How do the technical skills and expertise present among your board’s members compare with the skills and expertise reported by public companies in the Society of Corporate Secretaries and Governance Professionals’ “2011 Board Practices Report”?

Public companies’ boards have been focusing on board composition as a result of SEC proxy rules adopted in 2010, requiring disclosures explaining what qualifications boards take into account in nominating candidates for election as directors and what skills and expertise the existing directors offer to the company.

Acredula has been a leading advocate for an “expertise” board. An “expertise” board is composed of persons each having particular experience, skills, or expertise needed for the board to have, as a whole, all of the experience, skills, and expertise necessary to achieve its future objectives. This is in contrast to a “constituency” board, which is composed of persons who represent the view of a particular constituency (such as the US Congress or a state legislature). We endorsed the 2010 SEC proxy rules increasing disclosures about board composition and are encouraged with the results on technical skills and expertise being reported by public companies in the Society’s survey.

Below are the skills and expertise present among board members reported by public companies in the Society’s survey:

Percent of companies reporting they have the following technical skills and expertise present on their boards:

% of companies		Technical skills and expertise reported
17%		Operations
16%		International business exposure
15%		Risk management
14%		Mergers and acquisitions
14%		Industry experience
13%		Corporate governance
9%		Business restructuring
9%		Marketing
7%		Other financial services
7%		Compensation and benefits
6%		Investment banking
6%		Juris doctor (lawyer)
5%		Certified public accountant
5%		Human resources
5%		Commercial banking
4%		Engineering
4%		Public relations
4%		Management consulting
3%		Technology or IT
3%		Research and development
3%		Environmental and sustainability
2%		Medical profession
1%		Certified financial analyst
1%		Medical doctor (e.g., MD, DO, DDS)

The Society’s survey reported little distinction between boards with more than 10 directors and those less than 10 in terms of technical skills and expertise. However, the survey did find that non-financial services boards were more likely to have directors with skills and expertise in areas of operations, international business exposure, mergers and acquisitions, risk management, and corporate governance. This is a bit contrary to our experience with financial services boards with respect to risk-management and corporate-governance skills and expertise.

The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”

Next week, we will focus on board composition by reviewing board composition in terms of professional career and work experience.

How do your board practices compare with other private and public companies in planning for CEO succession?

This is the eighth and final posting in our series on the results of the Society of Corporate Secretaries and Governance Professionals’ “2011 Board Practices Report”, which we have used as a benchmark to compare your board’s governance practices.

CEO Succession Planning

Below are the results of the Society’s survey of the following questions regarding CEO succession planning:

Generally speaking, the most important responsibility of a board of any organization is its selection of the CEO: Assuring, in the word of Robert Joyce, recently retired CEO of Ohio Farmers Insurance Company, that the “right person is in the right job.”

That responsibility; however, should not stop after selecting a CEO. The board has a continuing responsibility to assure that both the board and management know who is in charge if the CEO is unable or no longer available to serve in that position. This requires both a short-term plan for what happens if the CEO becomes ill or is otherwise out of day-to-day communication with the organization as well as a long-term plan for the CEO’s training, or helping the board to find, the CEO’s ultimate successor.

Not surprisingly, all public and private companies reporting in the Society survey report their companies have CEO succession plans.

Public company boards are more likely to have the full board review the succession plan at least annually, with 93 percent of public-company directors reporting doing so as compared to 70 percent of private-company directors reporting doing so.

The responsibility for assuring that a plan exists generally rests with the board as whole, with 37 percent of public company directors, and 48 percent of private-company directors, reporting this is the responsibility of the entire board. Nevertheless, 24 percent of both public-company and private-company directors report that this is a responsibility of the compensation committee.

Finally, only 21 percent of public-company directors and 22 percent of private-company directors report that their succession plan is the responsibility of their board chair (or lead outside director) or their CEO.  Our experience has been that, before the year 2000, a greater percentage of companies would have reported that the succession plan was the responsibility of the board chair and CEO.

The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”

Although this completes our eight-part series of blogs on the board practices reflected by the Society’s Report, we will have two more postings based upon the Society’s survey: one reflecting the types of expertise and training present among the directors of the board of the reporting companies and the other reflecting the career and working experience present among the directors of those same boards.

Compare your board’s practices regarding setting strategic direction and overseeing its associated risks with this benchmark

How do your board practices compare with other private and public companies in setting strategic direction and overseeing the risks associated with that direction?

This is the seventh of eight postings of the results of the Society of Corporate Secretaries and Governance Professionals’ “2011 Board Practices Report” to be used as a benchmark to compare your board’s governance practices.

Strategy and Risk Oversight

Below are the results of the Society’s survey of the following questions regarding strategy and risk oversight: 

Survey Questions by Area of Governance	Public Companies	Private Companies
Strategy and Risk Oversight
1.        How often are strategic objectives discussed with the board?	19% annually 18% quarterly 52% at every meeting	33% annually 29% quarterly 38% at every meeting
2.        How is strategy set at your company?	92% management develops and board advises and approves 6% board and management develop strategy together 0% board develops strategy	95% management develops and board advises and approves 5% board and management develop strategy together 0% board develops strategy
3.        Who is primarily responsible for oversight of risks for your company (select all that apply)?	13% special board risk committee 48% audit committee 48% spread over more than one board committee 57% full board is responsible 0% no formal policy for board oversight or risk	10% special board risk committee 57% audit committee 19% spread over more than one board committee 48% full board is responsible 0% no formal policy for board oversight or risk
4.        Does your company align risk management with the company’s strategy (so that setting strategy takes into account risks, and managing risks takes into account strategy)?	88% yes 10% no 2% don’t know	81% yes 5% no 14% don’t know

One of the most important responsibilities of a board of any organization is assuring that the organization has an “understood” strategic direction that takes into account risks. In 2009, the faculty of Harvard Business School’s Corporate Governance Initiative interviewed 45 board members of financial institutions and similar complex organizations contributing to, or affected by, the credit crisis and subsequent recession. The results of the interviews are reflected in the paper, “Perspectives from the Boardroom – 2009,” written by Jay Lorsch of Harvard’s faculty.

According to the paper, the two contributing causes most frequently cited by the interviewed board members were:

• The lack of guidance given to the boards and its members as to the role of the board and each of its members with respect to management of the organizations

• The lack of understanding by the board of the business model and strategic direction of the organization

The paper uses the term “understanding” because it expresses what the directors seemed to be seeking.  The paper’s most definitive statement is a quote from one of the interviewed board members:

“My experience is that it’s of utmost importance that the board has a full understanding of the business model . . . entry barriers, competitors, technological changes and so on. A full understanding of the business model — which includes, of course, what are competitors doing, what are the trends in the market and so on.”

So, the Society’s 2011 Report may reflect greater involvement by the board in “understanding” the organization’s strategic direction so that it can consider risks in light of that direction and vice versa. 88 percent of directors of public companies and 81 percent of directors of private companies reported that their companies align risk management with the company’s strategy so that setting strategy takes into account risks, and managing risks takes into account strategy.

The survey reflects that boards rely upon management in setting the strategic direction with 92 percent of directors of public companies and 95 percent of director of private companies reporting that management develops and the board advises and approves the direction.

The survey reflects that boards assume more initiative in risk oversight than they may in setting strategic direction. Accordingly, the responsibility for risk oversight is spread among (i) the board as a whole (as reported by 57 percent of public-company directors and 48 percent of private-company directors) and (ii) more than one of the board’s committees (as reported by 48 percent of public-company directors and 19 percent of private-company directors). Of board committees, the audit committee remains the principal risk oversight committee (as reported by 48 percent of public-company directors and 57 percent of private-company directors).

The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance website at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”

Our next and final posting in this series will focus on board involvement with CEO succession planning.

Compare your board’s practices regarding board evaluations with this benchmark

How do your board practices compare with other private and public companies regarding board evaluations?

This is the sixth of eight postings of the results of the Society of Corporate Secretaries and Governance Professionals’ “2011 Board Practices Report” to be used as a benchmark to compare your board’s governance practices.

Board Evaluations

Below are the results of the Society’s survey of the following questions regarding board evaluations:

Survey Questions by Area of Governance	Public Companies	Private Companies
Board Evaluations
1.       Does your company’s board have a formal board evaluation process?	96% yes 4% no	60% yes 40% no
2.       If so, who is evaluated in the process (mark all that apply)?	79% each director as to himself or herself 31% each director as to other directors 88% board committees 95% board as a whole	60% each director as to himself or herself 29% each director as to other directors 38% board committees 48% board as a whole

96 percent of public companies report having a formal board evaluation process as compared to only 60 percent of private companies. In our experience, both public and private companies are increasingly having formal board evaluations. The reason more public companies are doing so currently may be the result of increased SEC proxy requirements for discussion of the specific experience, qualifications, attributes, or skills.

Of companies having formal board evaluation policies, most (79 percent of public companies and 60 percent of private companies) have each director evaluate him- or herself.  A self evaluation question that we find generates some of the most useful information is “what competencies or experience do you have that may not be known by others, but may be helpful to the company, the board, or management?”

Less than one-third (31 percent of public companies and 29 percent of private companies) have directors evaluate themselves or their peers.  Although boards (69 percent of public companies and 71 percent of private companies) avoid peer evaluations for fear of harming their internal “chemistry,” we generally find peer evaluations will reflect whether such perceived “chemistry” is genuine.  In addition, peer evaluations can be instructive to reinforce behavior perceived as constructive and deter behavior perceived as non-constructive, resulting in better chemistry.

The board evaluation processes of public companies are more likely process oriented with 95 percent reporting they evaluate the operations of the board as a whole and 88 percent reporting they evaluate the operations of board committees.

Of companies having formal board evaluation policies, about 25 percent report that the evaluations are led by a third-party facilitator. However, this is an increase from 2008 when only 15 percent reported being led by a third-party facilitator.

The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”

Our next posting will focus on board involvement with strategy and risk oversight.

How do your board practices compare with other private and public companies regarding board orientation and training?

This is the fifth of eight postings looking at the results of the Society of Corporate Secretaries and Governance Professionals’ “2011 Board Practices Report” to be used as a benchmark to compare your board’s governance practices.

Board Orientation and Training

Below are the results of the Society’s survey of the following questions regarding board orientation and training:

Although the survey reflects that 77 percent of public companies, compared to only 48 percent of private companies, have a formal orientation program for new directors, our experience is that most hospitals and similar health care institutions have formal orientation programs because independent, or at least outside, directors typically compose at least a majority of their boards.

Most board orientation programs are provided in-house by management. Under most states’ laws, directors may rely upon such in-house programs as long as the directors believe that management is reliable and competent in what is presented. Directors can typically ascertain reliability and competence by simply asking questions during the program.

Public companies recognize the value of encouraging directors to attend outside programs because 65 percent report reimbursing directors for attending such programs. In our experience, the greatest value of an outside program is that directors can talk and compare experiences with directors of other companies.  Programs, including discussion groups or panel discussions, which are sponsored by the National Association of Corporate Directors, the National Association of Mutual Insurance Companies, and other trade associations are rated well by directors. 

Other programs include the Annual Boardroom Summit sponsored by the New York Stock Exchange and Corporate Board Member magazine, and the Corporate Governance Conference sponsored by Northwestern University’s Kellogg Graduate School of Management.

The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”

Our next posting will focus on board evaluations.

How do your board practices compare with other private and public companies regarding audit committee practices?

This is the fourth of eight postings of the results of the Society of Corporate Secretaries and Governance Professionals’ “2011 Board Practices Report” to be used as a benchmark to compare your board’s governance practices.

Audit Committee Practices

Below are the results of the Society’s survey of the following questions regarding audit committees:

Audit committee practices have been universally adopted by public and private companies because public accounting firms have required implementation of standard practices by all of their audit clients as a result of the Sarbanes-Oxley Act of 2002.

Audit committees remain the meeting most frequently held in corporate America with 47 percent of the surveyed companies having audit committees that meet bimonthly or monthly during each year. At 8 percent, public companies have a higher percentage of audit committees which meet monthly compared to private companies which had 1 percent of their audit committees meet monthly.

Perhaps surprisingly, public companies average only slightly more members on their audit committees than private companies with public companies having an average of 6.3 members and private companies having an average of 5.8 members.

Due to the importance of audits to public companies, it is not surprising that 99 percent of the surveyed public companies report that their external auditors attend all of their company’s audit committee meetings (including those that meet monthly), while only 62 percent of the surveyed private companies report such attendance by their external auditors.

98 percent of the surveyed public companies, and 95 percent of the surveyed private companies, report that their audit committees meet separately with members of management. Public companies (84 percent of those surveyed) are more likely to do so at each audit committee meeting than private companies (59 percent of those surveyed). We generally recommend as a best practice that the audit committee meet in separate executive sessions with each key person in the audit and financial statement preparation process.

There is more disparity between public companies and private companies as to which members of management are met. Both public and private meet with the internal audit head (90 percent of the surveyed public companies and 68 percent of the surveyed private companies) and the CFO (79 percent of the surveyed public companies and 63 percent of the surveyed private companies).

We are surprised more audit committees do not meet separately with the CEO (only 45 percent of surveyed public companies and 37 percent of surveyed private companies meet separately with the CEO). Finally, we are disappointed that more audit committees do not meet separately with the general counsel or chief legal officer (50 percent of surveyed public companies and 32 percent of surveyed private companies) and chief compliance officers (32 percent of surveyed public companies and 21 percent of surveyed private companies).

The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”

Our next posting will focus on board orientation and training.

How do your board practices compare with other private and public companies regarding structure of the board’s committees?

This is the third of eight postings of the results of the Society of Corporate Secretaries and Governance Professionals' “2011 Board Practices Report” to be used as a benchmark to compare your board’s governance practices.

Board Committee Structure

Below are the results of the Society’s survey of the following questions regarding board committee structure:

The number of committees of any organization is generally dependent upon the number of directors on its board.  Some state’s corporation laws, such as Ohio’s, require a committee to consist of at least three directors if the board intends to be able to rely upon that committee for the purposes of the board’s state-law right of reliance. Our experience is that Sarbanes-Oxley has resulted in most of corporate America having an audit committee, which is reflected by 100% of the public companies and 98% of the private companies surveyed.

Compensation committees have increased similarly in number except among closely held companies.  The reason for this growth is the influence of hospitals and banks in the communities they serve.  Intermediate sanctions under federal tax laws and state and federal banking laws have required boards of hospitals and banks to delegate compensation decisions to a committee that is free of conflicts of interest.  Those directors of hospitals and banks have spread that mindset to other organizations. As a result, 100% of public companies and 98% of private companies surveyed have compensation committees.

Executive committees (defined here as committees that can act with the authority of the board between meetings of the board) have decreased in number over the last decade. We find that there are two reasons it has become much easier to have a quorum of directors for a meeting of the board because (i) the average number of directors of boards has decreased from 15 to 11 and (ii) proliferation of cellular phones and other personal digital equipment, such as iPhones and iPads, many including cameras, facilitates presence by telephonic equipment.

Public companies are more likely to have governance and nominating committees than private companies (99% of public companies versus 45% of private companies).

The question on who has responsibility for appointing the committee is new for 2011 and we can find results only for the public companies surveyed.  Our experience is that 33% of private companies have the board chairperson appoint the members of the committee.

There appears to be an increase in public companies that, as a matter of policy, rotate committee membership (from 19% in 2008 to 23% in 2011). Most of corporate America does not, as a matter of policy, rotate either committee chairs or members.

The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”

Our next posting will focus on audit committees.

How do your board practices compare with other private and public companies regarding the independence of the board, its chair and committee chairs?

This is the second of eight postings of the results of the Society of Corporate Secretaries and Governance Professionals “2011 Board Practices Report” to be used as a benchmark to compare your board’s governance practices.  The first posting – on board selection, recruitment and composition – is under “Feb 29, 2012” below.

Independence of the Board, Its Chair and Committee Chairs

Below are the results of the Society’s survey of the following questions regarding independence of the board, its chair and committee chairs:

The number of companies splitting the positions of chairperson and CEO as a matter of policy has increased from 17 percent of those surveyed in 2008 to 45 percent in 2011.  This increase is being driven by 48 percent of public companies as compared to 38 percent of private companies that had split roles in 2011.  Similarly, the number of companies that have a formally designated outside director has increased from 10 percent in 1999 to 49 percent in 2011, which is probably also driven by public companies.

The evaluation of the board chairperson is a new question for 2011, but our experience is that the number of companies, especially pubic companies, evaluating the chairperson is increasing, but less than one-third of public or private companies are currently conducting such evaluations.

As a matter of policy, most companies do not rotate the person serving as board chairperson except to the extent of a term limit or mandatory retirement age that is generally applicable to all directors.  As reported in our February 29, 2012, blog on “Board Selection, Recruitment and Composition,” 70 percent of public companies and 43 percent of private companies had a mandatory retirement age, with the average age being 72 years.

Although the Society has not made available historical data prior to 2008 on the number of independent directors, our experience is that the number of independent directors increased significantly from 1999 through 2008, and the survey shows the average number of independent directors remained steady thereafter with an average of 9.7 in 2008 and 9.6 in 2011.

The number of insider officers other than the CEO who serve on boards has decreased from 40 percent to 11 percent of those surveyed from 1999 to 2011.  Although the percentage of boards that have their chief operating officers as members has remained consistent over that period, boards in which the CFO serves as a member have decreased from 6 percent to 2 percent, and boards that have the general counsel or chief legal officer serve as member has decreased from 2 percent to 0 percent of those surveyed from 1999 to 2011.

The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”

Our next posting will focus on the independence of the board committee structure.

How do your board practices compare with other private and public companies regarding board selection, recruitment, and composition?

This is the first of eight postings of the results of the Society of Corporate Secretaries and Governance Professionals “2011 Board Practices Report” to use as a benchmark to compare your board’s governance practices. The Society’s 2011 Report is useful because it reflects the survey results separately for public companies and private companies that can be used for evaluating the current governance practices of any organization. The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”

The postings will focus on each of the following:

1. Board Selection, Recruitment, and Composition
2. Independence of the Board and its Chair and Committee Chairs
3. Audit Committees
4. Board Orientation and Training
5. Board Evaluations
6. Strategy and Risk Oversight
7. Succession Planning
8. Board Meetings

Board Selection, Recruitment and Composition

Below are the results of the Society’s survey as to the following questions regarding board selection, recruitment, and composition:

Use of written criteria in selection of directors has increased from 35 percent of all companies in 1999 to 78 percent of public companies and 57 percent of private companies in 2011. Likewise, but not quite as dramatically, use of a skills matrix has increased from 21 percent of all companies in 1999 to 62 percent of public companies and 33 percent of private companies in 2011. In 2011, the gap between public companies and private companies in the use of a skills matrix may be the result of increased SEC proxy requirements for discussion of the specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director in light of the registrant's business and structure.

Perhaps because of their increased use of a skills matrix and written criteria in selecting directors, public companies use search firms more than private companies. Public companies also rely more on a mandatory retirement age for directors than private companies to change board composition.

Our next posting will focus on the independence of the board, its chair, and committee chairs.

In an effort to help attract and retain good board members, almost all organizations carry directors and officers liability (D&O) insurance, providing officers and boards with protection against claims for their service to the organization. The questions in the heads of most directors today, given the economic times we are living in coupled with the litigious nature of the business world, is whether the organization’s D&O policy will be enough? 

That’s where independent director liability (IDL) may make sense. IDL has been a growing trend over the past couple of years, and received a spike in attention after the Delaware decision in Schoon v. Troy in mid-2009. IDL is a specialized form of D&O that’s sold separately from a standard D&O policy. It protects only the directors and would pay out even if all limits within a company’s D&O policy were exhausted. These policies have been around for several years now.

There are a few reasons that weigh in favor of standalone insurance protection for independent directors and there is an increasing interest by independent directors in coverage that protects only a company’s independent or outside directors, not its officers.
 
IDL insurance may be a useful tool for protecting and retaining the best talent and attracting high quality independent directors. Among other reasons suggesting the need for IDL protection is the increasing susceptibility of traditional D&O insurance limits to erosion or depletion through defense expense or indemnity protection for other persons insured under the D&O policy. 

As we have discussed in a past edition of Acredula, most D&O policies have three broad types of coverage:
• Side A, which pays for claims against directors and officers who are not indemnified by the company;
• Side B, which reimburses the company for indemnified claims; and
• Side C, which covers securities claims against the company.

The biggest concern for independent directors should be when they are named individually in a lawsuit with the officers. Most times the directors are not the initial focus of the plaintiff and they are sitting on the sidelines watching the limits erode as the plaintiff attacks the officers. If this is a concern, then IDL makes sense.

An IDL policy can be designed to cover all the independent directors on a single company’s board, or protect one individual for all the boards on which he or she serves. The most common, though, is the former where the policy covers all independent directors on a single company’s board.
While it will likely take a significant event to erode a policy’s limits, and thus the need for IDL may be small, it is when this significant event occurs that the policy may be needed the most.  

Larger organizations with significant financial resources have been the primary purchasers of IDL over the past couple of years. However, more organizations are considering such policies. An IDL policy, in addition to financial benefits, can provide additional peace of mind to directors as well as another tool for an organization to utilize trying to recruit the best and brightest to fill an expertise gap on their board. 

For most outside of the governance arena, the corporate secretary is viewed simply as the designated minute taker for the corporate board.  This could not be further from the truth.  Corporate secretaries should be trusted advisors who provide the organization with guidance and ensure the company is in compliance with regulatory issues.

While serving as a governance professional in support of the board of directors and corporation itself, the corporate secretary must maintain traditional responsibilities for entity management, corporate records administration and compliance; however, their role today is much greater. 

Today’s business climate’s focus on risk and the current culture of compliance have further impacted the role of the corporate secretary.

With the increased focus on corporate governance practices in light of the financial crisis and the legislative and regulatory response by the Securities and Exchange Commission (SEC) and Dodd-Frank, boards are under pressure to adapt quickly. Failure to adapt and take appropriate steps to create sound governance practices will have a direct negative impact on the entity, its profits, risk management and oversight as well as its perception in its industry.

More than ever, boards are juggling multiple responsibilities, including oversight of the CEO and the organization; succession planning for the board and management; advancing the strategic mission of the organization; and duties to stakeholders, including shareholders for corporations, members or those served by the mission of a tax-exempt entity, or policyholders of mutual insurance companies.

With so much on their plates, how can directors adequately focus on corporate governance best practices? As we have discussed in posts over the past several years director training and education is part of the answer. The other part is as access, whether on the board or through paid advisors, to the requisite expertise needed by the organization to meet its strategic plans.  This is where the corporate secretary’s role has evolved.  The corporate secretary can play a critical role in the oversight of the board practices, planning of education programs and managing the access to experts. 

Beyond taking minutes and other oversight of board practices to ensure appropriate records meet legal compliance, directors should look to the corporate secretary to provide expert counsel on governance issues before taking action, both in and out of the boardroom.  

Sarbanes-Oxley and the intense focus on corporate governance have served to give the position a central role in the organization's compliance obligations. Today, there is a recognition that the organization must be able to track and justify every action that occurs as any action could lead to a potential litigation. In order to do so, there must be a process which functions with accuracy and is based on solid governance principles.  One thing a corporate secretary cannot do is lock the courthouse doors.  That being said, the corporate secretary can ensure that the decision making process followed by the board is appropriate. 

In most instances, it is the decision making process of the board that will be evaluated as opposed to the actual decision of the board. Since discovery and trial on the merits of any matter will not occur for several years after the act occurred, the process taken plays a key role.  Think “objects in the rear-view mirror may appear closer than they are.”  Everything looks different looking back.  This is also true with regard to board decisions.  Three to five years after a matter finally makes it to trial, it may look different than anyone remembers, but the process will not look different and the corporate secretary can provide a valuable service by overseeing this process.

As with all governance practices, what may be a best practice for one organization may not be a best practice for your organization. As such, the role of the corporation for one entity will be different than a separate company.  It is critical that all organizations carefully define (and communicate) the expected role and responsibilities of the corporate secretary to provide appropriate support and training, and to make certain that the right individual occupies that position within the organization.  Similarly, this will aid the board in understanding how to properly utilize the corporate secretary. 

The corporate secretary is and will continue to play an increased role going forward.  Organizations need to embrace this role and start filling the corporate secretary position with those individuals with the appropriate expertise, or access to outside professionals with the appropriate expertise. Directors need to take full advantage of what the corporate secretary can offer.

Like a board of a corporation, the Board of Trustees of Pennsylvania State University (Penn State) is the highest authority of the university with “complete responsibility for the government and welfare of the university and all the interests pertaining thereto including students, faculty, staff and alumni.”  When its president and head football coach apparently ignored and attempted to bypass the Board’s authority, the Board acted quickly and decisively.  Through a designated spokesperson, they dismissed both the president and the coach and then appointed a special, independent committee to investigate in order to protect further loss to the university’s most valuable assets – its reputation.

The president’s ill-advised press release

An article entitled “An Icon Falls, a President with Him,” by Brad Wolverton in the November 10, 2011 issue of The Chronicle of Higher Education (Chronicle) contains a detailed and objective account of the incidents and events leading to the actions by the Board.  On the same day, November 4, 2011, that prosecutors filed 40 charges against Penn State’s former assistant coach, Jerry Sandusky, for sexual abuse of eight boys over 15 years, Penn State President Graham Spanier issued a statement that, according to the Chronicle, “defend[ed] his top officials but barely mention[ed] the victims:”

Soon after the news broke, on November 4, Mr. Spanier issued a statement defending his top officials but barely mentioning the victims.  "Tim Curley and Gary Schultz operate at the highest levels of honesty, integrity, and compassion," Mr. Spanier said.  "I am confident the record will show that these charges are groundless and that they conducted themselves professionally and appropriately."  Those would be the last words he would say publicly as the university's president.

However, President Spanier’s statement apparently was not authorized by, or reviewed with the Board.  Worse still, it ignored facts that he should have known or taken the time to learn.  The Chronicle sets forth a chronology showing that Penn State’s Athletic Director Tim Curley and Senior Vice President of Finance and Business Gary Schultz each apparently had knowledge of incidents of sexual abuse by Mr. Sandusky since 1998:

• In 1998, the mother of an 11-year-old boy reports to Penn State police, who ultimately reports to Mr. Schultz, that Mr. Sandusky touched the boy inappropriately in Penn State’s football locker rooms.
• In 1999, Mr. Sandusky allegedly sexually assaulted a boy multiple times in the newly built Lasch football building.
• In 2000, a Penn State janitor told his supervisor that he saw Mr. Sandusky performing oral sex on a boy in football locker room’s shower.
• On March 2, 2002, a football graduate assistant advised Coach Paterno that the he saw Mr. Sandusky sexually assaulting a boy who appeared to be about 10 years old in the locker room’s shower.  On March 3, 2002, Paterno informs his immediate supervisor, Mr. Curley, about the incident.
• In 2008, the mother of a high school freshman reports to high school officials, who informed the police, that Mr. Sandusky had engaged in inappropriate sexual conduct with the boy on multiple occasions.

Pennsylvania’s child-abuse reporting statute mandates reporting to the Pennsylvania Department of Public Welfare when notified by any staff member of an incident of child abuse.

The result of the president’s statement despite the numerous incidents of abuse as well as the statute mandating reporting was significant damage to the university’s most valuable assets – its reputation.  According to the Chronicle, in the days following the president’s statement, Penn State received “nonstop pounding in the national spotlight – the New York Time[s] alone had sent four reporters here while hundreds more reporters and cameras parachuted in.”  Penn State’s Board of Trustees apparently first learned of the incident through the news media rather than the president.

The coach’s ill-advised attempt to bypass the Board’s authority

On November 9, 2011, Coach Paterno issued statement “announcing my retirement effective at the end of this season,” which is certainly within his right to do and to announce.  However, it inappropriately attempted to bypass the Board’s authority by additionally stating:

“At this moment the Board of Trustees should not spend a single minute discussing my status. They have far more important matters to address.  I want to make this as easy for them as I possibly can.”

The coach publicly challenged the authority of the Board.

The Board takes action

According to the Chronicle, by the time of Paterno’s announcement, Penn State’s Board “had had enough,” and it dismissed both President Spanier and Coach Paterno effective the evening of November 9, 2011.

The Chronicle cites an article by ESPN commentator, Howard Bryant, Penn State’s culture of “protecting the power” helped prevent “timely reporting the incidents to authorities and the adequate sequestration of Mr. Sandusky from Penn State facilities.”  The power being the football program “which brings in more than $70-million a year.”

The Board has a duty of care to protect the university’s assets, the most valuable of which is its reputation.  In so doing, the Board is to act in the best interest of the university as whole, and not in the interest of just its football program, its legendary coach, or its popular president.  Accordingly, the Board fulfilled its duty by acting quickly and decisively.

The indictments were announced on November 4, the president’s ill-advised press release was also issued on November 4, the coach’s statement attempting to bypass the board was made the morning of November 9, and the Board discharged both the president and the coach during the evening of November 9.  The Board made its dismissals without waiting for the results of any investigation or prosecutorial action.  It did so through a single spokesperson, the Board’s vice chairman, who was flanked by his fellow Board members.

The Board then commenced its own investigation by appointing a special investigative committee headed by two independent trustees, Kenneth Frazier, CEO of pharmaceutical company, Merck & Co., and Ronald Tomalis, the Pennsylvania secretary of education.  On November 21, 2011, the investigative committee announced that it “has engaged former FBI Director and federal judge Louis J. Freeh to lead an independent investigative review into all aspects of the university’s actions with regard to the allegations of child abuse,” and that Mr. Freeh’s “findings and recommendations . . . when completed will be made available to the public.”

An independent investigation by the Board will likely be more valuable to the survival of institution than any prosecutorial investigation if its subject includes the culture of the institution.  A prosecutorial investigation will only impose criminal sanctions against those responsible for past actions or inactions.  To emphasize that everything is subject to the investigation, Mr. Frazier, the special committee’s head, stated at the time of Mr. Freeh’s appointment:

“The entire Board of Trustees is intent on taking all steps necessary to ensure that our institution never again has to ask whether it did the right thing, or whether or not it could have done more.  We are committed to leaving no stone unturned to get to the bottom of what happened, who knew what when, and what changes we must make to ensure this doesn’t happen again.”

The Board’s actions have been quick and decisive.  It had to assume responsibility for preserving the reputation of the institution of the university.  Time will tell whether these actions will be effective.

Since the adoption of Sarbanes-Oxley in 2002, governance commentators, including organizations representing institutional investors, have urged separating the position of the CEO from that of the board chairperson.  For example, one of the governance policies of the Council of Institutional Investors is that:

The board should be chaired by an independent director. The CEO and chair roles should only be combined in very limited circumstances; in these situations . . .

Institutional Shareholder Services (ISS) is advocating allowing shareholders to submit proposals for splitting the CEO and chairperson roles and appointing an independent director as chairperson after the current combined CEO/chairperson leaves his or her office.  However, a policy survey issued by ISS in September 2011 finds that institutional investors and corporate issuers (principally board members) are diametrically split in whether “companies [should] commit themselves to an independent chair?”  70 percent of institutional investors answer “yes” while 73 percent of issuers and board members answered “no.”

Proponents of splitting the roles fear that the board cannot fulfill its obligations of overseeing the process of hiring, firing, evaluating, and compensating the CEO if the CEO also serves as the board’s chairperson.  Although hiring, firing, evaluating and compensating the CEO is a board’s most important responsibility, it is probably best done by a committee of independent directors rather than the board as a whole.  The reason for delegating to a committee is the importance of having consistency from meeting to meeting and from year to year.  The reason for having the committee’s composition be of independent directors is to remove the direct influence of the CEO.

Opponents of splitting the roles cite additional costs of compensating two persons, one for the role of chairperson and another for the role of CEO without significantly reducing the amount of time the CEO must spend in educating and preparing board members on the organization’s business.  A survey of financial institution directors by Harvard Business School after the 2008 collapse found that directors themselves may have suffered from not having a greater presence of CEOs and management in the board room to help boards understand the risks inherent with the business models and strategic direction of the institutions.

The American Bar Association in its Corporate Director’s Guidebook (5th edition) and the Business Roundtable in its Principles of Corporate Governance (November 2005) urge having the independent directors of a board designate one of themselves as a lead or presiding director to have access to the agenda, call for and preside at meetings in executive session, oversee the flow of information to board, and serve, where appropriate, as liaison between the board and the CEO.  This is certainly a good practice for boards subject to the scrutiny of shareholders or regulators who have the right to change the direction of the board and for boards having more than eight or nine members.

A better practice for many boards, especially smaller boards that may feel awkward in appointing one of its members and a lead or presiding director, is to enfranchise each director with certain basic rights.  These would include the rights to:

• Have matters included on the agenda for consideration at any meeting of the board or any committee;
• Create a committee of the board composed of members with appropriate independence and expertise, and otherwise cause any matter to be referred to that committee for its consideration;
• Cause the board or any committee to meet in executive session of the outside or independent members and with or without legal counsel or other advisers deemed appropriate by those members; and
• Cause recusal of any member from consideration by the board or any committee of any matter in which a member has a perceived conflict of interest, including excusing the member not only from speaking or being observed, but also from being able to hear or observe others, during consideration of the matter; waiving the member’s right to withhold approval of any statement in the minutes reflecting the consideration of the matter other than to reflect the member’s absence from the consideration and the member’s absence or abstention in any vote on the matter, and waiving the member’s right for reconsideration of the matter.

These rights could be either written into an organization’s existing bylaws or regulations or set forth in a separate “statement of directors’ rights.”

In any event, governance of any organization includes the culture of that organization.  Accordingly, a best practice for one organization may not be a good practice for another.  Changing a practice that changes culture generally requires two generations of directors:  One to propose the change, and a successor to retain it.

As a member of the board of directors of any organization, you have certain obligations to the organization and the rest of the board.  In addition, each of your fellow directors has a right to expect that you and the other directors will respectively observe their director obligations.

The following are some of the basic obligations of a director of any organization.  Each director should:

Observe the duty of loyalty to act in good faith, to the extent possible, in the best interests of the organization (1)

When that is not possible, you should disclose to the board any potentially conflicting interest that may adversely affect (2), or have the appearance of adversely affecting, your ability to make independent judgments as a director.  You should excuse yourself from participating in consideration of any matter in which you may be perceived as having an interest opposed to the best interests of the organization, and if that opposing interest is with respect to a matter material to the organization and is likely to be ongoing, you should consider tendering your resignation.

Excusing yourself from participating in consideration of a matter generally means:  You excuse yourself not only from speaking or being observed, but also from being able to hear or observe others, during consideration of the matter; you waive your right to withhold approval of any statement in the minutes reflecting the consideration of the matter other than to reflect your absence from the consideration and your absence or abstention in any vote on the matter; and you waive your right, discussed below, for reconsideration of the matter.

If a director with a conflicting interest with a matter does not so excuse himself or herself, any other director should have the right to move to refer the matter to a committee that does not include the conflicted director (3).

Abide by the principle that a board speaks with one voice

Your duty of care and loyalty as a director requires you to abide by the decision of a majority of the board at a meeting at which a quorum is present (4).  This applies to all matters coming before the board for its consideration.  The board speaks with one voice on all such matters, or not at all (4).  Occasionally on matters where it is important to have a single message, the board will speak only through its chairperson or the chairperson’s designee.

If you disagree with a decision, your rights are to vote against that decision, to have your negative vote recorded in the minutes (5), and when and if appropriate, to request reconsideration of the decision (6).  Because the board speaks with one voice, asking for reconsideration of a matter should be done sparingly.  Reconsideration should not be requested when the matter has been executed, even partially, or something has been done that the organization cannot undo, or when party has received notice of the vote and has taken action in reliance upon it.

Unless otherwise determined by the board, the following procedures will be followed with respect to any request for reconsideration:

A request to reconsider can be made regardless of the time that has elapsed since the vote was taken (unless the matter has been executed, or something has been done that the organization cannot undo, or when party has received notice of the vote and has taken action in reliance upon it).

The request can be made by any director, including one who voted with the prevailing side, or one who voted with the losing side, or one who did not vote at all or was absent.

Unless the directors who vote with the prevailing side are present or have received notice that reconsideration will be moved, Roberts Rules of Order requires a two-thirds vote of directors at a meeting at which a quorum is present in order to adopt any motion to reconsider (7).

Generally, “what happens in a board room remains in the board room” unless you believe that your remaining silent will result in a material breach of fiduciary duty or violation of law.

Perform the duties and functions of a director with the care that an ordinarily prudent person in a like position would use under similar circumstances (8)

This is each director’s duty of care under general corporation law (8).  Unless consideration of a matter is expressly delegated to a designated committee of the board, you have both (i) the obligation to, and (ii) the right of reliance that each other director will, exercise this degree of care with respect to each matter, and vice versa.

To the extent possible as a best practice, make available to the board and management the benefits of your knowledge, skills and experience

Acting with the care of an ordinarily prudent person is a minimum standard to avoid breaching your duty care.  A better practice is for you to make available to the board and management the benefits of your knowledge, skills and experience.  Mentorship is one of the major functions of board members.  Mentorship is making available your knowledge, skills, and experience of having been there and having done it before (9).

 Benefits of mentorship include:  Expanding the board’s effectiveness as an “expertise” board making available for the benefit of the organization the collective knowledge, skills and experience of each of its members; making it less lonely at the top of management; providing coaching and fostering relationships between board members and management; and making board members and management each accessible to the other.

Observe the expectation and right of reliance

The foremost principle of corporate governance is that the board and its committees are expected, and Ohio law gives the board and its committees the right, to rely upon:

• Officers or employees as to matters for which the director reasonably believes they are reliable and competent;
• Professionals such as lawyers or accountants as to matters that the director reasonably believes are within the person's professional competence; and
• Duly established committees of directors for matters within their designated authority, which the director reasonably believes to merit confidence (10).

The concept is that the organization is managed “under the direction” of the board (11), and the most important responsibility of the board is to select management, including at least a chief executive officer, whom the board believes is reliable and competent in managing the organization.

A developing principle of corporate governance is that directors who believe that they do not have available to them the expertise to consider a matter have the right for the organization to provide to the board professionals or other consultants having such expertise.

Assure that outside or independent directors have basic rights

Outside or independent directors are not only the first and best line of defense against corporate mismanagement and fraud, but also the best source of best practices for good governance.  Therefore, all directors should assure that outside or independent directors have at least the following basic rights under applicable corporate governing documents, including to:

Have matters included on the agenda for consideration at any meeting of the board or any committee;

• Create a committee of the board composed of members with appropriate independence and expertise, and otherwise cause any matter to be referred to that committee for its consideration;
• Cause the board or any committee to meet in executive session of the outside or independent members and with or without legal counsel or other advisers deemed appropriate by those member; and
• Cause recusal of any member from consideration by the board or any committee of any matter in which a member has a perceived conflict of interest, including excusing the member not only from speaking or being observed, but also from being able to hear or observe others, during consideration of the matter; waiving the member’s right to withhold approval of any statement in the minutes reflecting the consideration of the matter other than to reflect the member’s absence from the consideration and the member’s absence or abstention in any vote on the matter, and waiving the member’s right for reconsideration of the matter.

Endnotes

The following endnote are intended as an integral part of this article providing additional guidance to anyone who serves as a director:

1. Duty of loyalty.  The duty of loyalty in Ohio is a statutory duty requiring each director to perform the duties of a director “in good faith, in a manner the director reasonably believes to be in or not opposed to the best interests of the corporation.”  A director is given a range in his or her statutory duty of loyalty:  i.e., to act in, or not opposed to, the best interests of the corporation.  An officer does not have that statutory range, but must act in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation.  The reason for this is that corporate law recognizes that directors, especially independent directors, may have different affiliations and, therefore, different loyalties.
2. Disclosure of conflicting interests.  Disclosure of conflicting personal or economic interests is a statutory responsibility of each director to other directors.  Under Ohio law, a contract, transaction or other action authorized by a board may be void or voidable if a director has a personal or economic interest in the matter.  Ohio law requires procedurally that the conflicted director’s relationship or interest be disclosed to, or otherwise be known by, the rest of the directors and that contract, transaction or other action be authorized by the affirmative vote of a majority of the disinterested directors.  If a quorum is present including any interested directors, then the affirmative vote of the disinterested directors is valid to authorize the matter even though the disinterested directors themselves may constitute less than a quorum.  If the conflicting personal or economic interest is not disclosed to or known by the other directors, or if there are no disinterested directors to authorize the matter in which there is a conflict, then the board is held to a greater scrutiny in that the transaction must be found as fair to the corporation at the time it is approved.
3. Right to refer to a committee.  Each director generally has the right to move to have any matter laid before a committee of the board unless the governing documents otherwise provide.
4. Only voice is an act of a majority.  Under Ohio law, “the act of a majority of the directors present at a meeting at which a quorum is present is the act of the board, unless the act of a greater number is required by the articles, the regulations, or the bylaws.” Because the act of a majority of the directors present at a meeting at which a quorum is present is the act of the board, there can be only one voice – that of a majority.  If there is no majority, there is no voice.
5. Right to record negative vote, abstention or absence.  A director’s right to have his or her negative vote or abstention or absence in consideration of a matter is an American modification of Robert’s Rules of Order.  Courts generally require organizations to record such a vote, abstention or absence when timely requested by the director.  Timely requested generally means at the time the vote is taken or before the board moves to consideration of the next matter.  As a courtesy, many boards will allow the request to be made and honor if done before approval of the minutes of the proceeding.
6. Reconsideration of a matter.  Reconsideration of a matter is an American adaption of the right of a member of a standing committee, such as a board of directors, to move to repeal and amend a prior action taken by the committee or board under Robert’s Rules of Order (10th edition).  The traditional interpretation of Robert’s Rules based upon parliamentary law is that there must be two motions, one to repeal and then a second moving adoption resolution stating the desired action.  This two-step procedure is considered cumbersome for boards that are not assemblies of a large number of members.
7. Procedures for reconsideration.  Roberts Rules of Order (10th edition) provides an American adaptation of reconsideration differing from traditional repeal and amendment of Parliamentary  law in the following respects:  (1) A motion to reconsider a vote can be made and taken up regardless of the time that has elapsed since the vote was taken, and there is no limit to the number of times a question can be reconsidered; (2) the motion can be made by any member who did not vote with the losing side; or, in other words, the maker of the motion to reconsider can be one who voted with the prevailing side, or one who did not vote at all, or even was absent and (3) unless all the members who voted with the prevailing side are present or have been notified that the reconsideration will be moved, it requires a two-thirds vote to adopt the motion to reconsider.  For better governance, most boards allow any director, regardless of whether or how he or she voted, to request reconsideration.
8. Duty of care.  The duty of care in Ohio is a statutory duty requiring each director to perform the duties of a director “with the care that an ordinarily prudent person in a like position would use under similar circumstances.”  Because this duty is a minimum standard that each director must achieve to avoid liability, directors should consider better practices.
9. Function of directors.  The function of the board is to provide "direction"11 to management through:  (1) Decision making as to matters of policy, direction, strategy and governance; (2) oversight as to matters of policy, direction, strategy and governance; and (3) Mentorship of the CEO and senior management.
10. Expectation and right of reliance.  Ohio law contemplates that directors will consist of those from outside the organization.  Under Ohio law, directors have a range in their duty of care from acting “in” the best interests of the organization on one end, to acting “not opposed to” the best interests of the organization on the other end.  As discussed note 1 above, an officer does not have that statutory range, but must act in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation.
11. Under direction of the board.  Ohio law as well as the law of other states provides that all of the authority of a corporation shall be exercised by or under the direction of its directors.  The regulations or bylaws of most corporations other than those closely held provide for this authority to be exercised “under the director of the board.”
    

A decision by ICANN, the organization that runs the internet domain name system, has added .xxx as a new top-level domain for pornography sites.  You may be asking how this applies to you.  Well, unfortunately the pornography industry has used legitimate trademarks (and misspellings) for years in order to get internet “hits” and redirect people to their websites.  With the new .xxx domain, there is a real potential for your business’ trademarked name to be registered as a .xxx (e.g., .adultcontent.xxx).

There is a “Sunrise Period,” which runs from September 7 through October 28, 2011, when companies in the adult entertainment industry can apply for the new .xxx domains.  During this same time frame, trademark owners who are concerned that their trademarks may be used as a second-level domain name in this registry (e.g., mybusiness.xxx) for pornography can take steps in advance to block the registration of their marks for use as .xxx domains (“Sunrise B”).

Under the Sunrise B Reservation Request program, trademark owners can apply to reserve their registered trademarks in the .xxx registry.  You do not actually register your trademark as a domain.xxx; rather, you register to block a third party from doing so.

To qualify for the Sunrise B period “blocking reservation,” you must own a valid trademark registration as of September 1, 2011, and pay a registrar fee of approximately $200 for a ten-year block.  Once your trademark is recorded, the .xxx registry will not register any second-level domain name that is identical to your registered trademark.  It will not protect against misspellings and variations of your trademarks; however if that occurs, you would still be able to sue them in court. 

For more information or assistance, contact John Beavers at (614) 227-2361, Joe Dreitler at (614) 227-2343 or me at (614) 227-8824.

A new paper published by the Social Science Research Network (SSRN) titled, Effects of Local Director Markets on Corporate Boards, examines how local director labor markets affect board composition and the quality of corporate governance.

The article addresses how the supply of potential directors in the local labor market strongly affects board composition of Standard and Poor’s (S&P) 1,500 companies, namely, the proportion and expertise of independent directors. For instance, in an average sample firm, a third of independent directors in S&P 1,500 firms holding executive positions are employed locally.

Similarly, the authors tests show access to a larger local pool of prospective directors has a positive effect on the proportion of independent directors. At firms located near larger local pools of prospective directors, a significantly higher fraction of independent directors are employed locally. Overall, boards of firms located near larger pools of managerial talent include a larger percentage of independent directors who are executives from other nearby firms.

Additionally, the article examines several dimensions of director expertise, including executive, technology, financial, academic, and legal expertise, and director education, to proxy specialized skills and abilities to perform effective monitoring and advisory roles. The articles found that those organizations closer to a large pool of potential director talent (general or specialized) have a higher proportion of independent directors with these respective types of expertise on their boards.

The findings provide strong evidence of the importance of local director labor markets. 

Or in our opinion the importance of access to a supply of directors with expertise in those areas that fit the strategic direction of your organization

The entire article can be accessed here.  

Do you ever ask yourself how to get your company back on track once its growth has plateaued so you can accomplish your goals? If so, then it might be time to form an advisory board.

Before doing that, however, you need to determine is your company is really ‘off track’ and not simply struggling with a management team that has maximized its expertise and needs some direction to take your company to the next level. If, after reviewing your business and you management team, you are still asking these questions, then it might be time for an advisory board.

An advisory board is a group of advisors selected by the company, who lend insight and counsel to the owner, chief executive officer, or management team. Most advisory boards consist of three to five members. Their role is to provide counsel, advice, contacts and complementary competencies that go beyond that of the management team.

Advisory boards provide independent and objective advice and mentorship, and allow the organization to tap into the knowledge and experience of others that the company’s management team might not have.

Advisory boards have no statutory fiduciary duties and serve at the will of the company. It is important to recognize that an advisory board does not replace the company’s statutory board. The true benefit of an advisory board is that it helps companies focus on business strategies and the issues that matter most as they grow and prosper.

Emerging companies benefit from advice and counsel of skilled advisors to supplement management’s knowledge and experience. Advisory boards lend insight and perspective to business strategies while leaving the implementation to management and employees of the company. Further, an advisory board can:

• Help determine benefits and risks;
• Generate contacts and potential resources;
• Mentor management;
• Provide industry expertise;
• Assist with succession planning; and
• Help hold management accountable to deadlines and tasks.

A good advisory board can be a powerful tool to aid the growth of your company. In order to make the most effective and efficient use of your advisory board you must be willing and able to:

• Confide in others about yourself and your business;
• Present key strategic issues for consideration of others;
• Be able to accept criticism; and
• Take the necessary time to prepare for meetings and communicate.

An advisory board will only be effective if the company and management is willing to expose their skeletons and share their ideas. While a company’s statutory board provides direction and oversight to the company, an advisory board provides discretionary advice for the company as it develops strategies and helps the company reach their future goals and aspirations.