Navigating the First Year: A Guide for New Directors

DURING THE 2021 PROXY YEAR, directors from “historically underrepresented groups” by race and/or gender accounted for 72 percent of all new directors, compared with 59 percent last year, reports the 2021 Spencer Stuart Board Index. Nearly half—47 percent—of the 456 new independent director class were from underrepresented racial and ethnic groups. Many (33% of the total) were Black, reflecting the renewed commitment to board diversity in light of what has been called the "racial reckoning" of 2020. At 43 percent of incoming candidates, women (including women of color) were also well represented.

The National Association of Corporate Directors (NACD) has developed this handbook to support individuals assuming their first major directorship or their first directorship on a public company board. Nominating and governance committees can also use it as a reference to benchmark and improve their new-director onboarding processes.

Regardless of the size or industry of the companies they serve, directors are keenly aware that a corporate board is entrusted with the highest level of accountability for company decisions. To meet the demands that come with that level of responsibility, the role of individual directors has become increasingly complex and time-consuming. In 2021, directors who rated their boards as "very effective" in dealing with the pandemic reported spending 40 days per year on board and committee matters that year and almost as many in 2020, up from under 30 days per year in 2019.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.