In Search of Director Independence

Grumbling

At the Business Leadership conference at the Greenbrier Resort in West Virginia last week, more than a few CEOs complained about having their attention diverted by these new regulations, although savvy and practically astute corporations are embracing the proposed changes as necessary and inevitable. Even some much maligned boards, such as at Disney (DIS) and Computer Associates (CA), have made efforts to eliminate conflicts and reduce executives' compensation.

Certainly, no tears are being shed for corporations and/or board members. There is a dramatic need to improve the independence and quality of boards, which is something even credit rating agencies are now focusing on more.

"We believe that governance weaknesses can provide an early warning of credit problems that may otherwise be invisible in advance of financial stress," and vice versa for good practices, according to Debra Perry, senior managing director of Moody's Corporate Finance Group. Last week, Moody's announced the hiring of Kenneth A. Bertsch, formerly of giant pension fund manager at TIAA-CREF, as its new director of corporate governance.

Obviously, the bar for corporate governance was ratcheted down dramatically in the 1990s, as scandals at Tyco and Adelphia Communications demonstrate. The process of taking it up a few rungs has begun, but there's a long, long way to go before shareholders, and those who claim to speak for them, will be satisfied that directors are above board and above reproach.

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