Strategic Planning, CEO Succession Top List

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<strong>Washington, D.C. &mdash; Oct. 16</strong><br />Directors named strategic planning as their top concern, followed by corporate performance and CEO succession, according to the 2007 National Association of Corporate Directors (NACD) Public Company Governance Survey released by the NACD&rsquo;s Corporate Governance Conference in Washington, D.C. <br /><br />The survey was done in conjunction with Oliver Wyman&ndash;Delta Organization & Leadership, and it shows that the three issues are perennially top concerns for directors but are also areas where directors indicate low levels of effectiveness. <br /><br />Consistent with 2006, of the top three issues, respondents felt that they were least effective in the area of CEO succession. Nearly half indicated that they did not have a formal plan for succession.<br /><br />Directors also expressed discomfort about their relationship with shareholders. Only a third (36.4 percent) of directors thought their boards communicated very effectively with shareholders and, likewise, did not think shareholders communicated well with boards.<br /><br />NACD published the report in conjunction with its research arm, The Center for Board Leadership, and with the assistance of its alliance partner, Oliver Wyman &ndash; Delta Organization & Leadership. <br /><br />The NACD survey had been published for 10 years biannually until it became annual in 2005. <br />The 2007 report consists of primary research with 791 respondents conducted from July to August, and it is supplemented with data from the 2007 proxy statements of more than 5,000 public companies. <br /><br />The report breaks down key data from 24 major industries and serves as a benchmarking guide for directors and boards on nearly 100 board practices.<br /><br />&ldquo;Strategy took a back seat over the past few years as boards grappled with volatile markets, shareholder pressure and regulations, but directors recognize the need to focus on the longer-term as indicated by their top three issues to be addressed,” NACD President and CEO Ken Daly said. &ldquo;Also noteworthy is the data showing that fewer than half of directors find their relationship with shareholders highly satisfactory, and that fewer think they communicate very effectively. <br /><br />”Although boards are putting heavy emphasis on corporate strategy, shareholders may not be aware of that emphasis. Yet strategy is often the tension point between boards and shareholders. The good news is that with the issues now out in front, boards are preparing to address these key concerns.&rdquo; <br /><br />Elise Walton, Oliver Wyman-Delta Organization & Leadership partner, agreed.  <br /><br />&ldquo;Directors and CEOs are seeking to find the best ways to involve the board in strategy,&rdquo; Walton said. &ldquo;While they can&rsquo;t be involved in the daily or quarterly level detail, the role directors play must be more than the rubber stamp at the end of the decision making pipe. Most directors are asking for full risk assessments, including the strategic, financial and operational, and management is looking to create a process of meaningful dialogue and appropriate decision-making that impacts the future of the company. Striking this balance is an area companies need to get right.&rdquo;<br /><br />Additional highlights from the The 2007 NACD Survey:<br /><br /><ul><li><strong>CEO compensation:</strong> Director discomfort with CEO pay continues this year. Consistent with the 2006 survey, 77 percent of respondents rated CEO compensation was either &ldquo;too high&rdquo; or &ldquo;somewhat high&rdquo; relative to CEO performance. Top reasons included absence of genuine performance objectives, granting of equity awards that have little connection to future corporate performance and lack of strong negotiation by the compensation committee.</li><li><strong>Information management and decision making: </strong>In general, directors gave management high marks for providing the appropriate level of information, with the highest level of satisfaction with information relating to financial oversight. But information around executive talent management received the lowest scores, with less than half of respondents finding the information they receive very adequate.</li><li><strong>Peer Evaluations:</strong> For the first time, peer evaluations were as prevalent as self-evaluations, a shift in the methods for evaluating directors. Individual director evaluations performed by boards increased only slightly to 46 percent compared to 45 percent in 2006.</li><li><strong>Director candidates:</strong> In addition to wanting a current or former CEO on the board (91.7 percent of respondents), additional pools of senior executives, professional advisers and technical experts are also increasingly seen as highly valuable additions to the board. Areas of functional experience most desired in board members are finance (74.8 percent), operations (66.7 percent), external audit (45.5 percent) and marketing (45.4 percent).         </li><li><strong>Diversity on boards:</strong> 65.0 percent of respondents report having a woman on the board, but the average number of women is 1.6. And although 41.7 percent of respondents reported a minority on the board, the number of minority directors on those boards averaged 1.7.</li></ul> <br />&ldquo;In this, our 10th directors survey since 1992, we see boards coming to grips with planning, shareholder relations, compensation, board structure, risk oversight and other critical issues,” Daly said. “At a time when board directorship is as complex and challenging as we&rsquo;ve ever seen it, we believe that information and shared insights will lead to stronger boards.&rdquo;

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