Corporate Governance Summit Conference
DOW JONES NEWSWIRES
– October 16, 2002
Story 1: Directors Should Be Choosy About The Boards They
NEW YORK (Dow Jones)--In the face of pending regulations
requiring corporations to strengthen board independence,
there's been a lot of talk lately about what companies should
be looking for when seeking out directors.
But directors should be equally probing when deciding to join
a public company board. That was one of the messages from
Peter J. Tobin, a former chief financial officer for Chase
Manhattan Corp. and its predecessor bank.
Addressing a corporate governance summit sponsored by The
Institute of Internal Auditors, Tobin, who sits on five
company boards, said directors should conduct due diligence on
companies, and make sure they have a "good and capable CEO"
because "the tone at the top is everything."
Also, directors should make sure their board colleagues are
"first rate" and engaged in what's going on at the company.
They should also check to make sure accounting principles are
sound and the company has a credible financial track record
and set of governance principles.
Despite all the hoopla surrounding new laws and regulations
aimed at making directors more accountable, he said in his
experience directors have always recognized a "responsibility
to do the right thing."
"I don't see many directors sitting around worrying about
their liability as they think through strategy and financial
results," Tobin said. "Most directors are simply going to
carry out their responsibilities on a continuing basis. They
may be more diligent, but I don't think they would change the
way they approach the board and committee meetings."
That may be so, but top lawyers from the nation's two major
exchanges were on hand to offer the internal auditors,
directors, and finance officers in the audience a primer on
their pending governance reforms. Among other things, they
call for companies to seat a majority of independent directors
as well as independent audit, nominating and compensation
committees. They also require increased audit committee
The audience also got a taste of the potential differences
that companies will have to live with, depending on where they
list their securities. The two lawyers, James Duffy, of the
New York Stock Exchange, and Sara Bloom, stressed that the
markets agreed on the big points, including the independence
requirements. But Bloom, associate general counsel at Nasdaq,
highlighted the differences in the two approaches.
For example, the Nasdaq rule proposal sets out a list of
independence prohibitions, while the NYSE contains some
automatic bars as well as an overriding requirement that
boards affirmatively determine that the director has no
material relationship with the company.
Nasdaq's proposed standard provides assurance that directors
won't have conflicts that will impair independence and
"provide a uniform standard across the board."
Both the NYSE and Nasdaq proposals require Securities and
Exchange Commission approval.
The first proposal out of the gate from the two markets calls
for most stock option plans to be approved by shareholders.
The SEC asked the markets to split off the stock option
proposal from the rest of the proposed reforms in order to
fast track the rule. The two proposals have been published and
are now subject to a public comment period.
The SEC has indicated that as it reviews forthcoming proposals
it will try to harmonize the approach taken by the two
Meanwhile, congressional staffers were on hand to say that
lawmakers were carefully watching how the Sarbanes-Oxley Act
is being implemented. Naomi Gendler Camper, staff director of
the Senate banking committee's subcommittee on financial
institutions, indicated that senators were closely monitoring
the formation of a new public accounting oversight board,
which was required by the far-reaching legislation enacted in
Reflecting on the controversy surrounding the appointment of
John Biggs to chair the panel, Camper said the failure to
appoint a "strong reformer" like Biggs would cause Congress to
"take a long hard look at whether the process put in place is
working." Biggs, who just announced his retirement as chief
executive of TIAA-CREF, was reportedly the first choice of SEC
Chairman Harvey Pitt before he was nixed by Republican
lawmakers out of fears he would be too tough on the accounting
Also, Camper said she expects the Congress to hold oversight
hearings to "ensure the law is implemented properly and is
Story 2: Panel Seeks
CEO Help In Implementing Corporate Reforms
NEW YORK (Dow Jones) -- A blue-ribbon commission that issued a
set of recommendations aimed at reforming executive
compensation practices is about to tackle what might be its
biggest challenge yet: getting U.S. corporations on board.
The panel, made up of high-profile commissioners from all
corners of the business and financial world, is close to
embarking on its first serious round of proselytizing.
Speaking Wednesday at a corporate governance summit sponsored
by the Institute of Internal Auditors, commission co-chairman
Pete Peterson said the panel was getting ready to dispatch
letters to chief executives urging them to sign on to the
group's recommendations. The Conference Board Commission on
Public Trust and Private Enterprise will also be seeking
support from institutional investors.
In the first of a series of findings and recommendations, the
group last month called upon companies to take steps to change
compensation practices. The group threw its support behind the
expensing of stock options, longer holding periods for stocks,
and pre-announcements by insiders when they plan to sell
stocks, among other things.
In a sign of what might be a challenge ahead, Peterson,
chairman of the Blackstone Group, said that "getting into this
area is not a way to win a popularity contest in certain
segments of this country."
But he and his colleagues became convinced that "this issue
was at the heart of a serious decline in public trust."
Following Peterson's speech, Carolyn Brancato, the panel's
director, said letters would be sent to hundreds of companies
asking them to endorse the findings within the next few weeks.
The commission will also ask institutional investors if they
would be willing to urge portfolio companies to adhere to the
Assuming the commission's efforts are successful, the panel
plans to run ads in major business publications noting the
names of the companies and of investors that signed on.
Members of the commission include Ralph Larsen, former
chairman and chief executive of Johnson & Johnson (JNJ);
Arthur Levitt, former Securities and Exchange Commission
chairman; Paul A. Volcker, former Federal Reserve Board
chairman; and John Biggs, chief executive of TIAA-CREF.