Newswise — In response to continuous developments in the realm of corporate governance, The Conference Board Governance Center has issued a new handbook to assist boards of directors in the performance of their duties.
The new Corporate Governance Handbook 2007: Legal Standards and Board Practices is an up-to-date compendium organized by the variety of functions in the director's job description, including: nominee selection and election process, diversification of professional expertise and background, delegation of authority to board committees, conduct of board meetings, adoption of governance guidelines, succession planning, engagement of outside compensation consultants, disclosure procedure and internal control oversight, strategy design and risk governance. A final chapter discusses what issues the board should consider to ensure appropriate D&O liability insurance coverage.
Due to the complexity of the legal environment and the pressure exercised by multiple constituents inside and outside the company, directors face today a number of challenging issues. Firstly, following the 2002 enactment of the Sarbanes-Oxley Act, there have been more than twenty major SEC rulemakings aimed at enhancing public disclosure, removing conflicts of interest, making management more accountable, reinforcing the authority and effectiveness of gatekeepers (outside auditors and securities analysts in particular), strengthening the pay-for-performance equation, and improving transparency.
"The haste and complexity of some rulemaking has created a strong need for interpretation and guidance in many areas," says Matteo Tonello, senior research associate, Governance Center and Directors' Institute, The Conference Board, and co-author of the report with Carolyn Kay Brancato, director, Governance Center and Directors' Institute, The Conference Board.
"With this Handbook, we have provided directors with a unique and easily accessible review of what their duties are if they sit on the audit committee, the compensation committee, get involved in strategy discussions, etc. This is the closest thing to a "best practices" guide because it is derived from The Conference Board's empirical research and Directors' Institute programs," adds Brancato.
The book also highlights the influence of shareholder activism in the boardroom, as The Conference Board Institutional Investment Report has been documenting throughout the last decade. Institutional investors, including large public and private pension funds and a growing number of other investment advisers, have been taking unprecedented steps to monitor the management of their portfolio companies. They have done so by advocating accountability, the adoption of higher standards of business integrity, and the expansion of shareholder rights.
"Today, certain institutional investors have more clout in the boardroom than ever before and are in a position to promote positive enhancement of corporate governance mechanisms in the companies of their portfolios. The 2007 proxy season speaks for itself: Investors expect board members, not regulators, to be the leading force in corporate governance in the future. At the same time, other newer types of activists such as hedge funds may press for changes based on short-term investment horizons, to the possible detriment of management continuity and long-term business growth," says Tonello.
"In these situations," concludes Brancato, "directors might be unsure of what they should do to adequately perform their fiduciary duties. What is necessary is a thorough board discussion of the specific circumstances the organization is facing as well as the adoption of the practices followed by their leading peers. This is what the Handbook delivers " in readily accessible summary format " thanks to the contributions we received from the influential corporate and investor members of our Governance Center and the experience of hundreds of board members participating in our Directors' Institute."
The Handbook is complemented by a set of practical appendices (including samples of corporate governance principles, board committee charters, board assessment questionnaires, guidelines for the selection of independent compensation consultants, and a comparative table of the corporate governance policies adopted by major shareholder groups in the United States) prepared by or in collaboration with leading companies and advisers such as: Davis Polk & Wardwell; FGIC Corporation; Frederic W. Cook & Co., Inc.; Intel Corporation; KPMG's Audit Committee Institute; Microsoft Corporation; Pfizer Inc; and PricewaterhouseCoopers. The publication of the Handbook was made possible thanks to the additional financial sponsorship by KPMG's Audit Committee Institute and Spencer Stuart.
Source: Corporate Governance Handbook 2007: Legal Standards and Board Practicesby Matteo Tonello, LL.M., Ph.D., and Carolyn K. Brancato, Ph.D.1405-07-RR
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About the AuthorsMatteo Tonello, LL.M., Ph.D., is senior research associate of The Conference Board Governance Center. A qualified attorney in New York and Italy, before joining The Conference Board he practiced corporate law at Davis Polk & Wardwell. Tonello advised the Italian Commission of Study on Corporate Transparency about the effects of the Sarbanes-Oxley Act on foreign private issuers, and contributed to the drafting of the two final reports by the Commission (A new securities law enacted by Italian Parliament in response to the Parmalat scandal, in December 2005, was largely based on the Commission's findings and related recommendations).
Tonello is the author of two books in Italian on the international convergence of corporate governance standards and the corporate veil piercing doctrine. For The Conference Board, he has authored a report on stock-market short-termism and a study of corporate governance best practices in family-controlled corporations. He has also co-directed a Working Group on ERM and was responsible for a research project on the role of U.S. corporate boards in risk and strategy oversight. He received a Master of Laws degree from Harvard Law School and a J.D. from the University of Bologna. He also earned a Ph.D. in Law from the St. Anna Graduate School of the University of Pisa (Italy) and was a Visiting Scholar at Yale Law School in 1997.
Carolyn Kay Brancato, Ph.D., is director of The Conference Board Governance Center and Directors' Institute and the author of two major books on corporate governance. She has been invited to speak on global trends in governance by leading corporate, investor and governmental organizations in more than 20 countries.
Before joining The Conference Board, Brancato was a securities analyst for a Wall Street brokerage firm, and later head of the Industry Analysis and Finance Section of the Congressional Research Service, United States Congress. In this position for nearly 10 years, she analyzed mergers and acquisitions, leveraged buyouts and major economic trends affecting U.S. industries for the United States Congress. She has also served as the executive director of the Columbia Law School Institutional Investor project, the staff director for the U.S. Competitiveness Policy Council's Subcouncil on Corporate Governance and Financial Markets, and as chief economist for Weil Gotshal & Manges, a major international law firm.
Brancato is a fellow of the Royal Society for the Encouragement of Arts, Manufactures & Commerce. She earned her B.A. degree in economics from Barnard College, Columbia University and her Ph.D. in public finance from New York University.
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