The One-Tier Board (IVOR nr. 85) 2012/3.4.4:3.4.4 Types of directors on US boards

The One-Tier Board (IVOR nr. 85) 2012/3.4.4

3.4.4 Types of directors on US boards

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A typical US board of directors now has about 8 to10 members, of whom the CEO is the only executive director and the others are independent directors. In an increasing number of listed companies (about 30%), one of the independent directors is chairman, separate from the CEO. In the other 70% there is a lead director.

(a)

CEO and executives; officers represent the corporation

The reason why the CEO is now the only officer on the board and the other officers are no longer members, is the general wish to have a purely independent board and independent board committees.1 In practice, the independent directors regularly see the other executives called "officers". These usually do attend board meetings to make it possible for the independent directors to ask questions. The CEO is the leader of the executive team of officers and manages and runs the enterprise with that team. The officers legally represent the company. Officers are corporate agents.2 The officers have specific powers, the CFO for financial or the COO for operational matters and the HRO for human resource matters. Each of them gives information to the independent directors.

(b)

Chairman or lead director

In 2009 over 70% of US listed corporations were led by CEOs that were also chairman. Companies with a combined CEO/chairman are therefore in the majority, unlike in the UK. However, this percentage is decreasing, and the number of companies with a separate chairman and CEO is now over 30%. The US chairman has many roles, such as leading the board and seeing to orderly succession of CEO and board members similar to a chairman in the UK. However, in the US the chairman is usually less dominant than his UK counterpart. Lead directors do not lead the board, but do lead the executive sessions of the independent directors and the nomination process.

(c)

Independent Directors

Independent directors are occupied with corporate matters usually at least two days a month or more. If they are member of a committee, this can rise to about four or five days a month. They have a double function in that they are supposed to (1) actively challenge the strategy proposed and executed by the officers (promoting the "upside") and (2) monitor the execution of the business (avoiding the "downside"). All committees are made up of independent directors only.

(d)

Executive sessions

A typically US concept is the "executive session", which is contrary to what the term suggests a meeting of independent directors without any executives present — see 3.4.7 below.

(e)

Corporate counsel

Most US listed companies have a corporate counsel, an in-house lawyer who, besides heading the in-house legal department, is in charge of corporate governance and takes care of all legal formalities. Like his Dutch counterpart, his role is less clear than that of a UK company secretary. The US corporate counsel generally reports to the CEO and is important. Sometimes he is also the corporate secretary. In the UK the company secretary is vested in the law and assists the chairman directly.

(f)

The board acts and decides as a unitary board

When acting for the corporation directors must act as the board. Decisions are decisions of the full board.3 This is comparable to the UK unitary board. In the Netherlands the management board decides and the supervisory board merely gives or withholds consent, i.e. says yes or no. Here we find an important difference between one- and two-tier boards.

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