THIS IS A GREAT ARTICLE EXPLORING WHY HIGHLY MOTIVATED AND ETHICAL INDIVIDUALS STILL SEEK BOARD POSITIONS. THANK YOU TO THE AUTHORS and http://deloitte.12hs.com/S1/TJ4SHC59C4JSW8/M/ Deloitte Corporate Governance Newsletter where the article was published.

"While experienced executives continue to see great value in serving
on a corporate board, they want to serve on the right board. In general,
directors want to join boards where they will have the opportunity
to learn, where their talents and expertise will be valuable and
where they can make a difference to the company. They want to be a
part of a high-performing team and respect the people they areworking with on the board and in management."

susan s. boren, Minneapolis/St.Paul
will dawkins, London
phil d. johnston, San Francisco
bertrand richard, Paris
Directors’ motivations for
joining a board

Why they still do it
Despite the occasional anecdote about a director vowing never to join another public
company board, experienced directors are not fleeing boards in droves. Yet, one could
be forgiven for assuming that at least a few directors are asking if board service is
still worth it, in light of the sky-high expectations on them, the significantly greater
time demand and the challenge of keeping up with the dizzying pace of business.
Several forces have converged to make board service more complex and challenging today:
New regulatory requirements. The global financial crisis and isolated business scandals have renewed focus on
board governance and, in some places, led to new governance rules and requirements. Regulations differ by country and
region, but many of the new requirements center on a few areas: board composition, director qualifications, executive
compensation and risk management. While it may be too soon to know the impact of regulatory changes on board composition
and operations, some directors fear that the balance of the new governance rules “is tipping from substance to
form, and regulation has now tipped to incompetent intrusion.”
Shareholder activism. Investors are pushing for more influence on key issues, including board composition and executive
compensation — and, occasionally, gaining new tools to exert their views, such as the new proxy access provision
in the U.S. While many directors welcome the increased dialogue with investors, there are frustrations: the check-the-box
mentality of some institutional shareholders, the vast influence of ratings agencies and the pressure for immediate and
unsustainable results.
A higher degree of scrutiny. Ten years ago, the chances of a
board of directors becoming front-page news were slim. Today,
when a business faces a crisis or erosion in performance, the
board’s action — or inaction — is examined nearly as closely as the
CEO’s. As one director observed: “There’s no hiding anymore.”
A growing agenda. Boards are spending more time discussing
issues such as risk, executive compensation, the environment and
corporate responsibility, as directors take a more expansive view of
their responsibilities. The financial crisis and economic downturn
elevated the importance of risk and remuneration in the boardroom,
but directors also feel pressure to take on issues such as the environment
and corporate ethics in response to their growing visibility
with investors and society as a whole.
Changing board dynamics. Finally, boards themselves have
changed. As a result of increased specialization, the growth in the
number of first-time directors and greater gender, ethnic and geographic
diversity, directors find fewer people “just like me” seated
around the board table. Led by the chairman or lead director, the
board has to create an environment that harnesses these different
perspectives. And, with so many responsibilities, directors are holding
each other to higher standards. “Accountability is far greater
today, and that has real implications for the involvement of board
members. A board member who doesn’t work is immediately detected,
as well as an incompetent one, which was not always the case
before. Board meetings are no longer a club meeting,” said
Christine Morin-Postel, currently a board director of British
American Tobacco, Exor and Royal Dutch Shell.
what do directors want? priorities
for serving on the right board
The current environment creates some real challenges for boards that
need to recruit directors. Because of the scrutiny on them, boards
must be very thoughtful about defining the necessary skill-sets for
new board candidates and recruit directors who have those skills and
a reputation for working hard, contributing to board discussions and
respecting management and their colleagues on the board.
As important as it is for boards to carefully define the capabilities
and qualities of the ideal board candidate, boards also must remember
that director candidates weigh a variety of professional and personal
priorities when considering an invitation to join a board.
Understanding what’s important to director candidates will be increasingly critical to recruiting new board members.
So, why do directors join a board?
Directors tell us that they find great professional satisfaction from
contributing to the performance of a company and personal satisfaction
from challenging themselves in a new situation.
“Certainly, part of the reward is yourself versus all the challenges
we’ve been talking about. Can you do this? Can you be effective in a
new context?” said Chris Gibson-Smith, chairman of the London
Stock Exchange. “Another reward is the opportunity to learn. If we
think of ourselves in medieval terms, we go on an apprenticeship
and eventually become a master craftsman, but the journey never
stops. That’s rewarding.”
For John Wiehoff, chairman and CEO of C. H. Robinson and a director
on the Donaldson and Polaris boards, an important reward for
serving on an outside board has been the insight he has gained to
improve how he works with his own board. “Board service has
taught me to simplify and prioritize with my board. I’ve learned as a
director that it’s very challenging to stay on top of things in between
meetings. As a CEO, I’ve had to learn that even though my directors
are very smart, committed people, they can’t be expected to remember
the details of my business.”
While experienced executives continue to see great value in serving
on a corporate board, they want to serve on the right board. In general,
directors want to join boards where they will have the opportunity
to learn, where their talents and expertise will be valuable and
where they can make a difference to the company. They want to be a
part of a high-performing team and respect the people they are
working with on the board and in management.
We hear from director candidates that the intangible rewards of
board service — affiliation with highly respected companies and
other directors, exposure to other governance processes and the
opportunity to gain new ideas valuable to their own company —
continue to be important factors in the decision to join a board. For
most director candidates, choosing the right board involves a formula
with multiple factors. Below are a few of the most common:
Industry and company size. For many directors, a company’s
industry sector is one of the most important considerations. Is the
industry interesting to them? What they can learn from it? Do they
have experience in the industry? Director candidates also may look
at the regulatory framework governing the industry or the issues the
industry faces. For many director candidates, especially those who
are active executives, the ideal match is with a company in a complementary
industry, such as an industry experiencing similar
growth patterns or addressing similar challenges.
Company size also can be a consideration. Depending on a director’s
interests, he or she may prefer a board assignment with a large
company for the exposure to world-class executives and directors
and the opportunity to tackle complex global issues, or a small company
assignment for the cutting-edge technology or ability to have a
larger-sized impact. Some director candidates view their board work
in terms of building a portfolio of assignments with different sized
companies and in different industries.
The fit with the CEO and chairman. Comfort and compatibility
with the CEO and the chairman also are very important considerations
for most director candidates. Experienced directors advise
director candidates against joining a board where they have questions
about the performance or the ability of the CEO, or if they get
the sense that he or she doesn’t value the board and its role in the
company. Said one director: “Unless it’s a role that requires the
removal of management, I wouldn’t work in a company where I
don’t think I’ll get on with the chief executive.”
The quality of the governance. Directors want to join a well-functioning
board that plays the appropriate role in the major strategic
decisions of the company and to be comfortable with the company’s
business and governance practices. Directors look at the quality of
the governance processes, the independence of the board and the
management’s attitude toward the board.
The challenge. Does the company have stimulating challenges
related to growth, recovery or something else? Some directors tell
us they are excited by opportunities to participate in a turnaround or
the rebuilding of a company that is struggling or to be a part of a
board that has to select the next CEO. As one director explained, “It
is more exciting when the company faces problems, because it is
then that the board is the most useful.”
The strength of the company. While some directors relish the
idea of helping to turn a company around, others are drawn to toptier
organizations that have healthy financials and an excellent reputation
— those that seem unlikely to fall victim to a major scandal
or business disruption. These directors look closely at the financial
strength of the company and its competitive position in the marketplace,
and want to be comfortable being affiliated with its reputation
and values. Some director candidates report that they conduct more
rigorous due diligence than in the past about the company’s financials,
reputation and governance through extensive interviews with
current directors and senior executives and careful reviews of publicly
available financial information. They also mine information
from contacts in the industry and other trusted business sources,
check the company’s corporate governance ratings, examine its public
policy positions and speak with industry and financial analysts
about the company.The other board members and the chemistry between them.
Director candidates always want to know who already serves on the
board they are being asked to join. For some, the opportunity to
work closely with and learn from business leaders they respect is as
much a motivation for joining a board as what they can learn from
the company. In addition, directors want to avoid boards that are
rife with conflicts or lack the independence from the CEO to do their
work. While it is impossible to know precisely how a board will
behave until one starts, it helps to meet as many directors as possible
and learn about them and their work styles through mutual
friends and colleagues.
The time commitment and potential scheduling conflicts.
Serving on a board today takes much more time than in the past,
directors say. The time demand is even greater for companies that
are restructuring or undergoing a CEO transition. Director candidates
want to be comfortable that their schedule can accommodate
a new board assignment, and many directors now limit the number
of public company board roles they will accept.
implications for director recruiting
Recruiting new independent directors today can be difficult and time
consuming. The desire for specialized expertise and increased diversity
in the boardroom — and in some cases the requirement that
boards become more diverse — has increased competition for
some candidates. At the same time, many directors are accepting
fewer board assignments than they did in the past and more companies,
particularly in the U.S., have restrictions on how many additional
outside board roles a director may accept. As a result, many
directors are more discriminating than in the past about which
boards to join.
Boards can improve the chances of attracting directors with the
most relevant experience by understanding the motivations and
concerns of director candidates and the company’s perceived
strengths and weaknesses. Here are a few lessons from the front
line of director recruiting:
> Assume that there will be good competitors for a candidate’s
time, whether it is another board opportunity or another interest.
> Understand your board’s “value proposition,” based on where the
company is strategically, the kinds of issues that come to the board,
the composition of the board, the strength of the management
team and even the quality of the board’s new-director orientation.
> Carefully define the expertise that is important for the board, for
example, industry or functional knowledge, language ability or
international business experience.> Continuously review the board’s skill-sets relative to the company’s
strategy and direction to ensure that the board as a whole
has the knowledge, experience and skills to guide the management
team as it addresses new challenges and market opportunities.
The annual board self-evaluation is a natural platform for
the full board to review its composition and discuss the expertise
that it will need in the future.
> Define the board’s notion of chemistry and promote an environment
that encourages active participation by every director and is
respectful of differing views. The chairman or lead director plays
an important role in creating this environment and getting contributions
from everyone around the board table.
> Make board service a rewarding experience for directors. Tap into
the expertise and brain power of directors by structuring board
meetings in a way that gives directors the opportunity to engage
with one another, rather than having a series of presentations.
CEOs gain additional benefit when they develop one-on-one relationships
with individual directors.
Experienced directors want to serve on well-managed boards that
make a difference in the performance of the company. They want to
work with smart, engaged directors and be comfortable with the
CEO’s leadership capabilities and character. Finally, they want to
serve on boards that allow them to learn and build new skills. When
they find board opportunities that offer these professional and personal
rewards, they are willing to accept a new director role —
despite the pressures and demands.
about the authors
Susan S. Boren is an active member of the Board Services, Life
Sciences and Education, Nonprofit & Government practices. She
also is a member of the Spencer Stuart board. Will Dawkins leads
the Board Services Practice in the U.K. Phil D. Johnston is a member
of the Board Services, Human Resources, Life Sciences, Private
Equity and Technology, Communications & Media practices, and he
manages the firm’s Singapore office. Bertrand Richard co-leads the
Board Services Practice in Europe and also the Financial Services
Practice in France.
Patrick B. Walsh contributed to this article.

RRG Boards' Best Practices - Reprinted FRom the Risk Retention Reporter- I would recommend this pubication if you do any work with risk retention groups!

Will The NAIC Guide lines “Crowd Out” RRGs
Board of Directors Best Practices Along With The
Best Independent Directors?
By John J. O’Brien JD, CLU, CPCU
In response to the Enron failure, the Sarbanes-Oxley Act of 2002 (SOX) was
enacted and requires that public companies have independent directors and an
audit committee chaired by an independent director with a financial background.
Enron did have a majority of independent directors and an audit committee
chaired by an independent. The hearings leading up to SOX demonstrated that in
the Enron case, independent directors were expected to be, and were, deferential
and obsequious.
The captive/RRG industry is not accustomed to SOX type board require -
ments. RRGs and captives are usually required to have a resident director and
typically the captive management company supplies this individual. Opinions
differ whether this resident board member is independent.
Three of the captives/RRGs in which I serve as an independent director have
audit committees. I serve on all three audit committees and chair two. Creating
these committees were choices made by the boards and the operation of the
committees mirrors both SOX and best practices. The committees are seen as an
important part of the corporate financial oversight, and members are expected to
be diligent.
The RRG industry, as it matures, is embracing corporate governance best
practices, such as the best practices developed by the Captive Insurance
Companies Association. A series of quarterly articles in the Risk Retention
Reporter, beginning in January of 2008, written by RRG experts, describe best
practices in action within the industry and also trace the progress of the NAIC
proposed guide lines that seek to introduce Sox like laws to the RRG industry.
In any financial industry there are “good actors” and “bad actors.” New laws
do not “crowd out” the “bad actors.” Many learned experts have demon strated
that crooks will always find new ways to circumvent new rules.
This article explores the possi bility that the NAIC guide lines as law will
“crowd out” self imposed best boards of directors’ practices and the best
independent director candidates—“good actors.” The concepts of “crowding in”
and “crowding out” are explored in detail in an article “Corporate Gover nance
for Crooks? The Case for Corporate Virtue” by Margit Osterloh and Bruno S.
Frey that appears in Corporate Gover nance and Firm Organization, edited by Anna
Grandori (Oxford University Press, 2004). Studies cited in the article explore
corporate environ ments and how individuals are self-motivated to improve and
to contribute to the success of an organization. These “good actors” like to see
themselves as devel oping plans and initi ating action to fulfill those plans.
In the case of good independent directors, my experience has been that they
want to make a signif icant and creative contri bution towards good corporate
gover nance and are willing to take the lead in providing leadership towards that
goal. If they, and their team members, are allowed to operate in an environment
where they are not being told what they have to do, “crowding in” of
self-motivation for good corporate gover nance flour ishes. These “good actors” are
not motivated by extrinsic influences, such as compensation, because they
recognize that unreasonable compensation would “crowd out” their intrinsic
motivation. Unrea sonably high compensation fosters deferential and obsequious
independent directors. An involved independent director structures his fee so that
he never finds himself in the position where his fee comes between him and his
motivation to do what is right. Good actors come equipped with an intrinsic desire to do what is fit and proper. RRGs should always look for team members who bring creativity combined with an intrinsic desire to do what is fit and proper. “Good actors” are motivated by their desire to serve, to make a serious and creative contribution to an organization, and to experience a sense of appreciation that is more valuable to them than monetary compensation. The most important conditions for “crowding in” to occur are the need for autonomy (the experience of seeing oneself as a causal agent), competence (controlling outcomes and efficiency and experiencing positive feedback), and social relatedness.

My observation is that “crowding in” is the growing environment in our
industry and “good actors” are leading the way. Laws that require good corpora -
tions to do what they would want to do anyway and impose high transactional
costs for compliance and expensive monetary penalties for non-compliance will
seriously harm this “crowding in” best practices environment.

It has been said that finding a well qualified independent director for a RRG
is a challenge. I always question how extensive and how recent the searches
were. RRGs have moved away from entre pre neurial entities that tended not to
seek out independents toward true owner/insured groups that recruit
independent directors who know insurance. We find this with the growing
number of physician RRGs where doctor insured/owner board members value
the partic i pation of someone who under stands concepts like adverse selection,
finite reinsurance, and tail coverage. There are qualified insurance profes sionals
who welcome the oppor tunity to serve on these boards. The best captive
management companies and the best captive insurance attorneys are advising
RRGs to recruit independent directors who are not affil iated with any service
provider.

As now proposed, the NAIC guide lines in parts provide:
· A majority of the board must con sist of independent directors.
· Any service provider contract must be approved by a majority of the independent
directors.
· There must be an audit committee composed of independent directors. One duty of
the audit committee is to assist the board with legal and regulatory compliance. The
audit committee requirement can be waived by the regulator if impractical.
· The board is required to establish a written charter in its by laws that in part would include a set of governance standards.
· The governance standards adopted by the board are re quired to provide for direc -
tors’ responsibilities, orientation, and continuing education.
· The board must adopt business ethic standards that include requirements for pro -
tection of the risk retention group’s assets, compliance with the law, and report ing of any non compliance (whistle blowing).
· The domestic regulator may take action against any director who violates these
standards.
Paradoxically, the proposed NAIC rules would permit remuneration to an
independent director that any “good actor” independent director would avoid.
An independent director would not be considered to have a “material
relationship” if he received up to 5% of gross premium and 2% of surplus of the
RRG. This could be a substantial amount with some RRGs. Any “good actor”
independent director would question his own independence if he were to receive
compen sation outside of his director fees and expenses. No personal financial
consid er ation, whatsoever, should stand in the path of an independent director
who finds cause to make a noisy exit from a board.
All good RRG independent directors are aware of the duties, responsibilities,
and liabilities they have under the Model Business Corporation Act. They will
not fail to notice that these new NAIC guide lines create for them additional
responsibilities to a state’s insurance regulator.
With the new NAIC guide lines, the intrinsically motivated “good actor”
potential independent director will be aware that he is being asked to join the
team because the RRG must fill three government mandated slots, that he will be
responsible for developing governance and ethical standards—including whistle
blowing, that he will be required to undergo orientation and continuing
education, and that he is now subject to action by the state insurance commis -
sioner for any violation of these standards. He should under stand that he is
being offered the position because the RRG did not have a choice. He will most
likely conclude that this is not the type of environment that nurtures his best
performance. This will alert him that he is being asked to enter an environment
where the professional “joy” he seeks in being a member of a dedicated team is
not likely to be experienced.

If compensation should be based upon degree of responsibility, then
arguments will be made by those who seek the position of independent director,
motivated by remuneration, that the amount of compensation should be
substantial. The transactional costs for compliance and board operation by most
RRGs will increase. Increased compensation and rules that tend to make an
independent director a pawn of the domestic regulator are conditions that will
conflict with the intrinsic motivation of the “good actor” independent director.
With the possi bility that a vacuum will be created by “good actor”
independent directors declining invitations to join RRG boards, I suggest that
there is a likelihood that the vacuum will be filled by independent directors who
are more focused on compensation and personal exposure issues— “will you
indemnify me in the event of personal liability?”.
My final suggestion is that rather than enacting laws that evidence indicates
could “crowd out” growing best practices, our industry will be improved instead
by nurturing the “crowding in” of current best practices trends, including the
trend of RRGs to volun tarily seek out fit and proper “good actors” as
independent directors.