Page 597 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 10. The Board of Directors 583

If the roles of CEO and chair are separated, there are several ways to structure the
latter. It could be an elected ongoing position, or it could be a lead director (sometimes called
a presiding director), where the position is assumed by the committee chair responsible for
that portion of the agenda.
A few companies have filled the board chair position with the former CEO/chair upon
the person’s retirement from the company as CEO. Many will argue this is even worse than
simply permitting the retired CEO/chair to stay on the board. In both cases the new CEO
may find it difficult to propose changes to the predecessor’s programs or disagree on other
matters brought before the board.
Corporate Secretary

Virtually every company’s bylaws require a corporate secretary to be designated. This
individual is responsible for making arrangements for board and shareholder meetings
and for recording meeting minutes. Although the secretary is not a member of the board,
taking meeting minutes requires attendance and therefore being part of the inner circle.
A major responsibility is preparing the annual meeting schedule with each participant’s
role and due date. In addition, responsibilities typically include negotiating shareholder
proposals, preparing and filing the proxy material (along with all other SEC-required filings),
orienting new board members to their responsibilities, and a host of other administrative
tasks that leave the secretary little time to be an alter ego to the board chair. In some
companies, the position is little more than a clerk; in others, it is a significant position, such
as chief compliance officer.
Director Liability

Directors have an ongoing, everyday obligation to oversee the company’s compliance with
legal requirements. Shareholders are likely to initiate action when they believe directors have
not acted in their best interests. Director actions will be examined in terms of federal and
state laws and regulations, as well as common law principles.
Directors are expected to exercise prudent judgment, acting in good faith on in informed
basis only after obtaining material facts. It is further expected that directors will call on
legal and other experts in evaluating alternative actions. Assuming directors have exercised
care in selecting such experts, their information, evaluations, and advice is assumed to be
reliable.
Directors must act without conflict of interest, keeping in mind the best interests of
the shareholder and the company. Possible conflict should be disclosed to other directors.
The board minutes should record such disclosures and inform shareholders. It is further
expected that directors will respect the confidentiality of discussions until they are disclosed
by the company and will not act upon such confidential information to benefit self, friends,
or family.
Directors may be personally liable for their actions if they do not act in good faith,
exercising care in the performance of their duties. Failure to act in a fiduciary manner will put
the director at risk of liability. If the directors have acted in good faith and exercised prudent
judgment in the best interest of the company, the business judgment rule says they should not
be held liable for mistakes or decisions that did not turn out as expected. Therefore, directors
must ensure that an appropriate compliance reporting system exists for their review.