Public Spotlight Turns to Corporate Directors; Enron outside Advisers Being Sued

Article excerpt


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. …