Typically, boards have nine to 12 members, two of whom are usually insiders: the CEO and CFO. The other directors usually consist of senior managers from public companies, private investors, lawyers, retired CPAs, and heads of foundations and universities. Committees are usually divided among the following areas: audit, which oversees the finances of the company and is considered the most critical from the point of view of investors; governance and nominating, which reviews policies and procedures as well as recommends new directors; compensation, which determines the performance and compensation of senior management; and executive, which assumes responsibilities should the CEO be unable to perform his or her duties. The median salary for a board member is $100,000 a year, plus fees for serving on a committee and attending meetings.
According to corporate governance experts, corporate boards have become more transparent due in large part to post-Enron financial reforms that grew out of the Sarbanes-Oxley Act of 2002 and to greater shareholder activism-especially from pension fund administrators and mutual fund managers. “The general feel is that there is a sea change compared to five years ago in the way boards carry out their responsibilities,” says Ram Charan, author of Boards That Deliver: Advancing Corporate Governance from Compliance to Competitive Advantage (Jossey-Bass; $27.95). “So boards now are really doing what they are supposed to do, and that is to govern the corporation and add value to the company.” Charan maintains that directors have five major responsibilities: hire “the right CEO” and put in place an actionable succession plan; monitor the financial performance of the company as well as make sure it operates in an ethical manner and in the interests of shareholders; ensure that the company has developed a solid business model and strategic focus; review the compliance of internal policies related to financial reporting and risk management; and oversee the company’s programs to create a pipeline for future leadership.
A number of board members have been selected after working with CEOs and other power brokers on nonprofits and charities as well as networking through business associations, political gatherings, and country clubs. Also, companies look for people who have had board experience, even if they gained their governance credentials by working on foundation and university boards. “Entry seemed to be having a high-profile position and high visibility in public service and evidence of exercising good judgment,” Davis says. Multiboard member Ira D. Hall says he is usually recruited because he qualifies as a financial expert and is capable of chairing an audit committee. The former president and CEO of Utendahl Capital Management L.P. (No. 6 on the be asset managers list with $2.6 billion in assets under management) serves on the audit and management compensation committees of Pepsi Bottling Group, as well as on several other boards.
The power and influence of directors grow exponentially based on the number of boards on which they serve. In 2003, five blacks were listed among the top 10 individuals serving on at least seven boards. They