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Weed Out Bad Board Members

October 23, 2002
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While chief executive officers have been taking most of the heat created byEnron, WorldCom, Adelphia, et al., there has been some significant scorchingacross the country toward boards of directors as well … and deservedly so.

Shareholder confidence in board governance is at an all-time low. Analysts,investors and even employees today are asking questions like:

"What are they doing to prevent something like Enron from happening here?"

"What qualifications do they have? How are they chosen? How, if at all, are they evaluated?"

"How are they compensated?"

"Does the way they’re compensated tempt them to do something bad?"

Bottom line: A board of directors is a protector of shareholder interests.Board members should not be "partners" with management. They should not beclients of management. Rather, they should be professional and independent inevery sense of both words.

In a lot of cases, they do not have the qualifications to serve on thecommittees to which they’ve been assigned. This has got to change. Boards needto become much more multi-functional, with representation from legal,information technology, and human resources sitting right next to moretraditional finance and operational groups.

With the implications of new regulations, new listing standards from NYSE andNASDAQ, and the new penalties associated with corporate failures, whatshareholder wouldn’t want a multi-functional team with the required corecompetencies in place--thereby ensuring their investment is being properlyprotected?

It’s an unprecedented time in corporate governance. Shareholders will needto quickly separate the wheat from the chaff in directors who presently aresupposedly representing them. They’ll need to find directors who areindependent and up-to-date on true benchmarking analysis. They’ll also needboard members committed to creating and sustaining company values and areinterested in strategic planning and willing to make the time commitmentsnecessary. Gone are the days where board members come in the night before, havedinner, and then attend a one-hour committee meeting, a two-hour board meeting,and quickly hop on a flight back home by noon.

Despite the corporate cultures of greed and bad board members we’ve seenand read about of late, there is no shortage of ethical board members andcandidates to protect shareholders from the type of inappropriate behavior thathas led to all of these recent corporate failures.

The remaining bad board members will need to be weeded out and those guiltyof such behavior will need to serve the time befitting the crime.

Those most qualified to serve as guardians will need to ask a simplequestion:

"Is it worth it?"

To attract, retain and motivate these guardians, shareholders will need to bemore willing to pay what is necessary.

However, even pay packages for directors will need to be designed to maintaina true "guardian" status. Cash for retainers and meeting fees shouldcertainly go up--and I believe that board members should own stock. However, Istrongly believe the use of options should be discouraged, with the use of stockawards being their replacement. I also believe better SEC reporting for boardmembers is in order to once again minimize specific temptations that arise as aresult of lax or weak disclosure. Finally, we need limitations on how manyboards are feasible for a person to sit on and be productive as a guardian.

Times have certainly changed. I remember when you had lines as far as the eyecould see of board member wannabees. Today, the pickings are much scarcer--butnever has this been as important a decision as it is today.

Workforce Online, November 2002 -- Register Now!

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