Each year, Martin Lipton, a founding partner of the Wachtell, Lipton, Rosen & Katz law firm, publishes a one-page list of key issues he sees as emerging or vital for directors in the upcoming year. With 2010 drawing to a close, it is fitting for directors to start casting their eyes toward the challenges of 2011. This year, Mr. Lipton's list, published on the Harvard Law School Forum on Corporate Governance and Financial Regulation, includes the following key issues for directors for the upcoming year:
- Organizing the business of the board so that each of the increasingly time-consuming matters that the board is expected to oversee receives the appropriate attention of the directors.
- Retaining and recruiting sufficient directors to meet the requirements for experience, expertise, diversity, independence, leadership ability and character, and providing compensation for directors that fairly reflects the significantly increased time and energy that they will need to spend in serving as board members.
- Developing an understanding of shareholder perspectives on the company, as well as coping with the escalating requests of union and public pension funds and other activist shareholders for meetings with the independent members of the board to discuss performance, governance, compensation and director nominations matters.
- Maintaining the collegiality of the board in light of the balkanization created by the mandatory independent committee structure, and maintaining a collegial relationship with senior management that allows the board to play the important role of a strategic partner in light of the constantly increasing focus on the monitoring function of the board.
- Developing an understanding how the company and the board will function in the event of a crisis. Most crises are handled less than optimally because management and the board have not been proactive in discussing how they would function, and the board cedes control to outside counsel and consultants.
- Most importantly, working with management to encourage entrepreneurship, appropriate risk taking, and investment to promote the long-term success of the company, despite the unrelenting pressures for short-term performance.
Obviously, Mr. Lipton's list looks mainly to corporate directors; however, fund directors may find these issues highly relevant in the investment company context, particularly with respect to oversight of crisis and risk management.
Mr. Lipton's full post is available at: http://blogs.law.harvard.edu/corpgov/2010/12/16/key-issues-for-directors-in-2011/