Keynote speakers.

• Position: Directors' College

Bringing together the talents of many notable and distinguished governance leaders, the 2002 Directors' College provided a rare opportunity to learn why some directors succeed and others fail in their positions. Five e highly regarded professionals share their insight into top issues for tomorrow's directors.

Edgar S. Woolard, Jr., served E.I. du Pont de Nemours and Company as President and Chief Operating Officer, Chairman of the Board and Chief Executive Officer, and as a member of the Board of Directors after his retirement. He has served as a director of Citigroup, IBM, Apple Computer, Bell Atlantic Delaware, and other companies.

Directors Must Improve at Their Crucial Roles of Selecting CEOs, Guiding Strategy, and Monitoring Execution

Boards of directors have three crucial responsibilities in building long-term shareholder value: to select a strong and capable CEO; to review, understand, and approve corporate strategy; and to ensure excellent execution of the strategy--and for the most part t]hey aren't doing a good enough job. This is the view of Edgar S. Woolard, Jr., former Chairman of the Board and Chief Executive Officer of E.I. du Pont de Nemours and Company. In his wide-ranging talk, Mr. Woolard urged directors to challenge and question management and to remove ineffective members from their boards.

Or through hard work, integrity, and courage, will directors be able to help restore leading companies' reputations, which have been "so badly damaged in the last few years."

If CEO and board set the proper tone, "I guarantee you the people will follow. I worked for DuPont for 40 years and during that time I never had a boss who asked me to do anything slightly off-color. In fact I was told that if I falsified a record or if I lied or I did something wrong, I'd be fired. I'm very proud of that."

Drawing on his personal experience, Mr. Woolard offered a series of suggestions on ways directors could do a better job.

Selecting the CEO. The relationship between the board and the CEO "is way too chummy. Having the ability to disagree with the CEO is the most important quality that board members can have, individually and collectively." Mr. Woolard described a series of mistakes he witnessed boards make in choosing CEOs. In one case, a board member simply suggested that a fellow director take the CEO job; no search was conducted. In another, a long-term employee with strong operational skills worked his way into the job but was unable to handle it when the business environment changed.

"CEOs tend to fail because they are unable to motivate others or because they are inept at executing the strategy. Not too many fail because the strategy or vision is wrong. It's people-related. They don't want to get their hands dirty and they don't really know what's going on in their company."

Understanding strategy. "How can you as a director understand the strategy of a company and what it ought to be, and what the alternatives are? It's the hardest of the three primary jobs of a director because you are so dependent upon the CEO and top management." He then described four warning signs directors should look for:

* Overly optimistic sales projections. Most companies' sales projections are overly optimistic. "When you hear a projection about really good growth, you need to challenge the hell out of it."

* Killer products. Management frequently believes that a great new product will dominate the market. Sometimes such products do, "for three months or six months or twelve months--but competition is going to figure out a way to get around you, either by lowering the price or by making a me-too product. Any time someone tells you they have a killer product, it's a short-range thing."

* Acquisitions. "CEOs love to make acquisitions. They love to think they are going to make the company bigger and better. But most acquisitions fail because the corporate cultures are different and because there is almost always a winner and a loser." Acquisitions also represent a significant drain on executives' time. "I'm not against acquisitions. I like the small, bolt-on type. If you get a chance to buy another company making a similar product, and you can let your management take it over, that's great. But you've got to stay within your sphere of influence. When you move into some unfamiliar area because of the growth potential, you usually get into trouble."

* Empire building. "Look out when people say, 'I've got to build up a big staff because we are getting ready to expand and explode.' My theory is, 'Expand and explode, then we'll talk about building up the staff.' I learned that one the hard way, too, because I had to lay off a hell of a lot of people when someone convinced me of the 'expand and explode' theory."

Monitoring execution. The abundance of data makes this a more straightforward task for directors than reviewing strategy, "but you have to have the guts to ask for information, to question and challenge. When you get the board material, you have to study it and come to the board meeting prepared to ask tough questions. I don't think four out of five people do that." Directors should make the effort to study the material, talk to customers and suppliers, and get to know employees. Before he goes on a board, Mr. Woolard insists on visiting the company for two or three days to talk to the CFO, the technology chief, the human resources director, and nonmanagement employees.

Directors add shareholder value by exhibiting integrity, courage, and balance, and by committing their time. "Integrity means that you are representing the shareholders, not the management. But then you must have the courage to speak up in the board meeting." A single director with the courage to resist a bad idea is often able to rally other directors who were too timid to speak up. Directors must be willing to endure the wrath of CEOs who may strike out when challenged.

Most CEOs will resist deeper involvement by board members. "It's not because they are bad guys, but because they think the board doesn't really understand the situation. The CEO may not like it when you challenge him, but he will respect you."

Companies are successful because they execute fundamentals well. Success can't be achieved "with games, with mirrors, with financing. When managers say, 'This company is different, we have to do it this way, with write-offs,' either make them explain it like hell or get off the board." Another danger sign Mr. Woolard pointed to is corporate arrogance, based on years of success. Arrogant companies forget their customers and become easy targets for competitors.

Controlling compensation. "CEO pay has gotten out of control, and must be brought back to earth and tied to performance." Mr...