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The Feckless NACD
Last year a news release from the National Association of Corporate Directors (NACD) landed in our inbox, announcing a new commission to study BoD culture. The commission issued its report later in the year. That commission and its report, and some other aspects of the NACD, tell a troubling story about corporate governance and BoDs in the US today.
Most followers here know NACD at least a little - it's the principal association for corporate directors in the US. It has over 24,000 members on nearly 1,800 BoDs, with a staff of dozens. Individual membership costs about $1,500 per year; a corporate one for a BoD costs about $10,000. Its 20 or so chapters meet regularly to discuss current BoD subjects, as NACD researches, writes, and issues numerous reports, surveys, and other materials about and for BoDs. It offers education and certification programs, and has a separate fee-based consulting unit that educates and advises BoDs.
Like any good association, it hands out prizes, "The Most Distinguished Award in Corporate Governance." Evidently, a BoD credential, generous compensation, and above all a healthy share price don't suffice for this crowd.
If you're a retired corporate executive or just about anyone else who serves on a US BoD as an independent director, you probably have an NACD membership. Of course, almost all BoDs consist of so-called independent directors, with one or two insiders and the occasional portfolio manager. It seems NACD would serve as a resource for, and represent the views of, directors today.
The Blue Ribbon Commission on "Dynamics and Culture within the Boardroom"
The commission included "24 governance leaders", co-headed by the retired CEO of UA and another retired corporate CFO. Among the other members are 16 sitting corporate directors, one each of a BoD consultant, comp consultant, benefits consultant, attorney, and professor, and the NACD president.
Conspicuously missing are any shareholders. We didn't probe deeply into the biographies of each of the 24 members, so one or another might today work for a live investor. It wasn't obvious from a look at the roster, though.
The report betrays the lack of investor perspective. Only NACD members (of which we are not) can read the full report. The NACD website summarizes its ten recommendations for improving BoD culture, including how to "define optimal board culture", "reinforce board culture", and "address major cultural fault lines", with specific advice about "addressing unhealthy behaviors and dynamics... including problematic directors [haha, we can guess what they mean...]." Nothing, though, about how BoD culture should promote healthy relationships with shareholders.
What about investors?
We browsed around the NACD website for its guidance about interacting with investors. The nearly 1,900 "resources" there feature FAQs, handbooks, articles, more Blue Ribbon Commission reports, and whatever else it thinks a director might need to understand and deliver BoD service.
We could not find one with specific advice about how to work well with shareholders, who of course elect and pay every one of those NACD members. Again, we don't have a membership, so we couldn't read the detailed content. We found a guide to "preparing for discussions with shareholders" from 2016, a survey of institutional investor views on BoDs from 2020, and two articles (here and here) on shareholder engagement from earlier this year. We saw a reference to an Investor Trust survey, which seems to have last occurred in 2020. The central guide for directors for 2024 has one page among its 47 on "thinking like your shareholders".
Otherwise, only a handful of items, out of 1,900 total, seems low.
More stuff on making life hard for activists
Alas, NACD has some content about us activists:
Chapters have frequent discussions on activist investors, in Atlanta, Philadelphia, Boston, and San Francisco (twice!). Once more, we could not read the detail, so these could offer constructive ways to incorporate activist views into BoD work. The titles, though, seem to reveal the intent.
We found about as much content about opposing activist investors as we did about serving investors in the first place.
A symbol of insularity and capture
None of this should surprise us, based on who supports NACD. Its 48(!) partners include law firms, headhunters, consultants of all kinds, and others who desire BoD access. It extends to Amazon Web Services and Google, a D&O insurer, and even Glass Lewis. This broad and deep community of advisors and vendors makes a significant living from companies (ok, maybe not Glass Lewis, whose membership puzzles us). NACD partnership naturally creates a platform for promoting their services, which inevitably support executives. With little incentive to prioritize investors, these incentives sideline shareholders, especially activists.
It seems NACD largely helps BoDs manage themselves and executives. Sure, these are important jobs, but certainly not that much more important than representing shareholders that we'd find almost no information about shareholders relative to themselves and executives.
We've long protested that contemporary BoDs have a peculiar, dysfunctional structure that ties directors much more to executives than to investors. Our essay on BoD conflicts shows directors align with executives more than shareholders. Our work on director say-on-pay seeks to shift director alliance from executives to investors.
NACD reinforces these dysfunctions. It promotes directors as a professional advisor to company executives, rather than a dedicated agent for investor interests. It neglects shareholders and opposes activists, subordinating them to executives.
Let's see some solid content about what it means to represent investor interests. About how portfolio managers think about, analyze, and monitor portfolio companies. About how to communicate candidly with shareholders. Maybe some form of radical BoD transparency?
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