POINT OF VIEW: Reform Boards, But That Won't Solve All
05 Mar 08:00
By Neal Lipschutz
A Dow Jones Newswires Column
(This column was originally published Friday)
NEW YORK (Dow Jones)--Don't expect corporate boards of directors to solve
most of the accounting and disclosure problems highlighted by the Enron
debacle.
Reforming corporate boards is a favorite topic of advocates of better
corporate governance. That's understandable. After all, boards theoretically
have great power and theoretically are independent of management.
If they could be just be made even more independent and more comfortable
using their power, the reformist thinking goes, boards could be a strong
counterweight to wayward chief executives, chief financial officers and the
like.
And, in fact, corporate boards have come a long way. They are more
independent, more pro-active and more willing to act independent of managerial
wishes.
Even more useful reform work could be done. Lengthen the check-off list that
needs to be met to show a board's independent directors are truly independent.
One measure that seems clear after Enron's collapse is to bar companies from
making large contributions to charitable or non-profit organizations in which
directors are significantly involved.
Audit committees, the focus of much post-Enron attention, should have a more
pro-active role in dealing with outside auditors and enforcing whatever new
rules on auditor independence and rotation that emerge from the current
clean-up debate.
Compensation committees need to find more sophisticated performance measures
to tie to top executives' compensation. Short-term stock price or other
short-term financial goals don't always align CEO interests with those of
long-term investors.
But even as these improvements are made, they should be made with the clear
understanding that boards of directors alone are never going to be in a
position to guarantee corporate management is running clean and responsibly.
The groups of accomplished individuals who make up the independent members of
boards of directors meet a relatively small number of times a year. They have
other occupations and interests.
Auditors can maintain to some degree that their work is at the mercy of the
facts and figures provided to them by corporate management. Independent
directors are even more at the mercy of management as an information conduit
since directors typically have no independent base of knowledge of the
company's actual operations.
Federal Reserve Chairman Alan Greenspan earlier this week summed up the
limits faced by independent directors. His remarks were especially noteworthy
because few publicly question the presumed power and authority of directors
acting in the interest of investors.
"If you make everybody on the floor independent, what's going to happen is
you're going to have competing power centers within a corporation, and in my
judgment, corporate governance will suffer as a consequence," Greenspan told
the House Financial Services Committee Wednesday, Dow Jones Newswires reported.
"I've served on too many audit committees to know that even though I would
consider myself independent, I would consider myself knowledgeable, I did not
know what questions to ask the chief financial officer during meetings to find
out what it is that conceivably is going wrong in the corporation. And he
wasn't about to tell me," Greenspan added.
So let's continue down the road of empowering truly independent corporate
directors. Just don't expect them to solve most of the problems in the system
raised by the Enron affair.
Neal Lipschutz is senior editor, Americas, Dow Jones Newswires.
-By Neal Lipschutz, Dow Jones Newswires, 201 938 5152
neal.lipschutz@dowjones.com .
(END) DOW JONES NEWS 03-05-02
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