When we last spoke with Lawrence Cunningham, University of Delaware economics alumnus and leading authority on corporate governance and culture, in 2014, he was visiting UD as part of the Chaplin Tyler Executive Leadership Series and the first stop of a 15-campus tour for his latest book.
Now, Cunningham has been awarded the B. Kenneth West Lifetime Achievement Award. This prestigious award comes from the National Association of Corporate Directors (NACD), the authority on boardroom practices. Representing 18,000 directors, the NACD has for many decades recognized distinguished individuals who serve as role models in promoting exemplary board leadership, oversight and courage.
“Cunningham is the nation’s foremost scholar on the work of Warren Buffett and has served as an effective director under trying circumstances,” said UD corporate governance expert and finance Professor Charles Elson. He added that Cunningham’s “superb scholarly work and courage as a corporate director” warrant recognition.
The video above provides insight from Buffett himself, as well as other leaders in the corporate governance field, on how Cunningham has earned the B. Kenneth West Award. As Buffett says, “The NACD has made the perfect choice in selecting Larry Cunningham.” In the NACD’s longer version of the video, you can hear more in-depth discussion from these speakers.
In the Q&A below with Cunningham, we learn more about the significance of this award, what’s next in his career, the future of corporate governance, and how UD set him on this professional journey.
Q: What does winning the NACD Lifetime Achievement Award mean to you? How does it feel?
A: I am deeply honored. NACD has trained thousands of directors over four decades and professionalized board service. For me, this award recognizes the practical value of my efforts to learn and teach corporate governance and then to share and practice what I preach. As much as I appreciate the honor as a validation of past commitment, its greatest reward is the opportunity to do more. I will continue to write, teach and serve on more boards where I can add value.
Q: What do you consider to be your proudest career accomplishments?
A: Producing The Essays of Warren Buffet: Lessons for Corporate America, and hosting the 1996 symposium featuring Warren and his letters. In my research back then, I came across his writings, which bucked all academic convention of the time. To my colleagues, my interest in him made me a bit of a heretic. But the conference was a huge success and the book became an instant cult classic and then a bestseller. It also opened up a world to me, consisting of the highest quality managers and shareholders in corporate America. They form an ecosystem of excellence that connects directly into the NACD as well.
Q: What are your biggest goals for your professional future still to come?
A: My current research, for a book called Getting the Shareholders You Desire, designed to address what so many CEOs and boards lament: the dwindling base of patient committed shareholders—what I call high quality shareholders. A large percentage of shares are held by passive index funds and active funds’ average holding periods are less than one year. While indexing enables millions to enjoy market returns at low cost, and active trading offers liquidity, high-quality shareholders play a vital role too that should be nurtured. Few companies today have high-quality shareholder bases in those terms.
The book explores the advantages of attracting quality shareholders. By rational investing rather than formulaic or reactive trading, they help align market price with business value. It explores how a small number of notable companies, starting with Berkshire, use a variety of levers to attract such shareholders. Rather than maximizing the base and stock price, their quest is a choice group of quality investors and a rational stock price. They use tailored outreach, from creating a distinctive menu that’s appealing, to having independent directors meet with select shareholders.
As today’s public company shareholders wield greater power on more matters than ever, boards and managers take unprecedented interest in their views. But while it can be difficult to get large indexers on the phone or catch up with fast-trading investors, quality shareholders can be reached and cultivated. I know from experience serving on boards and advising boards that this is one of the major frustrations in corporate America today. This research and the book are intended to alleviate some of that.
Q: What does the future of corporate governance look like? In what ways will corporate boards be different or the same? Will subjects like CEO compensation and board diversity still be hot topics?
A: It depends on whether shareholders continue to be serious investors or fade into passive observers or high-speed transients. The more shareholders retreat from their traditional role as investors, by deferring on important decisions to consolidated organizations such as proxy advisers, the more political, regulatory, and anti-shareholder governance will become. There will always be some hot-button issues that are heated because different constituencies view them differently, which is the case on executive compensation and diversity, for instance.
But there is also divergence between what shareholders may prefer compared to other constituents. On compensation, most shareholders want pay to be rationally related to performance, even if executive pay is massive in relation that of ordinary workers earn. But many champions of social justice or organized labor prefer to cap on top pay at a level reasonable in relation to ordinary earnings. Similarly, with diversity, most shareholders want boards and managers who do an outstanding job, usually without regard to diversity factors such as race, while others urge diversity as an inherent priority, ideally congruent with corporate bottom lines but not as a prerequisite. The temperature in these debates will rise and fall both on the merits as well as on the future of shareholder demographics.
Q: You’re still an active part of UD and the Lerner College, both visiting campus for presentations and and serving on Lerner’s NYC Dean’s Advisory Council. Can you elaborate on how your passion for studying corporate governance took root at UD?
As I said during my 2014 talk at UD, Delaware’s unique location helped that “corporate life get into your blood.” Delaware remains the leading state of incorporation in the U.S., and I’m proud of UD’s role in celebrating and maintaining that, especially through its Weinberg Center on Corporate Governance. In my college days, I worked part time in the Wilmington office of the law firm of Skadden, Arps, working for such prominent corporate lawyers—and Delawareans—as Irving Shapiro, Rod Ward, Steve Rothschild, Tom Allingham, Ed Welch, and Tony Clark. An amazingly talented group of experts on corporate governance who inspired my interested in the field.
[Warren Buffett:] The NACD has made the perfect choice in selecting Larry Cunningham for its Lifetime Achievement Award. Larry knows a lot about directors, how they should behave and how they truly behave. He’s been a champion for directors who are working for the shareholders in a really intelligent manner, rather than just checking boxes. I just hope he keeps working like he’s been doing for many decades.
[Thomas S. Gayner:] One of the things I really admire about the way Larry has approached his work is that he understands the nuances and complexities of what’s involved in being a first-rate director.
[Frederick M. Lawrence:] Larry is a problem solver. He’s an institution builder. Nobody understands the system better than Larry does. So when he talks about calling the system to account to its highest standards, they’re real standards. They’re standards that will allow the capital markets and financial markets to do well and to do good. He’s not done by a long shot. The things he’ll be writing and working on in five years and in 10 years will be quite different from the things he’s working on now. It’s just possible his best work is yet ahead of him.
[Lawrence Cunningham:] For me, the B. Kenneth West Award recognizes the practical value of my efforts to learn and teach about corporate governance, and then to practice what I preach. And as much as I prize the honor, to appreciate my past commitments, I really value the opportunity to do more. I’ll continue to write and teach and serve on more boards where I can add value, and Stephanie will do the same, and I hope all the directors in here will make that commitment too. Because I believe, with NACD’s powerful legacy, that the directors of corporate America will carry on its traditions of professionalism and stewardship for many lifetimes to come.