Posted on: Friday, November 26, 2004
Boards retain disgraced figures
By Rachel Beck
Associated Press
NEW YORK — It doesn't seem to matter when corporate directors get tangled in business scandals or are accused of sketchy oversight — many still get to hold on to their jobs no matter what.
Just consider that three members of the Enron Corp. board before the energy giant's 2001 collapse still are directors at U.S.-based companies. Same goes for two WorldCom directors who sat on the telecommunications company's board when it became one of the largest corporate failures in U.S. history.
And that's just the start. Many of the nation's biggest companies have board members with spotted pasts. So much for all the promises out of corporate America to improve boardroom integrity.
Of course, there is the theory that those who fell asleep at the wheel before won't dare to shirk their responsibilities again. For some, that may be true, but there is no guaranteeing such reform.
That leaves it up to companies to decide whether they are willing to take such a risk by letting these people join or stay on their boards — and it appears that many seem unfazed by past mistakes.
Look at former Lucent Technologies Inc. chairman and chief executive Richard McGinn, who was forced out in fall 2000 after the company warned for the fourth time in a year that its profits would be weak. Soon after that, the telecom company disclosed that it had prematurely booked $679 million in revenues.
Even with all that, he is still on the board of American Express Co., where he has served as a director since 1998.
But the financial services company may have reason to reconsider that decision. Earlier this month, federal regulators said they were considering civil charges against McGinn and two other former Lucent employees for their role in an alleged bribery and corruption scheme involving its Saudi Arabian business in the 1990s. American Express declined to comment; McGinn did not return a call for comment.
Another director who still sits on plenty of boards despite all the controversy swirling around him is investment banker Kenneth Langone, who has come under fire for his close relationship with former New York Stock Exchange chairman Dick Grasso and his role as chairman of the NYSE's compensation committee from 1999 to 2003 when Grasso was awarded a $187.5 million pay package.
New York Attorney General Eliot Spitzer sued Grasso and Langone last spring claiming they misled the NYSE board of directors about Grasso's pay package and, in some cases, bullied board members into approving it. Langone was specifically targeted for approving an $18 million retirement account for Grasso that went unlisted on documents given to board members.
Langone still is on the boards of ChoicePoint Inc., General Electric Co., Home Depot Inc., Yum! Brands Inc. and Unifi Inc. And at ChoicePoint, he heads the nominating and corporate governance committee.
Langone's spokesman, Jim McCarthy, defended Langone's board positions, saying that even his "sharpest critics have conceded that he is diligent, thorough and candid."
At troubled insurance giant Marsh & McLennan Cos., five company executives were ousted from the board last week, but the 10 outside directors not only are keeping their jobs at Marsh but those who have board positions at other companies have held on to those spots, too.
Spitzer sued Marsh in October for alleged bid rigging, price fixing and accepting incentive commissions from insurance companies in exchange for steering business their way.
What is interesting is that companies have the ability to push out those directors with questionable pasts since most board members don't have employment contracts. But most companies aren't quick to show them the door and when they do, they are often resistant to talk of the departures in a negative light. Instead, companies use excuses — such as that the director retired.
"Companies don't like to say a director got fired because that calls into question their business judgment in hiring them to be on the board in the first place," said Paul Hodgson, senior research associate at The Corporate Library, a governance watchdog group.
It was a one-sentence news release last November that announced the resignation of Boeing chief financial officer Michael Sears from his board position at Sprint Corp. Nowhere in the release did it mention that the day before, Sears had been fired by Boeing Co. for his alleged role in illegally negotiating an executive job for the Air Force's second-ranking acquisition official while she still had authority over billions of dollars in Boeing contracts. Sears pleaded guilty to that wrongdoing last week.
