The National Association of Corporate Directors (NACD) is an independent, not-for-profit membership organization, dedicated to serving the corporate governance

Corporate governance

Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...

 needs of directors of public, private, and non-profit organizations. Founded in 1977, NACD is headquartered in Washington, D.C.

Washington, D.C.

Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....

 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

Enron

Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...

 and WorldCom brought increased public and government attention to corporate governance and the role of the board of directors

Board of directors

A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...

. 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.. 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

New York Stock Exchange

The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...

 (NYSE) and the NASDAQ

NASDAQ

The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...

 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:

• Boards should be composed of a substantial majority of independent directors
  Non-executive director
  A non-executive director or outside director is a member of the board of directors of a company who does not form part of the executive management team. He or she is not an employee of the company or affiliated with it in any other way...
  
  . 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
  Audit committee
  In a U.S. publicly-traded company, an audit committee is an operating committee of the Board of Directors charged with oversight of financial reporting and disclosure. Committee members are drawn from members of the company's board of directors, with a Chairperson selected from among the 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
  Compliance (regulation)
  In general, compliance means conforming to a rule, such as a specification, policy, standard or law. Regulatory compliance describes the goal that corporations or public agencies aspire to in their efforts to ensure that personnel are aware of and take steps to comply with relevant laws and...
  
   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 committee
  Audit committee
  In a U.S. publicly-traded company, an audit committee is an operating committee of the Board of Directors charged with oversight of financial reporting and disclosure. Committee members are drawn from members of the company's board of directors, with a Chairperson selected from among the committee...
  
  s should meet independently with both the internal and independent auditors
  Auditor independence
  Auditor independence refers to the independence of the internal auditor or of the external auditor from parties that may have a financial interest in the business being audited.Independence requires integrity and an objective approach to the audit process...
  
  .

• 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
  Strategic management
  Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
  
   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
  Sarbanes-Oxley Act
  The Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...
  
  . Another NACD Director, the Hon. Barbara Hackman Franklin, has similarly participated, under her own name, rather than as an NACD representative.

External links

• National Association of Corporate Directors Homepage