The Handbook of Board Governance : A Comprehensive Guide for Public, Private, and Not-for-Profit Board Members

The revised new edition of the must-read guide for executives—provides comprehensive coverage of topics in corporate governance by leading subject-matter experts The Handbook of Board Governance is the marketing-leading text on public, nonprofit, and private board governance. Providing comprehensive, in-depth coverage, this unique text represents a collaboration of internationally-recognized academics and prominent organization directors, executives, managers, and advisors. Contributors include Ariel Fromer Babcock, Robert Eccles, Alice Korngold, Ellie Mulholland, Michael Useem, Elizabeth Valentine and John Zinkin. Practical, expert guidance enables readers to understand value creation and the strategic role of the board, risk governance and oversight, audit and compensation committee effectiveness, CEO succession planning, and other diverse board duties and responsibilities. Now in its second edition, the Handbook offers substantial updates and revisions reflecting contemporary trends, practices, and developments in board governance. New content includes discussions of pressing issues related to climate change, examination of information technology and cybersecurity challenges, and recent tax legislation that will impact executive compensation. Editor Dr. Richard Leblanc—an award-winning teacher, professor, lawyer, management consultant, and specialist on boards of directors—integrates practical experience and academic rigor to assist readers: Build and strengthen engaged and collaborative leadership in the boardroom Recognize the role and responsibilities of a well-functioning governing board Risk governance, assurance, and the duties of directors Keep pace with new trends in board governance and shareholder responsibility Measure performance and align performance measurement to executive pay Understand information technology governance, sustainability governance, and the different forms of governance Highly relevant to board and committee members regardless of sector or industry, The Handbook of Board Governance, 2 nd Edition is an invaluable source of knowledge on all aspects of corporate and organization governance. Cover Title Page Copyright Contents Foreword Preface About the Editor Chapter 1 The Handbook of Board Governance: An Introduction and Overview Introduction Diversity of Authorship Improved Corporate Governance Part I: The Board’s First Responsibility: The Right CEO Part II: The Board’s Second Responsibility: The Right Board Chair Part III: Who Is at the Board Table? Board Composition, Dynamics, and Decision-Making Part IV A: Climate Governance Part IV B: Technology Governance Part IV C: Risk and Financial Governance Part IV D: Strategic Governance Part IV E: Human Capital and Compensation Governance Part IV F: Legal and Governance Responsibilities of Directors Part V: Shareholder Engagement and Board Accountability Part VI: Not-for-Profit Governance Part VII: Small and Medium Company Governance Part VIII: Global Corporate Governance Conclusion: Future of Board Governance and Unresolved Issues References PART I The Board's First Responsibility: The Right CEO Chapter 2 CEO Succession Planning Trends and Forecast: Recent Trends Crisis Management CEO Replacement Long‐Term Planning and Mentorships Gender Diversity Planning Best Practices for CEO Succession Planning Anthem Chevron State Street Corp. Examples of CEO Succession Planning Disclosure AIG Arconic CSX Corp. Conclusion About the Author Notes Chapter 3 CEO Succession Planning The Market for Chief Executive Officers CEO Turnover Incoming CEOs Models of Succession Planning External Candidate President and/or Chief Operating Officer Horse Race Inside‐Outside Model Common Practices in Succession Board‐Led Process Experienced Directors Skills‐and‐Experience Profile Rigorous Talent Development Active Participation of the CEO Conclusion About the Authors Notes Chapter 4 CEO Succession: Lessons from the Trenches for Directors: Introduction The Talent Disconnect The Reluctant Retiree The Absence of Human Resources The Assessment Tool Obsession The Irrelevant Criteria The Culture Conundrum The Mysterious Talent Pool The Never‐Ending Transition The Forever CEO The Persistent Myth: It's Just for the Big Guys Conclusion About the Author References Appendix 1: Model CEO Succession Planning Charter Introduction Ad Hoc CEO Succession Committee Terms of Reference Purpose Committee Mandate Committee Authority Committee Composition Committee Administration Appendix 2: Model CEO Position Description Introduction Chief Executive Officer Position Description PART II The Board's Second Responsibility: The Right Board Chair Chapter 5 The Nonexecutive Chairman: Toward a Shareholder Value Maximization Role Key Responsibilities of a High‐Performance, Nonexecutive Chairman Leadership Learn the Industry and Business Engage Regularly with the CEO and Other Management Set the Standards for the Value‐Creation Process Ensure Robust Engagement in Monitoring Value‐Creation Plan Progress Implement Strict Management Accountability Standards Influence Management Incentive Programs Influence Director Selection Implement a Process of Continuous Improvement Time Commitment Characteristics, Experience, and Skills to Look for in a Chair Mindset Demonstrated Leadership Understanding of Value Creation, the Value‐Creation Process, and the Capital Markets Ability to View Things Holistically Ethic of Accepting Personal Responsibility Industry Experience No Desire for the CEO Role Communication with Shareholders Developing the Board Culture Engage Legal Counsel in Plan Regular Meetings with Shareholders Disclosure in Public Documents Addressing Concerns of Activist Shareholders Set the Policy and Tone Early On Meet with the Activist Investor Review the Activist's Points with Board and Management Schedule Second Meeting with Activist The Outcome Conclusion About the Author Notes Chapter 6 Great Boards Don't Exist Without Great Chairs: Introduction Unpacking the Modern Chair's Role Meetings Dynamics Stewardship Board Stewardship Organizational Stewardship Relationship Stewardship The Chair‐CEO Relationship Finding and Developing Great Chairs Role of the Corporate Secretary Conclusion About the Authors Chapter 7 What's in a Name? The Lead Director Role at U.S. Public Companies Introduction Part I: Where Did the Lead Director Role Come From? Part II: Who Are Today's Lead Directors? Part III: What Responsibilities Do Lead Directors Have? Lead Director Job Descriptions Part IV: What Challenging Issues Demand the Most Attention from Lead Directors? CEO Evaluation and Succession Major Transactions Shareholder Engagement Crisis Response Part V: What Behaviors and Key Relationships Set the Most Successful Board Leaders Apart? Relationship with the CEO Relationship with the Board Relationship with New Directors Conclusion About the Authors Notes Appendix 3: Model Board Chair Position Description Introduction Board Chair Position Description PART III Who Is at the Board Table? Board Composition, Dynamics, and Decision‐Making Chapter 8 Director Independence, Competency, and Behavior The Regulatory Focus on Director Independence May Occur at the Expense of Industry Expertise Moving Beyond Director Independence Regulatory Emphasis on Director Independence Independence of Mind How Boards (and CEOs) Circumvent Director Independence Examples of Management Capture Best Practices to Strengthen Director Independence Boards Should Collectively Decide: How Much Compromising of Director Independence Is Acceptable? The Systematic Graying of Independent Directors and Boards Conflict‐Free, Independent Advisors Director Competency Director Competency Defined “CEO” Is Not a Competency “Experience” Is Not Synonymous with Competency The Director Competency Matrix Validation of Director Competency When Director Competency Is Outdated or Is Not Reflective of the Strategy Board Diversity Matrix Targets Director Behavior Assessing Important Director Behaviors Director Behavior and Board Dynamics Assessing Overall Director Effectiveness Addressing Regulatory and Investor Renewal Efforts: What Boards Should Be Doing Resistance by Boards to Demonstrate Director Selection Based on Competency, and Director Tenure Based on Performance Director Prerogative Being Challenged Independent Governance Reviews to Stimulate Renewal Self‐Reviews of the Board Constitute a Conflict of Interest, as Does Management Facilitation Conclusion About the Author Notes References Chapter 9 Board Behaviors: How Women Directors Influence Decision Outcomes: Introduction Background and Context Preparation Independent Judgment Constructive Challenge Contribution Different Perspectives Engagement Style Risk Awareness Impacts on Decision‐Making Discussion and Debate Consideration of Risk Disrupting Groupthink Conclusion About the Author Note References Chapter 10 The State of Gender Diversity in Boardrooms: Introduction Gender Diversity Professional and Social Capital How Social Capital Can Be Represented on Boards Social and Regulatory Effects on Gender Parity in Boardrooms The Paradigm Shift Perpetuating the Myth Demystifying the Conundrum The Solution Is Not Representation, but Equality The Challenges of Diversity Conclusion About the Author Note References Chapter 11 Every Seat Matters Introduction The Power and Limitations of a Skills‐Based Matrix The 2VArchetype Framework Populating the 2VArchetype Framework The Archetypes Upper‐Right Quadrant Archetypes—High Value/High Voice Lower‐Right Quadrant Archetypes—High Value/Low Voice Lower‐Left Quadrant Archetypes—Low Value/Low Voice Upper‐Left Quadrant Archetypes—High Voice/Low Value Using the 2VArchetype Framework Conclusion About the Authors Chapter 12 The Art of Asking Questions as a Director Introduction Why Questions (Really) Matter What Dampens Questions? The Purpose of Questions When to Ask Questions How to Ask Questions Getting Answers Conclusion About the Author Notes References Chapter 13 Board Succession, Evaluation, and Recruitment: A Global Perspective Introduction Who Has the Right to Nominate and Elect the Board? Basic Board Structure and Independence Board Succession Management Building a Fit‐for‐Purpose Board The Hot Topic of Diversity on Boards Board Evaluation Board Recruitment Vetting of Board Candidates Board Candidates' Own Due Diligence Conclusion About the Author Appendix 4: Model Individual Director Position Description Introduction Individual Director Position Description Appendix 5: Model Conflict of Interest Policy for Directors Introduction Conflict of Interest Policy and Sign‐Off for Directors Application of This Conflict of Interest Policy Monitoring and Enforcement of This Conflict of Interest Policy Compliance with This Conflict of Interest Policy Directorial Certificate of Compliance with This Conflict of Interest Policy (Certificate) PART IV The Work of the Board: A. Climate Governance Chapter 14 Climate Change and Directors' Duties: Closing the Gap Between Legal Obligation and Enforcement Practice Introduction Why Climate Change Is a Core Corporate Governance Issue Climate Change as a Foreseeable—and Often Material—Financial Risk Climate Change as a Financial Stability and Efficient Markets Issue Task Force on Climate‐Related Financial Disclosures Shareholder Resolutions, Voting, and Engagement on Climate Change The Sustainable Development Goals Are Driving the Value‐Creation Story of Climate Change Incorporating Climate Change into The Board's Role on Governance, Strategy, Risk Management Oversight, and Disclosure Climate Change and Directors' Duties in Key Common Law Jurisdictions From Ethical “Corporate Social Responsibility” to Financial Risk and Return Duties of Trust and Loyalty Duties of Competence and Attentiveness Enforcement of Directors' Duties Director Liability for Misleading or Inadequate Disclosures Relating to Climate Change Enforcement of Disclosure Obligations D&O Insurance Materiality of the Risk of Personal Liability The Enforcement Gap: Could Climate Change Be the Exception? Practical Tools for Climate Governance and Disclosure Conclusion About the Authors Notes Chapter 15 Board Oversight and Climate Change: What Directors Need to Know Introduction Incorporating Climate Change into the Overall Board Governance Framework Understanding the Dynamic of Climate Risk, Climate Opportunity, and Financial Impact Climate Change–Related Risks Litigation Risk—A Special Category Climate Change–Related Opportunities Understanding the Tools to Evaluate Climate Change–Related Risks and Opportunities What the Board Needs to Know About Risk and Opportunities Analyses What the Board Needs to Know About Climate‐Related Risk Management and Strategic Planning What the Board Needs to Know About Climate Change–Related Disclosure Closing Comments About the Author Notes Chapter 16 Responsible Boards for a Sustainable Future: Introduction Role of the Board of Directors Emerging Standards of Sustainability UN Global Compact OECD Guidelines for Multinational Enterprises Principles for Responsible Investment Global Reporting Initiative International Integrated Reporting Council International Organization for Standardization's Social Responsibility Standards Equator Principles Responsible Boards 1. Crafting the Sustainability Vision Defining Sustainability Responsibilities with a Comprehensive Scope Materiality and Risk Management Stakeholder Engagement 2. Building Sustainable Boards Ensuring a Board with Appropriate Skills Board Processes to Support Sustainability Responsibilities Information Quality Determines the Decision Quality 3. Integrating Sustainability into the Organization Leadership and Culture Deployment and Learning Transparency and Reporting Conclusion Appendix About the Author Notes Chapter 17 Corporate Governance to Advance Business and Society Introduction Two Sustainability Narratives Chocolate Is Bittersweet Climate: From COP21 to COP24 The United Nations Sustainable Development Goals (SDGs) Boards Build Shareholder Value Investors Connect Social Responsibility with Profits Looking to the Long Term Building a Qualified Board Focusing the Board on Social Responsibility and Innovation Tying Executive Compensation to Sustainability Global Challenges Present Opportunities for Businesses Poverty and Economic Development Ecosystems Loss and Food Security Education and Workforce Development Healthcare Human Rights Boards That Lead Unilever's Board of Directors Society Holds Businesses Accountable Boards Must Build a Better World About the Author References PART IV The Work of the Board: B. Technology Governance Chapter 18 Technology and the Corporate Board 2020 and Beyond Introduction History Exponential Thinking Emerging Technologies Artificial Intelligence Blockchain Cloud 5G Internet of Things Quantum Computing Cybercrime Other Technologies Business Models and Disruptive Technology Conclusion About the Author References Chapter 19 Responsive Governance in a Digital World: The Need to Up‐Skill Introduction Digital Transformation What Is Digital Transformation? The Need for Speed Is Being Driven by Your Customers and Stakeholders What Is Enterprise Technology Governance? Disruptors Are Innovative and Agile; They Can Come from Unexpected Places Traditional Versus “Agile” Governance Why IT Governance Capability Is Necessary Across the Board How Bad Is the Board ETG Capability Problem? A Skill Shortage at the Top Case Study: How Agfa‐Gevaert Increased Their Board IT Governance Capability Benefits of Boards Building Information and Technology Leadership Capability Winners and Losers The Case of Target USA, December 2013 Seven Areas of ETG Risk Boards Need to Know About Three Barriers to Effective Board‐Level ETG Rapid Risk Response Is an Emerging Form of Agile Governance Board ETG Accountabilities and New Competencies Five Practical Steps to Start Transforming Your Board Take the First Steps Toward Digital Transformation Evaluate the Digital Capability of Your Executive Team Establish a Digital Vision for the Organization Review Board Governance Structures and Processes Consider Your Board's Agility Conclusion About the Authors Notes References Chapter 20 The Impact of Blockchain Technology for Corporate Governance Executive Summary Glossary of Terms Introduction: Blockchain Enhancements in Corporate Governance Smart Contracts Distributed Ledger Technology (DLT) Digital Asset Enhancements Institutional Imperatives in Digital Currency What Role Will DAOs (Decentralized Autonomous Organizations) Serve in Corporate Governance? Facebook's Proposed Libra Coin: The DAO in Practice What Role Does Board Governance Serve in a Digital Currency Environment? The Role of DASIs and Their Potential Impact in Corporate Governance Jurisdictional Considerations for STO Launch Voting Rights and “Smart Contracts”: Compliance Automation What Role Will Smart Contracts Serve in Corporate Governance? How Smart Are Smart Contracts? What Are the Main Benefits of Smart Contracts? What Are Some Legal Limitations of Smart Contracts? Extending Security Token Protocols with Voting Rights While Shoring Up Efficiencies Voting Systems as a Blockchain Use Case Digital Currency: Securities Regulatory Implications The Extraterritorial Reach of the SEC SEC Howey as a Litmus Test Regulatory Arbitrage with STOs Implications of Regulatory Arbitrage for Digital Currency Issuers Security Token Issuances: Board Considerations Board Inquiries of Management About Blockchain Impact of Digital Currency: Key Lessons Learned Conclusion: Governance Efficiency and Effectiveness About the Author Notes References Chapter 21 Blockchain: An Introduction for Boards of Directors Introduction What Is Blockchain and Why Is It Important? Why Is Knowledge of Blockchain Important to Boards? The Elements of the Blockchain Technology Blockchain and Distributed Systems What Is a Smart Contract? How Blockchain Uses Smart Contracts How Smart Contracts Will Revolutionize the Way We Do Business An Example of How It Works—Purchasing Theater Tickets How Is Security Created and What About Hackers? Industry Disruption, Impacts, and Considerations for Boards Banking and Payments Impacts for Banking and Payments Considerations for Boards The Start‐Up Industry Impacts Considerations for Boards Real Estate Industry Impacts for Real Estate Considerations for Boards Legal Impacts for the Legal Profession Considerations for Boards Healthcare Impacts for the Healthcare Sector Considerations for Boards Government and Politics Impacts for Governments and Politics Considerations for Politicians and Government Agencies Education Impacts for the Education Sector Considerations for Boards Energy Impacts for the Energy Sector Considerations for Boards Supply‐Chain and Logistics Management Impacts for Supply‐Chain and Logistics Management Considerations for Boards Summary PrimaryMarkets: A Finance Industry Case Study Business Profile Industry Background and Business Challenge The Solution Implementation Results Conclusion About the Authors Notes References Chapter 22 Reflections of a Board Chair on the Christchurch Massacre: Governing Social Media Introduction The Impact of Social Media on Corporate Governance Boards and Companies Are Not Immune The Meaning of Governance Governance Document Social Media Attacks A Product Attack A Service Attack A Marketplace Behavior Attack A Personal Attack on a Senior Staff Member or Director An Attack on the Board as a Collective Conclusion Appendixes About the Author PART IV The Work of the Board: C. Risk and Financial Governance Chapter 23 Financial Literacy and Audit Committees: A Primer for Directors and Audit Committee Members Editor's Note The Board and Audit Committee's Financial Literacy and Oversight of Financial Reporting and External Audit Audit Committee Oversight of Internal Audit Audit Committee Oversight of Risk Management Audit Committee Oversight of Business Conduct, Ethics, and Whistleblowing Audit Committee Oversight of Technology and Cybersecurity Conclusion About the Author Notes Chapter 24 Corporate Governance in an Age of Populism Introduction A Populist Replay of the 1930s? Disaffection with the Current Economic Order Dealing with Symptoms Rather Than Causes The Wrong Neo‐liberal Responses Populism Is Not the Answer Preventing a Political Tragedy of the Commons? 1. Focusing on Reputation 2. Treating People as Assets Rather Than Costs 3. Rethinking Processes Conclusion About the Author Notes Chapter 25 A Call to Action for Geopolitical Governance Introduction Twenty‐First‐Century Political Risk Politics Is More Manageable Now Than Ever Politics Is a Board Imperative A New Approach Anchor Analyze Assess Adjust Conclusion: The First Step to Geopolitical Governance About the Authors Chapter 26 Governing Boards, Risk Management, and Deliberative Thinking The Risks of Governance Risks Engaging the Board in Risk Governance Oversight Bringing Deliberative Thinking into the Boardroom A Director's Risk Roadmap About the Author Notes References Chapter 27 Lawyers' Advice to Directors on Overseeing Executive Pay Introduction The Overarching Principle of the Fiduciary Duty The Approval of a Compensation Committee Isn't Necessarily Enough If It Looks Too Good to Be True, a Court Is Probably Going to Feel the Same Way Don't Stop Being Scrupulously Honest Just Because a Contract Is Signed If Your Company May Have an Executive Who Breached Their Duty, Contemplate Asking a Court to Set It Aside Conclusions and Lessons from the Law About the Authors Notes Chapter 28 Accountant's Advice to Company Directors: Directors' Obligations to Detect Top‐10 Frauds Background Fraud #1: Absent Board Independence Fraud #2: Hiring “Rubber‐stamp” Consultants Fraud #3: Over‐Ranked Financial Specialists Fraud #4: Incentive Programs Gone Awry Fraud #5: Weak Financial Controls Fraud #6: Non‐Arm's‐Length/Self‐Dealing Fraud #7: Ponzi Schemes Fraud #8: “Cooked Books” Fraud #9: IFRS Fraud #10: Corporate Reorganizations About the Author Chapter 29 Ten Tell‐Tale Signs of Possible Fraud: A Director's Primer Introduction The Chief Executive Officer (CEO) Is a Narcissist The CEO Takes a Keen Interest in Basic Accounting Entries The Company's Operation Represents One Person's Vision The Corporate Organization Chart Does Not Reflect Reality The Board Does Not Understand All Aspects of the Business The Minute Books Are Not Up to Date The Audit Committee Is Inactive Senior People Have a Flamboyant Lifestyle Noncore or Unusual Business Activities Generate High Revenue The Corporation Is Not a Securities and Exchange Commission (SEC) Registrant Conclusion About the Author Chapter 30 100 Questions Directors Should Ask When Assessing the Effectiveness of Risk Systems Introduction The Challenge Key Elements of Effective Risk Governance How Do Directors Assess Whether Risk Systems Are Working Effectively? I. Is the Board Doing Its Part in Managing Risk? II. Can the Board Rely on Control Functions? III. Does the Culture Support Risk Management or Risk Taking? IV. Is the Risk Culture Sustainable? About the Author Chapter 31 Risk Oversight for Directors: A Practical Guide Introduction The Mechanics of ERM The Five ERM Elements The Four ERM Fundamentals Board Risk Oversight Conclusion About the Author Acknowledgments Appendix: Gap Study—Risk Oversight for Directors: A Practical Guide Notes Chapter 32 Risk Governance: Leading Practice and Demographic Impacts Introduction What Is Enterprise Risk Management and Risk Governance? Corporate Governance Regulations: Risk Governance Expectations A Risk Governance Approach Risk Governance Structure How Should the Board Organize Itself to Oversee Risk? What Should the Charter of the Board Include Regarding Risk Oversight? What Skills Should Directors Possess to Fulfill the Board Risk Oversight Charter? Emerging Role of the CRO Policy Assurance Risk Governance Framework Implementation Demographic Influencers of Effective Risk Governance Conclusion About the Author Notes PART IV The Work of the Board: D. Strategic Governance Chapter 33 Agile Governance Introduction Change Is No Longer Linear; Now It Is Exponential The Business Ecosystem Has Gone from Complicated to Complex From Chess to Poker Four Principles of Agile Boards and a Toolbox Purpose Is Timeless and the Board Guards It Continuous Reinvention: Adapt or Die Skill Building and Acquisition The Human System The Organizational System The Market System Risk Management Be Prepared to Act Before 100 Percent of the Information Is Known Don't Surrender to Groupthink And Toolbox—The Agile Dashboard Measuring Speed Interaction Time and Pivot Conclusion About the Authors Notes Chapter 34 The Three Dilemmas for Creating a Long‐Term Board Chapter Summary Introduction: Making the Case for Why Boards Should Care About Being Long‐Term The Dilemma of a Time‐Constrained Board The Dilemma of Using Stock Ownership as a Means of Aligning Interests Shareholder Engagement: The Dilemma of How and When Directors Should Engage Solutions for Long‐Term Boards Time Spent on Strategy Directors as Owners Shareholder Engagement Conclusion About the Authors Notes Chapter 35 Strategic Blindspots in the Boardroom Competitive Blindspots Misjudging Your Industry Boundaries Underestimating Competitors and Their Capabilities Lack of Foresight to Spot Trends Antidotes to Competitive Blindspots Mitigation Strategies from Best Practices to Avoid Competitive Blindspots Anchoring Blindspots Anchoring to the Past Limited Frame of Reference Antidotes to Anchoring Blindspots Mitigation Strategies from Best Practices to Avoid Anchoring Blindspots Organizational Blindspots Unchallenged Assumptions Corporate Taboos Bias Against Dissent Antidotes to Organizational Blindspots Mitigation Strategies from Best Practices to Avoid Organizational Blindspots New Boardroom Blindspots for the Next Five Years Emerging Technologies The IT Abyss Risks of Fraud, Scams, and Security Breaches Redefining What Work and Talent Will Mean in the Future The Longevity Economy Understanding Asia, Africa, and India Future Job Competencies of Workers Conclusion: Steps Corporate Directors Should Now Take as a Profession About the Author References PART IV The Work of the Board: E. Human Capital and Compensation Governance Chapter 36 Winter Is Coming: The Approaching Human Capital Management Storm Introduction The Link Between Human Capital and Firm Financial Performance The New Reality of Enhanced Information Disclosure Economic and Decision‐Quality Rationales for Including Human Capital Metrics as a Governance Issue Other Theories About Information Impact on Decision‐Making Human Capital Metrics: Using “Big Data” Approaches Conclusion About the Authors Notes Chapter 37 The Effective Compensation Committee Introduction Keys to an Effective Compensation Committee Role of the Committee Knowledgeable and Informed Committee Members Role of the Compensation Committee Chair Effective Committee Meetings Outside Advisors Relationship with Management Compensation Committee Charter Compensation Philosophy Aligning Pay with Performance Provide Fair and Competitive Pay Opportunities Provide a Mix of Pay Elements Consistent with the Strategic Objectives of the Organization A Balanced Program That Mitigates Risk De Minimis Use of Benefits and Perquisites Compensation Committee Calendar Recurring Events Executive Compensation: Program Design Executive Compensation: Pay Levels Performance: Establish, Monitor, Certify Shareholder Outreach and Proxy Disclosure Other Items Committee Housekeeping Aligning Pay to Performance: Best Practices Choosing the Right Compensation Vehicles Choosing the Right Performance Metrics Absolute Versus Relative Performance Metrics Use of Individual Performance Metrics Establishing the Right Performance Targets Use of Discretion Succession Planning and Talent Development Say on Pay and Shareholder Engagement Eliminating the Irritants Communicating Compensation Decisions Serving as Public Ambassadors of the Pay Program Navigating Shareholder Advisory Firms Conclusion About the Authors Notes Chapter 38 Compensation Governance and Performance‐Based Executive Compensation Introduction Typical Responsibilities Found Within the Charter of the Compensation Committee Compensation Governance Background Compensation Governance Process Establish Compensation Philosophy and Peer Group Governance Steps to Validate and Define the Compensation Philosophy Review Executive Compensation Assess the Business Impact Before Making Final Approvals Report the Process and Compensation Results to the Executives and Shareholders via the Annual Proxy Performance‐Based Executive Compensation Governance Process to Review and Design the Annual Bonus Governance Process to Review and Design the Long‐Term Incentive Plans Types of Long‐Term Incentives Long‐Term Cash Stock Options/Share Appreciation Rights Restricted Share Units (RSUs) Performance Share Units (PSUs) Deferred Share Units (DSUs) Governance Process to Design Performance‐Based Incentives Final Thoughts About the Author Chapter 39 Measuring and Improving Pay for Performance: Board Oversight of Executive Pay The Three Basic Objectives of Executive Pay A Brief History of Executive Pay Why Percent of Pay at Risk Is Not a Meaningful Measure of Incentive Strength Measuring the Three Basic Objectives of Executive Pay The Design Implications of the Measurement Analysis: Perfect Pay Plans Benchmarking Pay for Performance Executive Pay Has a Big Impact on Shareholder Wealth Directors Need to Ensure That They Themselves Have Strong Incentives to Increase Shareholder Value Institutional Investors Don't Do a Good Job on Say on Pay ISS Doesn't Do a Good Job for Institutional Investors Conclusion About the Author Notes References Chapter 40 Designing Performance for Long‐Term Value: Aligning Business Strategy, Management Structure, and Incentive Design Defining Performance and Missing Metrics What About Earnings per Share (EPS) as a Performance Metric? Connecting Current and Future Value to Total Shareholder Return Aligning Management Structure with Innovation and Future Value Current Value, Future Value, and Rethinking Long‐Term Incentive Design Explaining Performance and Pay for Performance Conclusion Glossary About the Author Notes Chapter 41 Mind the Gap: How Human Resources Can Become More Integral to the Corporate Boardroom Agenda What Contributes to the HR Knowledge Gap in Corporate Boardrooms? How Can Boards Effectively Address the HR Knowledge Gap? Ensure the Presence of the CHRO and/or a Director with HR Expertise at Every Board Meeting Establish a Human Capital Management Scorecard Educate the Board Establish a Human Capital Board Committee Develop Boardroom Presence in the CHRO Capacity Development Conclusion About the Authors References PART IV The Work of the Board: F. Legal and Governance Responsibilities of Directors Chapter 42 Board Risk and Responsibility Under Regulatory and Criminal Law Board Governance, Regulatory and Criminal Law Leadership Failure and the Westray Mine Disaster Moral Panic and Political Policy Proclivity Legal Differences Between Regulatory and Criminal Law “Due Diligence” or “Do Diligence” in Risk Governance Directors' Personal Risk and Due Diligence No DPAs for Directors Indemnity and Insurance for Directors The Charter and Legal Risk Management International Directions in Directors' Legal Liability About the Author Notes References Chapter 43 Riding Between Cars: The Position of the Corporate Secretary Introduction Legal Origins Duties, Powers, and Responsibilities Narrative Descriptions by Experts Expansion of the Role Best Practices Shareholder Engagement Say on Pay Investor Relations Straddling Future of the Role About the Author Notes Chapter 44 Ensuring Good Governance and Business Success in International Subsidiaries Align the Purpose of the Subsidiary and Its Board to the Parent Align the Processes of the Subsidiary with the Needs for Good Governance Align the Leadership of the Subsidiary with the Needs of the Board Identify the Operating Needs of the Parent: The “Non‐negotiables” Clarify and