The Slime Factor: How Scandals Have Affected Directors
from May/June 2003
by Charlie Deitch and David Sendler
Gutless they’re not. For most directors, the fallout of the scandals at Enron, WorldCom, and others came in the form of a generic insult. No doubt, at those companies the boards had dropped the ball, badly. But often directors found themselves the victims of broad-brush sliming that painted all board members as inept at best, and in many cases far worse. Those who should know better ignored the large number of good apples and began to talk of a rotten barrel.
Have directors buckled? Not according to the interviews Corporate Board Member conducted with about 50 of them. Almost all said that the reputation of directors as a whole had taken a beating, but none has been driven from the boardroom. And while scandals have impelled the respondents to be doubly cautious before joining a board, few would hesitate to encourage qualified friends or associates to become directors. One board member drew the line at recruiting his wife, citing her lack of business knowledge. Good for him, though we will keep his identity a secret. A sampling of what other directors had to say—about the temptation to quit and the rewards of board service, among other things—begins at right.
The boxes accompanying this report present the highlights of an e-mail survey of some 5,000 directors that asked how the reforms in the Sarbanes-Oxley Act were affecting the ways they do business. The complete results of the survey, which was conducted by Corporate Board Member and Houlihan Lokey Howard & Zukin, an investment-banking firm headquartered in Los Angeles, can be seen on our website here.
Interviews by Charlie Deitch and David Sendler
Has the reputation of directors as a whole been hurt?
Most of the directors we interviewed say it has . . .
The fallout of the highly publicized cases has left people suspicious of all directors. The greed of the few has tarnished everyone else.
ROBERT E. LA BLANC, 68
Founder and President, Robert E. La Blanc Associates
Outside directorships: Chartered Semiconductor Manufacturing, Salient 3 Communications, Storage Technology Corp., Titan
I’d say so. Certainly the directors at companies like Enron and WorldCom did not do their duty, and it reflected on whether directors everywhere else are doing theirs.
CHARLES J. KLEMAN, 52
Executive Vice President, CFO, and Director, Chico’s FAS
Yes. The very poor performance of a few boards of directors, in the minds of the public at large, makes all boards look a lot less ethical than most boards are. Most American businesspeople are disgusted by what went on. We all definitely have a perception problem.
JOHN PATIENCE, 55
Co-Founder and Partner, Crabtree Partners
Stericycle, Ventana Medical Systems
Absolutely. Now the presumption is that most directors are lazy, greedy, weak, asleep at the switch. And nobody used to assume that. It used to be much more prestigious.
ILENE H. LANG, 59
Independent Consultant
Adaptec, Art Technology Group
There are a few knuckleheads out there and some scandals, so people are probably asking more questions now.
Dean Taylor, 54
CEO, Tidewater Inc.
Whitney Holding Corp.
Without question, and deservedly so. Even those that haven’t been charged with anything probably haven’t done the job they should have done. That includes me, by the way.
BEN WINTERS, 82
Business Consultant
Arden Group
… but some disagree.
No. I think shareholders and investors are sophisticated enough to understand that the majority of companies are directed by individuals with high ethics, who ensure as best they can that they are working in the best interest of the shareholders.
BRUCE FRIED, 53
Partner, Sonnenschein Nath & Rosenthal
CareScience, MedicaLogic/Medscape
Has the new climate affected you personally? Do people treat you differently now?
Sometimes.
I don’t think I’ve been treated any differently, but there are those little side comments—“Oh, you’re a CEO and a director”—and believe me, at this time that’s not a compliment.
LOUIS T. STEINER, 41
Vice Chairman and CEO, Commercial National Financial Corp.
I have not been treated differently, although some peers—especially lawyers—and friends have expressed concern that I may not be adequately protected in terms of risk.
KATHY CUNNINGHAM, 56
Retired CFO, Requisite Technology Inc.
J.D. Edwards & Co.
Absolutely. It doesn’t matter that you weren’t involved or weren’t anywhere near the situation. Just by being a director on some public board somewhere, you get tarnished too.
PAUL METTS, 60
Retired CEO, Shands HealthCare
Exactech
Directors in smaller communities have fared best . . .
It really hasn’t affected me personally at all. People here understand that we are a reasonably successful public company and a bright star of the New Mexico economy. People want credibility in management. They want to know that you know how to position yourself for success.
CHRISTOPHER AMENSON, 52
Chairman and CEO, SBS Technologies
. . . while others have been the butt of humor.
There have been a few more facetious jokes than normal, but most of those have come from my own kids.
G. WILLIAM CAULFEILD-BROWNE, 58
Retired COO, Swiss Re Life & Health America
Scottish Annuity & Life Holdings
Do you know of any directors who are quitting or not running for reelection?
Some are losing their appetite.
Yes, I’ve heard 10 to 15 people on other boards say that. They feel it’s just not worth the responsibility, or the focus on every move they make, or the vulnerability to suits.
JOHN D. KIDD, 63
Chairman and CEO, Oak Hill Financial
Not yet, but some of the directors I know are uncomfortable and have reflected on whether this is worth the risk.
PATRICIA A. BUFFLER, 64
Professor of Epidemiology, School of Public Health, University of California at Berkeley
FMC Corp.
I know directors involved in some of the more famous situations, and they’re obviously feeling abused, mostly by the company itself. They feel they weren’t treated with the respect they should have been given as outside directors.
WILLIAM H. T. BUSH, 54
Chairman, Bush-O’Donnell & Co.
Engineered Support Systems, WellPoint Health Networks
Have you been tempted to quit?
Directors are hanging tough, but with provisos.
I’m not tempted to quit. The CEO in my company is a longtime friend who is impeccably honest. I would be reluctant to serve on the audit committee of somebody I did not have faith in, —there are just too many ways to hide fraud. I’ve defended against these fraud cases, and there’s just no way you’re going to know.
DAN L. GOLDWASSER, 63
Partner, Vedder Price Kaufman & Kammholz
Forest Laboratories
As an insider, I have more control over the situation in terms of making sure our company is doing the right things. So I haven’t been tempted to quit my own board. If I was an outsider, I would certainly consider it.
KEVIN QUINLAN, 53
President, COO, and Director, Boston Biomedica
I’m not tempted to quit, because it’s my living, my cash flow. Unlike a lot of people who have perk-laden jobs and big retirement packages, I don’t. So I asked for a raise—and got it. But I am certainly more careful about the due diligence I would do before considering another board.
ILENE H. LANG, 59
Independent Consultant
Adaptec, Art Technology Group
Certainly there are times when every director questions why they serve and if they should continue. You have to do that, and you have to reach the conclusion that you are here because you are making a contribution. If you don’t come to that conclusion, then you need to get out.
PAUL METTS, 60
Retired CEO, Shands HealthCare
Exactech
At 82, you have to ask yourself, “What the f— am I doing here?” or “What do I need this for?” But I’m a 25-year member of the board, and I’ve seen it through some very difficult times. You get a sense of responsibility and accomplishment. And as long as the directors’ liability insurance holds out, I’ll stick with it.
BEN WINTERS, 82
Business Consultant
Arden Group
I think now more than ever it is important that good people step up to the plate, the way they did during World War II and the Korean War. My generation was the Vietnam War crowd, and a lot of people walked away from the batter’s box. Today it’s absolutely essential that people in leadership positions not be afraid to fulfill the necessary roles for capitalism to prosper. If good people aren’t filling these roles, we’ll suffer the consequences.
DEAN TAYLOR, 54
CEO, Tidewater Inc.
Whitney Holding Corp.
If you are staying on, why? What are the rewards of board service?
It’s not (only) the money.
In some cases, it’s what you do. It’s part of you. It’s not the compensation; it’s working with people you respect and enjoy, doing legitimate work on behalf of the shareholders. I like the work, and that’s all I need to keep going.
WILLIAM H. T. BUSH, 54
Chairman, Bush-O’Donnell & Co.
Engineered Support Systems, WellPoint Health Networks
To the extent that I help another good man run his company, I can expect a good man to help me oversee the running of my company. I feel like it’s a give-and-take proposition. I consider it a sense of duty. Board service is certainly rewarding to the extent that we can help people get on track, stay on track, and find new tracks.
DEAN TAYLOR, 54
CEO, Tidewater Inc.
Whitney Holding Corp.
You’re well compensated. I’ve learned a tremendous amount about the business. And you do meet some interesting people.
DAN L. GOLDWASSER, 63
Partner, Vedder Price Kaufman & Kammholz
Forest Laboratories
The rewards are watching a company with solid management and smart, hardworking people grow and thrive under different circumstances. I love expanding the business and watching people grow as the business grows. I find it all very exciting and feel that I add something to the process.
HOWARD L. FEINSAND, 55
Executive Vice President, General Counsel, and Director, Duke Realty
My lifelong career interest has been moving research findings from the laboratory into the clinic and then into the marketplace, where they can do people some good. And the programs I’ve been involved with will be valuable in the clinical environment, successful for investors, and meaningful to patients. So the social good that the company’s success would bring is very important as well.
ALLAN M. GREEN, 58
Of Counsel, Greenberg Traurig LLP
North American Scientific
The opportunity to create an engine of value for the shareholder is a blast. It’s just a fun thing to do. I left at one time, and came out of retirement to help groom the next generation of management.
CHRISTOPHER AMENSON, 52
Chairman and CEO, SBS Technologies
The work is very satisfying, and I do feel to some extent that this company is partly my child. To be able to assist from the wings is very rewarding.
G. WILLIAM CAULFEILD-BROWNE, 58
Retired COO, Swiss Re Life & Health America
Scottish Annuity & Life Holdings
Would you help recruit your best friend or your spouse for board service?
Yes, but with more provisos.
For the right company, yes.
CLYDE NIXON, 67
Chairman, Sun Hydraulics
It depends on the person. If they had strong convictions and ethics, I certainly would, because we need that type of person right now. I would also make sure, however, that they knew what they were getting into from a personal-liability standpoint. But if they understood all that and accepted it, I would say go for it.
LOUIS T. STEINER, 41
Vice Chairman and CEO, Commercial National Financial Corp.
Yes—if, of course, they have the background to serve. I don’t see this as throwing someone I care about to the wolves. Board service is very rewarding if it’s done correctly. And the best way to change the image of directors and to help restore trust in the leadership of public companies is to put quality people in those roles who will work hard to make a difference and initiate change.
PAUL METTS, 60
Retired CEO, Shands HealthCare
Exactech
Yes, but I would caution them to very carefully check out the company, its management, its accounting policies, its ethical behavior, and the company’s directors’ and officers’ insurance policy. I would also suggest trying to meet, in advance, as many of the company’s directors as possible to ensure that a high degree of compatibility existed. There is nothing as difficult as a board that has internal friction.
ROBERT E. LA BLANC, 68
Founder and President,
Robert E. La Blanc Associates
Chartered Semiconductor Manufacturing, Salient 3 Communications, Storage Technology Corp., Titan
If I saw talent and we needed talent—either on our board or any other board that I had confidence in—I would feel comfortable doing that. But I would not steer a friend or spouse to board service without knowing a great deal about the company, the culture, the board, and the policies that support the board in doing its job.
PATRICIA A. BUFFLER, 64
Professor of Epidemiology, School of Public Health, University of California at Berkeley
FMC Corp.
With the right company, yes. If it’s a company in an industry or at a stage in its life where as a director you can add something, I think being a director is a noble enterprise.
HOWARD L. FEINSAND, 55
Executive Vice President, General Counsel, and Director, Duke Realty
I always recommend people I know for boards. And one of my best friends recruited me for a board.
ILENE H. LANG, 59
Independent Consultant
Adaptec, Art Technology Group
Absolutely. I think there’s still a tremendous amount of potential. There’s a joy in serving. And I would hate to see the quality of board members diminish just because of the current environment.
JOHN D. KIDD, 63
Chairman and CEO, Oak Hill Financial
