In the wake of some high-profile corporate scandals in recent years,
many companies are worried about their public image. They want to convince
investors that management has everything under control.
The position of lead director was created to provide more corporate
accountability. And it's catching on.
"A lead director is a 'first among equals,'" says David H. Blake, a professor
at the University of California at Irvine.
To understand the role of a lead director, you have to understand a bit
about how corporations work. In any corporation, there is a board of directors
that represents the interests of shareholders (investors). The board is responsible
for overseeing two things: the company's financial dealings, and the company's
In its role of overseeing management, the board hires and oversees the
chief executive officer (CEO). The CEO is an employee of the company. They
hold the top management position.
Blake says that historically, the CEO has often been the chairperson of
the board. The chair is expected to guide the board. That means that the board,
which oversees management, is headed by the top manager.
"It is like putting a fox in charge of looking after the chickens," Blake
These days, many companies want to put someone other than top management
in charge of making sure the board operates effectively.
Some companies have dealt with this by saying that the CEO cannot be an
officer on the board. However, CEOs are accustomed to filling the chair position.
Many do not want to change their involvement.
Therefore, other companies created a "lead director" role.
Lead directors have no direct ties to management and usually have a lot
of board experience. "The lead director oversees the board's operations and
ensures that it carries out its responsibilities effectively," says Anthony
Goerzen. He is a professor of strategy and international business.
Plus, the lead director position complies with new stock exchange rules.
These new regulations require boards to hold meetings without management present.
Blake adds that there is another reason for using lead directors. Running
a large company is becoming more complicated all the time. The CEO's responsibilities
are much different from the board's responsibilities. By separating the two,
one person isn't responsible for everything.
The lead director ensures that the board works on tasks that are not the
CEO's role. These tasks could include planning for succession, setting a long-term
strategy for the company's direction and others.
The lead director presides at board meetings when the chair is not present.
They act as a liaison between the chair and the independent directors. They
approve meeting agendas, schedules and information sent to the board.
They are available for consultation and communication with the shareholders
(the investors). The lead director also helps the directors consider whether
the CEO is doing what they want him to do, and whether the board agenda is
covering the right points.
"A strong lead director helps to head off crises and to weather those that
are inevitable," says Goerzen.
More and more companies are appointing lead directors.
"This is a growing trend. It makes a lot of business sense," says Blake.
"It will and should continue to grow but it is not going to be 100 percent
any time soon."
Goerzen believes the trend will spread to smaller companies, government-owned
organizations and not-for profit entities. These organizations must also develop
systems and procedures that will improve their effectiveness.
Board members, including lead directors, are paid for their involvement.
The amount they are paid varies, depending on the size of the company.
Blake estimates that the range would be anywhere from $12,000 to $100,000
annually in the U.S. Some might also receive stock options as a reward if
the company does well.
Directors typically devote about 10 to 12 hours a week to their board work.
Lead directors might work a few additional hours.
Blake explains that board members and lead directors are elected for their
broad business experience. Alternatively, they might have specialized knowledge
such as accounting, finance or technology.
There is no direct career path that prepares you to become a lead director.
"It is not something you apply for," he says. "It's a result of knowledge
and effectiveness and compatibility in providing this direction-setting role."
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