrutiny. It is not entirely uncommon for directors to be defeated or for heretofore widely heralded CEOs to suffer large numbers of negative votes (Jamie Dimon most recently). This adds a certain element of electoral unease to every annual meeting, particularly if one’s company’s stock price has been disappointing.
But I say serve if you can. The system of shareholder-owned capitalism and private governance of the majority share of our economy is at stake. In spite of the criticism by activists and overweening regulators at every turn, it is a job that is worthwhile and rewarding. There is real intellectual stimulation in trying to offer insight and oversight to management of a public company. Most of your fellow directors will be people whose company is worth keeping. It is work that is rewarding beyond your expectations, and I urge you to seek out those opportunities.
Vance K. Opperman
See You in the Next Proxy
Vance K. Opperman email@example.com is owner and CEO of MSP Communications, which publishes Twin Cities Business.