Friday, October 1, 2010

A Board Mystery: The Case of the Emeritus Director

It happened again this week — a request for a copy of "The Enigma of the Emeritus Director." This is an article Directors & Boards published in our Fall 2003 edition, written by Dan Dalton and Catherine Daily (now Dalton) of the Kelley School of Business at Indiana University.

Invariably every couple of weeks I get an emailed request for this article. Apparently there is so little in the governance literature that deals in detail with policies and practices related to designating an emeritus director that our article comes up high in the Google search rankings.

In fact, I just tested it — and yes, what comes up second in the Google listing, at least on this day, for Emeritus Director is a condensed version of the article that I ran in our monthly e-Briefing newsletter in 2005. In that adaptation I offer to send readers the full version published in the print journal, which stimulates the emailed requests for the full article.

I am always happy to share this article because the authors' research fills in a lot of the missing pieces on what this relatively obscure board title is all about. (Pictured is noted venture capitalist Arthur Rock, cited in the article as an emeritus director of Intel Corp. at the time of the article's publication.) As they acknowledge in their article, "We are not familiar with any general source that one might consult for guidance on the status of emeritus personnel on the board, their efficacy, or their related rights and privileges."

Dan, dean of the Kelley School at the time of the article's writing and now director of its Institute for Corporate Governance, and Catherine, the institute's research director, ably fill in the blanks. They analyze three different models of emeritus director and address such specific matters as the independence of an emeritus director and what the term limits and compensation might be for this special breed of board member, as well as other questions that come up in transitioning a board member to this status.

With the dearth of information on how boards employ the emeritus director designation, the authors propose that companies can and need to do a much better job of disclosure to take what they call the "mystery" out of this board practice. Here is their conclusion:

For those firms relying on emeritus directors, proxy material might include that the board of directors has authorized the director emeritus designation and an explanation of eligibility requirements (e.g., distinguished service, years of board service, reaching mandatory retirement age). These materials should also define what the term is for emeritus status (lifetime designation? to be reviewed every five years?) and grounds for withdrawing emeritus status.

Such disclosure should also include the roles and responsibilities of emeritus directors (voting privileges? board attendance at will or by invitation? both full board and committee meeting participation?). And, of course, the compensation and benefits that accrue as a function of emeritus status should be clear, particularly to the extent that they differ from compensation and benefits awarded to non-emeritus board members (advisory or consulting services?).

Since such disclosures are still slow in coming, it appears I can count on many further requests for a copy of "The Enigma of the Emeritus Director."