Corporate Director’s Guidebook—Sixth Edition

182 Min Read By: Corporate Laws Committee

FOREWORD

This is the Sixth Edition of the Corporate Director’s Guidebook. Since its initial publication in 1978, directors, business executives, advisors, students of corporate governance, and others have all come to rely on the advice and commentary in the Guidebook. Indeed, the Guidebook is the most frequently cited handbook in its field.

The primary purpose of the Guidebook is to provide concise guidance to corporate directors in meeting their responsibilities. The Guidebook focuses on the role of the individual director, in the context of providing advice about the duties and operation of the board and its key committees (audit, nominating and governance, and compensation). Although many director decisions and tasks occur against a legal backdrop, we emphasize the law only in limited instances and otherwise attempt to avoid legalisms.

The Fifth Edition of the Guidebook, published in 2007, assumed that certain legal reforms like the Sarbanes-Oxley Act were a baseline for director action and focused on company performance under the spotlight of investor interests. This Sixth Edition is being published in the wake of the 2007–2010 financial crisis and the resulting legislation, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). As a result, this edition emphasizes themes arising out of the crisis and important to all directors, particularly those in public companies.

The Sixth Edition explores the role of directors in overseeing both strategy and risk. Strategy and risk are interrelated, and directors cannot understand and guide strategy without also focusing on risk. Corporations must manage risks appropriately. Although not engaged in day-to-day risk management, directors are charged with its oversight.

Today, director decisions are subject to a much more significant level of public and shareholder scrutiny than ever before. To help directors engage in effective oversight and decision-making processes in the current environment, the Sixth Edition emphasizes the following:

  • Risk management and its role in company strategy and operations;
  • Executive compensation decision-making by compensation committees, with a focus on the links between compensation, performance, and risk;
  • Chief Executive Officer (CEO) succession planning and its relationship to strategy and risk oversight;
  • Enhanced shareholder activism and power, including the pressure for proxy access in director elections; and
  • New federal statutory and regulatory requirements that set forth legal baselines for boards and public companies.

The Sixth Edition also adds an appendix of corporate governance websites and blogs, as well as listings for associations, institutional investors, and other resources.

The Guidebook provides important information for directors of public companies, but it is also relevant to directors of all companies in understanding their duties and obligations. In short, it provides a concise guide to boardroom best practices for all directors. The Corporate Laws Committee hopes directors and their advisors will benefit from this Sixth Edition of the Guidebook.

    Respectfully submitted,

A. Gilchrist Sparks, III

Chair

Corporate Laws Committee

CORPORATE LAWS COMMITTEE

The Corporate Laws Committee of the American Bar Association’s Section of Business Law is composed of active or former practicing lawyers, law professors, regulators, and judges with corporate law expertise from throughout the United States and Canada. In addition to the Corporate Director’s Guidebook and other scholarly writings, the Committee is responsible for the development of the Model Business Corporation Act.

The Model Act, first issued in 1950, has been adopted substantially in its entirety by more than thirty states in the United States and in important respects by many other states. The Model Act has played an important role in the development of corporate law in the United States and …

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