- The Washington Times - Saturday, February 23, 2002

Corporate directors not just management are falling under increased scrutiny since the Enron Corp. collapse.
Fifteen current and former directors at the former energy giant face lawsuits from shareholders, who say the directors rubber-stamped shady deals and allowed secretive partnerships to bankrupt the company.
Washington lawyer Neil Eggleston, who represents the entire current board and has advised them not to speak publicly as individuals, said the group is better portrayed as victims than perpetrators.
"Most of the outside directors have full-time jobs and they're expected to be outside directors, not managers of the company," Mr. Eggleston told the Associated Press.
The Enron debacle may spur politicians and regulators to toughen laws and rules to prevent a similar mess, including efforts to give board auditing committees more power and independence, said Nell Minow of the Corporate Library, which monitors governance issues.
"I guarantee you that every [corporate] lawyer in America is calling every client saying, 'We need to talk about what your board is doing,'" she said.
Boards are responsible for advising a company's managers, who are concerned with the day-to-day operation of the business.
Directors have two main concerns: "duty of care," the general welfare of the corporation, and "duty of loyalty," their overall commitment to the corporation.
"You cannot possibly know everything that is going on in a company. You have to trust management," said Barbara H. Franklin, a former U.S. commerce secretary who serves on the boards of five public companies, including Dow Chemical Co. and Aetna Inc., where she is chairman of the audit committees.
A board may meet four to six times a year, but there are smaller committee meetings and reports to review throughout the year.
Directors can spend as much as 200 hours a year working for a single board, according to Roger W. Raber, president and chief executive of the National Association of Corporate Directors.
The Securities and Exchange Commission said last week it will ask Congress for broader powers to bar corporate officers and directors who have committed wrongdoing from serving in those positions in the future.
The ban would encourage directors to take their responsibilities to shareholders more seriously, according to Stephen H. Cutler, the commission's enforcement director.
"The role of officers and directors is far too important to allow those with a questionable commitment to the interests of shareholders to serve," Mr. Cutler said in a speech to securities lawyers last week.
In 1990, Congress granted the commission the authority to go to court to seek a lifetime ban on officers and directors deemed unfit to serve in those positions. However, the courts have relied on a six-part test to determine the fitness of a director, making it difficult for the commission to impose the bans.
The SEC is seeking congressional authority to impose the bans during administrative proceedings, which would make them "swifter and more certain," he said.
Last year, the commission sought 33 bans on officers and directors, more than twice the number it sought in 2000, Mr. Cutler said. A commission spokesman could not determine how many of the bans were granted.
Bans provide an additional layer of protection for investors, according to shareholder activists. Many shareholders now rely on the courts to punish directors deemed unfit.
The Securities and Exchange Commission does not track the number of corporate directors sued by shareholders every year. The National Association of Corporate Directors, a trade group for board members, said it has not noticed a rise in such cases.
The Enron collapse has prompted corporate directors to be more open to evaluation by shareholders and regulators, Mr. Raber said.
Directors used to resist scrutiny, he said. "Some directors used to say, 'They are going to evaluate me? I've reached this pinnacle of corporate prestige,'" Mr. Raber said.
Most boards divide their members into committees, such as an audit committee, which is responsible for signing off on all the corporation's earnings statements.
The audit committee's goal is to protect shareholders by asking tough questions about a company's accounting procedures.
In small to medium-sized companies, directors typically receive between $40,000 and $60,000 in annual compensation, according to Mr. Raber. Sixty percent of the compensation is usually in the form of cash, and 40 percent is in equity.
At larger companies, directors receive between $100,000 and $200,000 in compensation. Sixty percent is in equity, and 40 percent is in cash, Mr. Raber said.
"You don't do it for the compensation. You want to make a difference. You have an expertise, and you want to see a company grow and prosper," he said.

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