National Association of Corporate Directors

The National Association of Corporate Directors (NACD) is an independent, not-for-profit membership organization, dedicated to serving the corporate governance needs of directors of public, private, and non-profit organizations. Founded in 1977, NACD is headquartered in Washington, D.C. and serves approximately 10,000 members. NACD's stated mission is to achieve improved corporate performance through better board practice.

Role in the Corporate Governance Movement

In 2001 and 2002, the unexpected bankruptcies of Enron^[1] and WorldCom^[2] brought increased public and government attention to corporate governance and the role of the board of directors. In February 2002, Roger Raber, former CEO of NACD, was called to testify before House Energy and Commerce Committee, chaired by Billy Tauzin (R-LA), regarding the failure of Enron Corporation.^[3]. At request of Committee, Raber submitted 10 suggested standards, based on the Report of the NACD Blue Ribbon Commission on Director Professionalism (1996/2001/2005), for public company governance, submitting same to the New York Stock Exchange (NYSE) and the NASDAQ on May 1, 2002. In November 2003, the Securities and Exchange Commission approved new listing requirements for both, which were influenced by NACD’s recommendations.

The ten core recommendations are as follows^[4]:

• Boards should be composed of a substantial majority of independent directors. At a minimum, these directors should meet the definition of “independent director” as defined under relevant SRO standards, although boards may consider adopting even more stringent standards of independence. Furthermore, boards should formulate and adhere to clear conflict of interest policies applicable to all board members.

• Boards should require that key committees—including but not limited to audit, compensation, and governance/nominating—be composed entirely of independent directors, and are free to hire independent advisors as necessary.

• Each key committee should have a board-approved written charter detailing its duties. Audit committee duties, at a minimum, should include two key elements: a) oversight of the quality and integrity of financial reports and the process that produces them; b) oversight of the management of risk. Compensation committee duties should include performance goals that align the pay of managers with the long-term interests of shareholders. Governance/nominating committee duties should include setting board and committee performance goals and nominating directors and committee members with the qualifications and time to meet these goals.

• Boards should consider formally designating an independent director as chairman or lead director. If they do not make such a designation, they should designate, regardless of title, an independent member to lead the board in its most critical functions, including setting board agendas with the CEO, evaluating CEO and board performance, holding executive sessions, and anticipating and responding to corporate crises.

• Boards should regularly and formally evaluate the performance of the CEO, other senior managers, the board as a whole, and individual directors. Independent directors should control the methods and criteria for this evaluation.

• Boards should review the adequacy of their companies’ compliance and reporting systems at least annually. In particular, boards should ensure that management pays strict attention to ethical behavior and compliance with laws and regulations, approved auditing and accounting principles, and with internal governing documents. In addition to meeting the current requirements for disclosure of management compensation, boards should disclose the total value of each director’s compensation, including the value of any stock options or grants awarded during the year.

• Boards should adopt a policy of holding periodic sessions of independent directors only. These meetings should provide board and committee members the opportunity to react to management proposals and/or actions in an environment free from formal or informal constraints.

• Audit committees should meet independently with both the internal and independent auditors.

• Boards should be constructively engaged with management to ensure the appropriate development, execution, monitoring, and modification of their companies’ strategies. The nature and extent of the board’s involvement in strategy will depend on the particular circumstances of the company and the industry or industries in which it is operating.

• Boards should provide new directors with a director orientation program to familiarize them with their companies’ business, industry trends, and recommended governance practices. Boards should also ensure that directors are continually updated on these matters.

NACD and the Securities and Exchange Commission

• 2003-2004 Former NACD CEO Roger Raber and former NACD Chair B. Kenneth West co-signed three letters on Re: File Number S7-19-03 “Security Holder Director Nominations” (34-48626). December 22, 2003; March 9, 2004; and March 26, 2004. During this time NACD Board member Warren Batts appeared at an SEC Roundtable devoted to the topic.

• 2005- 2006 NACD Director Michelle Hooper wrote a letter (March 31, 2005) and participated twice at SEC-PCAOB Roundtables (April 2005 and May 2006) regarding internal control reporting and auditing provisions of Section 404 of the Sarbanes-Oxley Act. Another NACD Director, the Hon. Barbara Hackman Franklin, has similarly participated, under her own name, rather than as an NACD representative.

References

1. ^ "Spotlight on Enron". Securities and Exchange Commission. http://www.sec.gov/spotlight/enron.htm. Retrieved December 3, 2007. 
2. ^ "Spotlight on SEC v. WorldCom". Securities and Exchange Commission. http://www.sec.gov/spotlight/worldcom.htm. Retrieved December 3, 2007. 
3. ^ "Developments Relating to Enron Corp: Prepared Witness Testimony, Roger W. Raber". The House Committee on Energy and Commerce. February 6, 2002. Archived from the original on November 29, 2007. http://web.archive.org/web/20071129124130/http://energycommerce.house.gov/reparchives/107/hearings/02062002Hearing483/Raber783.htm. Retrieved December 3, 2007. 
4. ^ "Recommendations to Congress". National Association of Corporate Directors. Archived from the original on October 25, 2007. http://web.archive.org/web/20071025181012/http://www.nacdonline.org/nacd/enron_recommendations.asp. Retrieved December 18, 2007. 

External links

• National Association of Corporate Directors Homepage