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Corporate Governance Summit Conference

DOW JONES NEWSWIRES October 16, 2002
By
Phyllis Plitch

Story 1: Directors Should Be Choosy About The Boards They Join

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 responsibility.

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 markets.

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 July.

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 industry.

Also, Camper said she expects the Congress to hold oversight hearings to "ensure the law is implemented properly and is working."

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 recommendations.

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.

 

   2008 Fred H. Hutchison. All Rights Reserved.

Edited on: May 19, 2006