3.5.9 A summary of the role of board members in the US

US corporate tradition gives primacy to the board, the nexus of the corporation; shareholders traditionally have fewer rights on paper than in the UK. From 1972 onwards the SEC supported audit committees by advocating that they should consist solely of independent directors and from 1977 onwards endorsed them. In 1977 the term "corporate governance" was used first in the US. Since 1992 shareholder activists have won rights and promoted private codes. After the Enron and WorldCom collapses and the Sarbanes-Oxley Act of 2002, the SEC encouraged stock exchanges to develop codes that give best practice rules for the nominations of independent directors and more shareholder rights; in response a number of aspirational private codes have been launched. The move towards more shareholder rights is continuing and the Dodd-Frank Act provides direction in many areas. Shareholder activists are urging for changes in majority voting for directors, elimination of staggered boards and separate non-CEO chairmen for all listed companies.

The main new features of change for US boards are independent directors, executive sessions and the growing number of non-CEO chairmen.

The emphasis on shareholders' rights and sharp focus on stock prices, cause growing pressure from outside on the company. This has put independent directors in the limelight and has forced them to concentrate on monitoring and challenging, optimizing the results of the company and the interest of long-term investors and a score of other stakeholders.

The major role in creating an orderly succession has passed from the CEO to the independent directors, and US career development programmes have become an example for other economies.

The members of a US one-tier board have joint responsibility for developing, achieving and monitoring all aspects of corporate strategy. They take all decisions jointly. The division of board roles between executives and non-executives is flexible, but must be clearly documented in writing.

Independent directors are playing a more enhanced role in debating strategy options and in challenging officers on their development of strategy as well as in monitoring the achievements of these officers. Particularly noteworthy is the cooperation between US executives and non-executives in dividing up strategy development into steps, so that the non-executives effectively have an active role even if the drafts are made by the executives. This active role of independent directors in the US in challenging strategy differs from the general position of supervisory directors in the Netherlands, whose sole function is to supervise. It also differs from NEDs of the UK, who are supposed to do more than challenging strategy proposals, in that NEDs are actively involved in the development of the strategy.

Adopted measures for promoting the better functioning of independent directors include the provision of early information and on-site information, time for debate about strategy and systems for enterprise risk management, introduction, training, time for the job, income, evaluation and, last but not least, proper succession procedures.

The majority — 70% — of US listed companies stil have a CEO who is also the chairman. In these corporations the leadership role of the independent directors is fulfllled by a lead director, who chairs the executive sessions. He is the one who also takes all measures to promote the proper functioning of the independent directors as mentioned at (iv) above. 30% of listed corporations have a separate non-CEO chairman. The separate chairman does what the lead director does, but as he also chairs the full board meeting and therefore influences the debate, he has more knowledge of the performance of the officers. He is complementary to the CEO and acts as his partner. He is less involved in day-to-day business and goes to fewer meetings with shareholders than a UK chairman. Dutch chairmen can learn from both these systems.

As far as a US-UK comparison is concerned, points (ii), (iii) and (iv) show that US boards and independent directors have more or less the same roles as UK boards and NEDs. On the whole, US independent directors have slightly less influence in the shaping stage of strategy than UK board members. The main forma! differences are that in the US independent directors hold executive sessions and only 30% of listed companies have separate non-CEO chairmen. Most of the other 70% have lead directors.