Director Orientation and Continuing Education

From PLI’s Course Handbook

Corporate Compliance and Ethics Institute 2009

#18176

Debra S. Rade

Rade Law LLC

Debra S. Rade

Managing Attorney, Rade Law LLC

Brief Biography

Debra Radefounded Rade Law LLC and Rade Consulting LLC with offices in Deerfieldand Chicago, Illinois, in June 2008. In these respective firms, she applies her uniquemultidisciplinary background that combines more than 20 years of senior executiveexperience and legal practice in corporate law, corporate governance and compliance,product safety and regulatory compliance, and not for profit law.

Debra is a former partner of Katten Muchin Rosenman LLP, a national law firm. Priorto joining the firm, she served as general counsel of Underwriters Laboratories Inc. (UL),a leading global American-based testing, inspection and certification organization. For more than 13 years, Debra held several leadership roles at UL, including senior vicepresident, chief legal officer, and chief administrative officer, and was also responsiblefor various business operations.

She is a frequent speaker on corporate compliance, ethics and board issues. In 2008, she spoke about compliance challenges related to product safety at theAmerican Bar Association, where she is a member of the Business Law Section and Compliance Committee. She is also the chair of the subcommittee on New Developments in Not for Profit Law. Also, she was a member of the Practising Law Institute’s faculty at theCorporate Compliance and Ethics Institutes of 2007 and 2008. She has enjoying teaching Legal Ethicsas adjunct professor of law at Northwestern University School of Law since 1998.

Debra is currently a non-executive (independent) director on the board of Intertek Group plc, headquartered in London, U.K., and traded on the London Stock Exchange(ITRK-L). Intertek is a global testing, inspection and certification organization currently ranks inthe top 20 of the FTSE 250 index.

Debra is also active in the community, and currently serves as president of theAmerica Israel Chamber of Commerce Chicago, and recently retired as chair of the Design ReviewCommission for the City of Highland Park after six years of service to that committee.

Contact Information

Debra S. Rade

Managing Attorney, Rade Law LLC

312.895.2401

500 Lake Cook Road – Ste 350

Deerfield, IL60015*

200 South Wacker – 31st Floor

Chicago, IL 60606

*preferred mailing address

Director Orientation and Continuing Education

The chairman of the board and CEO of a large publicly traded corporation was recently asked what his plans were for his impending retirement. His response was short and to the point. “I only know that I do not want to serve on any other boards.” This was a surprising answer because serving as a board member is a logical extension of a successful CEO’s career, if not de rigueur. So, why was this not his objective? “I worked a lifetime to accumulate the wealth I have today, and I’m not planning on risking it after walking out the door.” This speaks volumes about the trepidations of directors as they assume and perform their board responsibilities. It’s a risky business, that can be made riskier by the manner in which the corporation does business or inherent its mission.

While directors and officers’ liability insurance, as well as exculpatory language and indemnification agreements, can provide comfort, perhaps there is nothing that can reassure a director better than joining a board that has clearly articulated corporate governance practices and sound policies for compliance oversight. Corporations competing for the best board members need to ensure that prospective and current board members are provided with the tools needed to fulfill the significant role they play within the corporation. Accordingly, management needs to ensure that their board members receive requisite information from the outset and continuing throughout their years of service.

In the decades past, it might have been sufficient to provide a new director with an orientation book or program prior to joining the corporation. This no longer suffices as a best practice. Continuing education is pertinent to the accountants and lawyers who advise the corporation, and now it is the expectation for board members as well.

Every corporation is unique and has particular needs and abudget. There are many ways in which to provide director training and continuing education programs.

Director Orientation

Director orientation can be coordinated by the corporate secretary or general counsel’s office. When the general counsel doesn’t serve as the corporate secretary, the responsibility for orientation is usually a team effort shared by the two functions.

The Board Book

Common practice almost uniformly includes submitting a Board Book (known by other names, such as “Director’s Book”) to the board member prior to the first meeting. The Board Book may be quite extensive, but will routinely cover basic matters such as financial reporting, executive compensation, trading regulations and requirements, litigation, conflicts of interest, regulatory compliance, information technology, human resources, government affairs, marketing, and public affairs. Of course, it will likely include detailed information about the business of the corporation and its long and short term strategy, its customers, investors and the competitive environment.

There are differing opinions as to how extensive the Board Book should be. Some question whether lengthy Board Books are ever read in their entirety. Also, an educational/training program may not be able to cover it all or well, so the directors may be left in the vulnerable position of having certain documents in their possession without any reasonable expectation of reading them in any great depth. “Short and sweet” may be better, as it allows the new and existing board members to know what the major issues are and encourages them to ask questions and seek answers.

Indeed, many corporate directors serve on multiple boards and there is a risk that they grow somewhat inured to the Board Book (as a generic concept) and tune it out, thinking that they are already “trained” by another organization. The challenge is to keep those board members tuned into your corporation’s unique requirements. This can be accomplished with careful drafting and prudent editing of your corporation’s Board Book.

In essence, the Board Book is a good resource for every director, new or senior, especially when it includes reference materials, such as contact information for the c-suite, senior management and outside consultants, including the outside auditor. Its use is proportionate to the frequency in which it is picked up as a resource and the frequency with which the information contained therein is replenished and updated. You may also find it helpful to provide a searchable copy of the Board Book in digital format or online for secured access by directors.

Orientation Program

In addition to providing new directors with a Board Book, some corporations will provide a full day orientation program, especially when there is more than one director joining the board at the same time. Some companies find it difficult to capture a director for a whole day outside of scheduled board meetings, especially when that director has already sat through several similar programs provided by the other corporations on which they serve.

In any event, it is best to cover the Board Book from front to back to familiarize the directors with its contents, the level of detail determined by the time allotted and the priority of expectations and risks.

Direct Communication with Corporate ManagementSubject Matter Experts

Many corporations wisely ensure that new directors have access to the company’s senior managers. This is a fine way to encourage direct communication from the outset and to set the stage for askingmanagement tough questions. Best practices include one-on-one private meetings with management that allow for individual and in-depth questions and concerns from both the board member and senior management perspective. However, if there are multiple new board members, orientation may be more efficiently conducted within the context of a program.

On Site Visits

Formal facility site visits can be valuable. This helps the director gain a fuller appreciation of the business, its employees and environment. For instance, if you walk into a laboratory and there isn’t work on the benches, this tells you something about the challenges facing the business. It would have a different message if work was stacked up along the walls. Of course, it is very important that directors have an opportunity to meet with local management while there and learn directly from them the strengths and challenges of that operation. While some companies tend to include site visits under the category of continuing education for the board,usually within the context of a board meeting, some will provide this opportunity as part of orientation, especially when convenient and cost-effective.

Assignment of a Mentor to the New Director

To ensure the effective assimilation of a new board member, it is becoming more common to assign the new director a mentor with more experience within the board. This can be a positive way of ensuring that the new board member has a peer to contactwho can provide answers during the especially challenging time of uploading information about an unfamiliar and complex business. Additionally, the mentor might encourage more involvement from the new director when appropriate, or refer the new director to specific members of management for further information.

Continuing Education

Board Book

It is essential that a Board Book be updated routinely as an integral element of continuing education. This responsibility frequently falls within the purview of the corporate secretary but, as mentioned before, it should be shared with the general counsel if those roles aren’t within a single function. An out of date Board Book is not only useless, it is most likely a legal liability. It requires routine updating, and also when new laws and regulations are issued. Once a year updating would be the minimum, and yet even a quarterly review might not be sufficient depending on the circumstances of the company or legislation.

Routine Strategy Meetings

One of the most effective ways of ensuring compliance with corporate governance expectations is conducting an annual strategy meeting with senior management. This is an opportunity for directors to receive in depth knowledge of the corporation’s short and long term plans before they are in place, or to learn about the plans in place that aren’t working well and need improvement or even ejection from the plan. Of course, this is also the time for directors to share the wealth of their experience and insights.

Many corporations hold these strategic meetings off site. Indeed, in a large or global corporation, these meetings frequently include regional managers and, perhaps, more people than the corporation can reasonably accommodate in its conference rooms. Some may choose off-site meetings to allow for an atmosphere considered more conducive for the length of the meetings or “brainstorming.” In making these decisions, corporations would best consider the cost effectiveness and outside perception of the meetings as constructed. Consider, for example, American International Group, Inc., an insurer that in 2008 pledged to curb spending as the recipient of an $85 billion federal bailout and then arranged to host a $440,000 off-site meeting replete with sponsored spa time for participants. Public criticism was loud and clear with great reputational damage.

Formal Director Education

Many directors may benefit from formal director education offered at various prestigious business schools (such as Harvard, Northwestern, Stanford and Wharton), membership organizations (such as the National Association of Corporate Directors or the Women Corporate Directors), or by law and accounting firms. Certification programs abound. These programs can be chosen based on a perceived need for the board as whole or a singular board member who might be taking on a new role. These programs can be highly effective for team building, learning about best practice trends, and strengthening insights into specific business challenges that are ahead of the corporation.

Formal director education can also be tailored for delivery at regularly scheduled board and committee meetings. This can include, by way of example, in-house briefings on business and legal developments, as well as human resources and information technology trends. Outside speakers as well as in-house experts can be invited to make presentations.

Technology has also made it easy for directors to attend programs via webinars and other online education programs.

Executive Talent Review

Corporate succession planning is a vital board role. By scheduling an executive talent review as part of ongoing board education, the board gains insights into the company’s leadership and its future. In essence, the directors are gaining a valuable and deeper education into corporate governance while providing their critical oversight. As part of this program, the board can be updated on compensation and the competitive market for talent.

Ensuring an Effective Continuing Education for Directors

In order for continuing directors’ education to be effective, the responsibility for the program should be placed with the corporate secretary or general counsel who can work closely with the CEO and the chairman of the board, or the chairman of the Governance Committee.

The continuing education function should be one that ensures accountability. It should routinely push out to directors updated lists of qualifying educational opportunities. Costs for programs should be budgeted and the directors reimbursed for attending. The company should track the courses taken and the board should ensure that the budget is spent wisely as part of its evaluation.

Board Evaluation

Finally, for proper governance and compliance, the board should conduct a detailed and formal evaluation of how it functions as a team and individually. This can be done as a self-assessment or with the assistance of an outside consultant. The obvious benefit of self-assessment is that no outside expenses are incurred and the director may feel a sense that all comments are “within the family.” On the other hand, an outside consultant may be able to provide a certain level of anonymity to the process that will allow directors to express any “delicate” concerns they may have about the manner in which the meetings are conducted, or about their own performance orthat of others.

In any event, directors are advised to seek legal advice of the general counsel or the board’s outside counsel concerning the confidentiality of the evaluation and maintenance of pertinent records.

Conclusion

Director orientation and continuing education can help your board to fulfill its legal, financial and fiduciary responsibilities to the corporation. While some may think that these practices are best suited to the large, publicly traded company, many of them are even more easily implemented within the smaller or privately held corporation, as well as not for profit organizations. An effective board is known to be a powerful element in long term corporate success.