On the December day when Enron Corp. sought bankruptcy protection, a 25th-anniversary special edition of Directors & Boards magazine rolled off the presses, celebrating "milestone" improvements in corporate governance during those years.
It was a telling coincidence. Facing sporadic criticism, corporate boards have indeed become more independent of top management in the past 15 years or so. They have even fired CEOs more often.
But if some milestones have been reached, others have not.
Boards play a little-understood but vital role in overseeing the giant companies at the core of the US economy. They hire chief executive officers, set their pay, and sign off on key decisions. But critics say too many boards merely rubber-stamp CEO strategies. Often, as at Enron, the CEO and board chairman have been one and the same person.
The Houston energy-trading giant revealed the potentially disastrous consequences of inadequate oversight, which took a toll not just on investor portfolios but also on jobs, worker pensions, and perhaps the US economy.
Enron's board waived the company's code of ethics, for example, to allow two top officials make a series of transactions with partnerships they oversaw. The officials earned millions of dollars at the expense of shareholders. The firm collapsed as the extent of hidden debts and accounting gimmicks came to light.
The dramatic failure has prompted moves - both within corporations and government - for change in how America's companies are supervised.
"It is appropriate to take a hard look at whether additional legislation, SEC regulation, or [stock-exchange] listing rules could strengthen independence" of boards, Ira Millstein, an expert on boardroom reforms, testified to Congress last Wednesday.
The mounting pressure on boards comes amid broader efforts to crack down on accounting tricks and managerial conflicts of interest.
Yesterday, President Bush announced proposals for stricter accountability. He called for disclosure of stock trades by corporate insiders within two business days, and said CEOs who abuse their power should be barred from future corporate posts and forced to give up profits tied to fraudulent earnings growth.
The Bush proposals, along with 50 Enron-related bills in Congress, send a message to boards: Since you haven't been good watchdogs, we'll step in.
Directors nationwide are feeling heat from shareholders who don't want to be surprised by Enron-style evaporations of wealth. More than half of directors have already questioned auditors or management about risks similar to those that brought down Enron, according to an informal survey in January by the National Association of Corporate Directors.
"Everybody looks around and says, 'There, but for the grace of God, go I,' " says James Kristie, editor of Directors & Boards, referring to the Enron debacle.
For all the new focus on issues of corporate governance, many Americans have little idea of how boards operate and what they do.
Boards usually meet monthly or quarterly with the CEO, and often other executives, to review corporate activities. Directors of big firms are generally paid $20,000 to $100,000 a year, plus benefits. Many also get stock grants intended as an incentive to make share prices rise.
Their most important job is selecting, and sometimes removing, chief executives. Board committees also review the work of company auditors and set the level of compensation of CEOs.
To Mr. Kristie, corporate directors have grown in their understanding "that being on a board is not being a member of a country club. It is a serious job. It is not just sprinkling holy water on the decisions of management."
STILL, cronyism lingers on. At a given firm, several directors are typically current executives at the company. The non-executive directors generally have a friendly relationship with the CEO. Collegiality is important. If a director is "a skunk at a garden party" in his relationship with management or fellow directors, he or she is unlikely to accomplish much, remain on the board long, or get new appointments to other boards.
Directors & Boards looked at the background of 154 new corporate directors appointed in the last quarter of 2001. It found that 39 were senior corporate officers, 37 chairmen or CEOs, 15 from the area of finance, 15 from nonprofits, and a few from legal, consulting, academia, and other areas. Thirty-two were women.
This doesn't mean boards - and sometimes factions within boards - never stand up to management. In the computer industry, Hewlett-Packard's planned merger with Compaq now hangs in the balance largely because board member Walter Hewlett is trying to scuttle it.
In Washington, the big debate will be the degree to which boards can be trusted to improve their own oversight, versus how much reform should come from stock exchanges through their requirements on companies for listing, or from government bodies like the Securities and Exchange Commission.
One reform under serious consideration in both Washington and Wall Street is tightening up standards for the "independence" of boards from management.
In 1999, Mr. Millstein headed a Blue Ribbon Committee of the New York Stock Exchange and the National Association of Securities Dealers (NASD) that recommended strengthening the independence of board audit committees. As of 2001, the Big Board required that members of audit committees of listed companies be independent of management. The NASD did the same, but with a murkier definition of independence. Millstein would like to see boards, not just audit committees, consist mainly of outside directors.