Corporate Boards Pressed to Be Watchdogs ; Bush's Proposals Yesterday Add Momentum for Better Oversight of CEOs

By David R. Francis writer of The Christian Science Monitor | The Christian Science Monitor, March 8, 2002 | Go to article overview

Corporate Boards Pressed to Be Watchdogs ; Bush's Proposals Yesterday Add Momentum for Better Oversight of CEOs


David R. Francis writer of The Christian Science Monitor, The Christian Science Monitor


On the December day when Enron Corp. sought bankruptcy protection, a 25th-anniversary special edition of Directors & Boards magazine rolled off the presses, celebrating "milestone" improvements in corporate governance during those years.

It was a telling coincidence. Facing sporadic criticism, corporate boards have indeed become more independent of top management in the past 15 years or so. They have even fired CEOs more often.

But if some milestones have been reached, others have not.

Boards play a little-understood but vital role in overseeing the giant companies at the core of the US economy. They hire chief executive officers, set their pay, and sign off on key decisions. But critics say too many boards merely rubber-stamp CEO strategies. Often, as at Enron, the CEO and board chairman have been one and the same person.

The Houston energy-trading giant revealed the potentially disastrous consequences of inadequate oversight, which took a toll not just on investor portfolios but also on jobs, worker pensions, and perhaps the US economy.

Enron's board waived the company's code of ethics, for example, to allow two top officials make a series of transactions with partnerships they oversaw. The officials earned millions of dollars at the expense of shareholders. The firm collapsed as the extent of hidden debts and accounting gimmicks came to light.

The dramatic failure has prompted moves - both within corporations and government - for change in how America's companies are supervised.

"It is appropriate to take a hard look at whether additional legislation, SEC regulation, or [stock-exchange] listing rules could strengthen independence" of boards, Ira Millstein, an expert on boardroom reforms, testified to Congress last Wednesday.

The mounting pressure on boards comes amid broader efforts to crack down on accounting tricks and managerial conflicts of interest.

Yesterday, President Bush announced proposals for stricter accountability. He called for disclosure of stock trades by corporate insiders within two business days, and said CEOs who abuse their power should be barred from future corporate posts and forced to give up profits tied to fraudulent earnings growth.

The Bush proposals, along with 50 Enron-related bills in Congress, send a message to boards: Since you haven't been good watchdogs, we'll step in.

Directors nationwide are feeling heat from shareholders who don't want to be surprised by Enron-style evaporations of wealth. More than half of directors have already questioned auditors or management about risks similar to those that brought down Enron, according to an informal survey in January by the National Association of Corporate Directors.

"Everybody looks around and says, 'There, but for the grace of God, go I,' " says James Kristie, editor of Directors & Boards, referring to the Enron debacle. …

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