Stars of the Boards

The Outstanding Directors Institute's new list spotlights boardmembers who stand up for shareholders -- and stand up to management

By Diane Brady

Former U.S. Senator Bill Bradley may be best known for taking a stab at running for President, but in recent years he has made his greatest contributions in the boardroom. Starbucks (SBUX ) Chairman Howard Schultz credited him with giving the coffee chain some guidance and contacts for expanding globally, as well as for helping to design a health-care plan for employees. That helped the former New York Knicks star get named as one of the top directors of 2005.

The annual list is compiled by the Outstanding Directors Institute, which aims to improve the quality of board members nationwide. The group presents a list of candidates -- nominated by fellow directors -- to an advisory board composed of sitting corporate directors and chief executives. They help determine the final list.

To make the cut, directors have to be clearly aligned with shareholders' interest, devote significant time to their jobs, be deemed a key player by fellow board members, and be willing to challenge management. Among the factors that exclude candidates: too many boards, inflated compensation for themselves or the chief executive, and being on a board of a company in financial or regulatory trouble.


  "These are not applauders," says Institute Chairman Michael Griffin. "These are the people who go into the board room and challenge management. They have the guts to walk away from a situation."

Now in its eighth year, the list has become more potent in the age of heightened board scrutiny and responsibility. As Griffin says: "It really is tough being a director today. The standards are changing rapidly."

Along with Bradley, whom Griffin calls "an independent kind of guy", the list includes former Smith College President Jill Conway, who pioneered a plan to tie stock option exercise prices to executive performance on the Colgate-Palmolive board (CL ). Conway, now a visiting scholar at the Massachusetts Institute of Technology, also sits on the boards of Merrill Lynch (MER ) and Nike (NKE ).


  Inter-Con Security Systems CEO Rick Hernandez, Jr., wins accolades for helping turn around Nordstrom (JWN ) as a director, in part from his own experience in running a family business. Hernandez also sits on the boards of Wells Fargo (WFC ), McDonald's (MCD ), and Tribune Co. (TRB ).

Former Federated Department Stores (FD ) President Norman Matthews, now a consultant, is credited with helping keep key executives at Toys 'R' Us in place during its sale. He's also a director at Progressive Corp. (PGR ), Henry Schein, and Finlay Enterprises (FNLY ).

Then there's Aramark (RMK ) chief executive Joseph Neubauer, "a guy who comes with a very tough mind into the board room," according to Griffin. "He's not afraid to dig deep." Good thing, as he sits on the boards of Wachovia (WB ), Verizon (VZ ), and Federated Department Stores (FD ).


  Yum! Brands (YUM ) founding Chairman Andrall Pearson gets the nod for the passion he brings to his director role at that company. Retired New York Stock Exchange chairman John Phelan, Jr., is on the list because he pushed for more disclosure of so-called sweep accounts when he chaired the audit committee at Merrill Lynch (MER ). He has now retired from that board, as well as the board of Metropolitan Life.

Walter Scott, former president and chairman emeritus of Peter Kiewit Sons, no doubt gets some glitter from serving on the board of Warren Buffett's Berkshire Hathaway (BRK.A ). But the institute was most impressed with his work at Burlington Resources (BR ), where he helped to mentor the incoming chief executive. He's also a director at Commonwealth Telephone (CTCO ), Valmont Industries (VMI ), and Level 3 Communications (LVLT ).

Finally, there's A. Thomas Young, the former president and COO of Martin Marietta (MLM ). He's a director at Goodrich (GR ) and a company called Science Applications International, where he helped to persuade the aging founder to retire and let a new executive, Ken Dahlberg of General Dynamics (GD ), step into the job. As the top directors list goes to show, the last thing today's corporations need is more yes-men.

Brady is a senior writer for BusinessWeek in New York

Before it's here, it's on the Bloomberg Terminal.