NACD Blue Ribbon Commissions Recommend New Principles for Audit, Performance Metrics, and Board Evaluation

Oct 18, 2010, 07:00 ET from National Association of Corporate Directors

Barbara Hackman Franklin Addresses Leading Corporate Directors and Governance Experts at NACD's Annual Corporate Governance Conference in Washington, D.C.

WASHINGTON, Oct. 18 /PRNewswire-USNewswire/ -- The National Association of Corporate Directors (NACD) released three new Blue Ribbon Commission reports today outlining new strategies and leading practices for board oversight at their 2010 Corporate Governance Conference in Washington, D.C. (For up-to-the-minute details from the Conference, visit http://blog.NACDonline.org). In light of increased pressure on the boardroom and its oversight responsibilities, coupled with a lack of clarity around metrics to evaluate corporate performance, the NACD released a new report on Performance Metrics, a new Audit Committee report, and a revision to its report on Board Evaluation.

"From the largest companies to smaller, more nimble firms, it's clear that corporate directors in all industries are proactively seeking information to stay on top of the issues and ahead of the curve," said the Honorable Barbara Hackman Franklin, NACD Chair and former U.S. Secretary of Commerce. "The recent whirlwind of legislative and regulatory activity has ushered in an era where expectations for board performance are both more public and more personal. This is a critical time to address issues that affect the U.S. system of corporate governance."

These three groundbreaking Blue Ribbon Commission reports were developed in collaboration with NACD's partners Heidrick & Struggles, KPMG's Audit Committee Institute (ACI), Oliver Wyman, Pearl Meyer & Partners and Weil, Gotshal & Manges LLP.  

The Report of the Blue Ribbon Commission on Performance Metrics, chaired by John Dillon (director at Caterpillar, Inc., E.I. Dupont de Nemours & Co., and the Kellogg Company) and Professor William White (director at Context Media, Inc. and former Chairman, President & CEO of Bell & Howell Company), issued recommendations on selecting and using metrics, communicating to the marketplace and tying compensation to performance metrics.  Additional support from Pearl Meyer & Partners provided metrics analysis and compensation expertise for the report. The report offers six imperatives to guide boards as they consider the performance metrics used by their company:

  • Understand and agree on the company's key performance metrics
  • Establish company performance metrics to cascade throughout the entire enterprise
  • Track company performance against metrics on an ongoing basis
  • Establish consistent and appropriate executive performance metrics
  • Reward executives based upon performance as measured by appropriate metrics
  • Communicate with shareholders regarding how the company has paid for performance

"As proven by recent events, performance metrics have become a vital element of instilling the right culture throughout any organization operating in today's volatile environment," said Ken Daly, NACD President and CEO. "The role of the board has expanded and become more complex, and now more than ever, they are in need of clarity and guidance when it comes to measuring and communicating the financial and non-financial criteria critical to the success of their enterprise."

The Report of the Blue Ribbon Commission on the Audit Committee, chaired by Dennis R. Beresford (director at Fannie Mae, Kimberly-Clark Corporation and Legg Mason, Inc.) and Michele Hooper (director at Astra Zeneca, PPG Industries, Inc., UnitedHealth Group and Warner Music Group), offers practical perspectives, suggestions, and leading practices on what makes an audit committee effective.  The report, produced in collaboration with KPMG's Audit Committee Institute, identifies key issues for boards and ten practical recommendations to help directors maximize proactive engagement, transparency, and effective shareholder communications.  In light of complex accounting rules and regulations, innovative financial instruments and the global nature of businesses today, the Audit Committee report addresses the following:

  • The Audit Committee's responsibilities and membership requirements
  • Who should lead and serve on Audit Committees
  • Oversight of financial reporting and risk
  • Setting expectations for external and internal auditors
  • Setting the agenda and making the most  of Audit Committee meetings
  • Ten principles of effective Audit Committee oversight

"The commission's Audit Committee report provides an important and timely opportunity for audit committees to re-examine how and why they do what they do , as well as a chance to increase their effectiveness," said Jim Liddy, Vice Chair, Audit, KPMG LLP, and a member of the Blue Ribbon Commission. "Every audit committee will find information in this report that will help them improve the financial reporting process and strengthen their interactions with the finance group, external and internal auditors and the management team."

The Board Evaluation report has been updated to reflect new, leading practices to determine the right members of the board, create an accountable culture and develop processes that yield strong results. As demonstrated by recent legislation and regulations, and as director qualifications, skill sets and experiences have come under scrutiny, optimizing the board's composition is essential.  In addition, NACD's Board Advisory Services team has developed new customizable and confidential programs to facilitate board evaluations.

About NACD Blue Ribbon Commission Reports

For two decades, NACD has issued Blue Ribbon Commission reports on a variety of topics, updating them as necessary. Over the years, the NACD has published a total of seventeen reports on topics ranging from executive compensation to risk oversight to board leadership. The NACD's Blue Ribbon Commissions continue to develop and publish new and updated reports each year reflecting new challenges of the Boardroom and addressing issues of importance to its membership.

About NACD

The National Association of Corporate Directors (NACD) is the only membership organization delivering the information and insights that corporate board members need to confidently navigate complex business challenges and enhance shareowner value. With more than 10,000 members, NACD advances exemplary board leadership.  NACD is focused on creating more effective and efficient boards through director-led education and peer forums to share ideas and leading practices based on more than 30 years of primary research. Fostering collaboration among directors and governance stakeholders, NACD is shaping the future of board leadership.  To learn more about NACD, visit NACDonline.org.

SOURCE National Association of Corporate Directors



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