2008 NACD Corporate Governance Conference: Monday October 20, 2008

Plenary Session

The sessions today focused on strategic engagement-preparing directors to seek out the right information, the right people, and the right level of communication.

• Today began with a session on Keys to Success in Board and Shareholder Communications.
• Followed by a session on Lessons from Recent Litigation Involving Directors' Fiduciary Duties.
• After the concurrent sessions, NACD CEO Ken Daly announced the release of the Key Agreed Principles for Strengthening Corporate Governance.
• In an additional plenary session, Directors and Shareholders Discussed the Future of the Proxy Industry.
• And the day's final plenary session focused on Identifying, Monitoring, and Avoiding the Risks that Matter the Most.

After the day's final round of concurrent sessions, conference attendees will be attending NACD's Director of the Year Reception and Banquet. Stay tuned for full coverage of this gala event, to be posted tomorrow morning.

Q: How satisfied are you that your company has an effective process to identify potentially significant business risks facing the company-both financial and non-financial?

Very satisfied	14%
Somewhat satisfied	45%
Needs improvement	39%
Not sure	2%
Total Responses: 323

One audience member asked the panel: "In spite of financial risk management activities, something went wrong: How can we make sure we're not a part of that in the future? Do you have any words of advice?"

Former U.S. Secretary of Commerce and Director at Dow Chemical Company Barbara Hackman Franklin noted that directors really need to understand their businesses. Directors need to make their best effort to understand the dynamics-the success factors and the risk factors. Directors need to make sure they don't end up in a situation where they "don't understand"-and if they do get into that situation, they need to keep asking questions until they do understand.

Directors need to be thoughtful and educated on the subject of risk oversight, and they need to ensure their board has robust discussion on the topic of risk oversight as it relates to strategy.

Ken Daly

NACD has worked for more than a year with business leaders and shareholder groups to create a set of Key Agreed Principles for Strengthening Corporate Governance by identifying core areas boards, management and shareholders agree should be the basis for good corporate governance.

America's corporations and corporate boards must take immediate action to restore public and investor confidence in the governance of corporations. These Principles can play an enormous role as a first step in helping corporate leadership, regulators and investors as they develop new and necessary approaches to oversight.

These principles are available online at: www.nacdonline.org/KeyPrinciples/

Recognizing that the Principles must be brought to life at the practice level in U.S. boardrooms, NACD plans to continue this effort through an aggressive national initiative that will identify and advocate leading practices that empower board leadership, particularly in four key areas: oversight of risk, corporate strategy, compensation and transparency. Central to this initiative will be NACD's continued commitment to educate directors and other stakeholders in these leading practices.

Q: Would you approve a bylaw amendment permitting stockholders with a meaningful percentage of stock to nominate director candidates through access to the
company's proxy?

Yes	47%
No	53%
Total Responses: 363

The audience erupted in a stream of "boos" and groans when asked whether they might approve a "proxy access" bylaw. However-despite the highly vocal negative contingent-results were surprisingly evenly split: Ultimately, 47% of conference attendees indicated that they might approve a proxy access bylaw.

Q: Would you approve a bylaw amendment requiring directors in uncontested elections to receive a majority of
votes cast?

Yes	65%
No	35%
Total Responses: 356

When asked whether they would approve a majority voting bylaw amendment, about two-thirds (65%) of attendees said they would. Interestingly, this is roughly twice the number of boards who actually have this practice in place-according to NACD's 2008 Public Company Governance Survey, 28% of board members indicated their company incorporated a majority voting provision into their bylaws, with an additional 13% encoding majority voting into their governance policies.

The panelists agreed that director succession and elections will continue to be an important issue for boards in the coming years. Having an independent process for recruiting and selecting qualified candidates will be vital-for boards that aren't sure where to start, the NACD Directors Registry is available to help match experienced candidates to board's individual criteria.

"The corporate governance triangle-of the board, management, and shareholders-has been turned on its head," said Rich Koppes, co-chair of the commission.

Audience members agreed. Only about half (55%) said they had direct communications with their shareholders, beyond the required venues. However, a full 87% believe that board responsiveness to shareholders will grow in the next five years-and about three-quarters (73%) think such communications will be mandated, to some extent, in the not-too distant future.

Q: Do you think board responsiveness to shareholders is a trend that might grow in the next five years?

Yes	87%
No	4%
Unsure/Don't Know	9%
Total Responses: 342

As shareholder initiatives increase and greater opportunities for two-way dialogue become available, effective board-shareholder communications have never been more important. NACD took the lead and convened a distinguished panel of prominent directors, shareholders, academics, and others, to consider how to optimize effective engagement. The result is the 2008 Blue Ribbon Commission Report on Board-Shareholder Communications.

As an added benefit of NACD Corporate Board membership, every director on the roster of a NACD Corporate Board Member company will receive access to download one complimentary electronic copy of the report. Still an individual member? Learn more about this and other benefits of Corporate Board Membership.

Additional hard copies of the 2008 Report of the Blue Ribbon Commission on Board-Shareholder Communications can be purchased now, to ship October 27.

"This was an opportunity for the government to hear what the director community thinks about a certain issue," said Daly. "It is our intention to continue these efforts, and to insure that our community continues to have a voice."

You can read the brief of the National Association of Corporate Directors as Amicus Curiae urging reversal here.

In summary, the Delaware Court denied a claim brought by the estate of Mr. William Bohnen, former director of Troy Corporation. After leaving the board, Troy instituted a lawsuit claiming that Mr. Bohnen breached his fiduciary duties while in the course of his service as a director. While Mr. Bohnen served on the board, he was protected by a bylaw provision that applied to "directors and former directors," under which he was entitled to the advancement of legal fees and expenses in defending himself against claims under Delaware law. Prior to litigation, however, these bylaws had been amended to apply only to current directors, thus removing any indemnity protection for former members. As a result, Mr. Bohnen was burdened with the financial responsibility.

The amicus curiae brief from NACD asks the court to reverse its initial decision so that the claim for advancement by Mr. Bohnen's estate will be honored, thus establishing a precedent.  In response to a significant series of recent developments involving director liability, we believe all board members should consider creation and/or clarification of indemnity agreements.

With a record 700 attendees, representing 1,144 diverse companies-large and small, across all industries, spanning all of NACD's 21 chapters and the globe-this year's conference participants represent a dynamic group of key players in the evolving corporate governance dialogue.

• The conference kicked off with a lesson in "Leadership under Pressure" from Admiral Fallon.
• We checked up on current opinions on the financial crisis with the launch of our Audience Response System.
• Then, our first plenary session looked at practical ways The CEO and Board Can Work Together to Increase Shareholder Value.

On Monday, our blog coverage continues, featuring sessions, stats, and announcements which will delve deeper into current trends, current risks-and opportunities in the governance arena.