August 4,
2002
Directors,
companies adjust to hot seat
By Antonio Fins
Business Writer
Thousands
of U.S. companies that trade their shares on the New York Stock
Exchange, the NASDAQ Stock Market and the American Stock Exchange
have been placed on notice: Get your boards of directors in order.
But some observers say South Florida companies looking to comply
with the exchange's new requirements -- especially adding board
members without ties to senior managers and instituting detailed
orientation sessions for new additions -- may find the going tougher
than they might expect.
"I know right now there are companies looking for directors, and
they are not having a lot of luck," said Christian Bartholomew,
a securities and corporate attorney with Morgan, Lewis & Bockius
in Miami.
On Thursday, the NYSE approved a booklet's worth of reforms aimed
at improving "corporate governance" -- meaning the ability of
company directors to supervise company managers. The NASDAQ and
AMEX both approved similar slates of amendments last month.
Those reforms are expected to get a thumbs-up from the Securities
and Exchange Commission, and then it's up to the companies to
make necessary changes or face getting kicked off the exchanges.
However, Bartholomew and others said many potential directors
have been turned off by the possible scrutiny from regulators
and the scandalous taint on what was a prestigious position.
"Boards have a big, fat bull's-eye on them right now," Bartholomew
said. "A lot of people are stepping back and asking, `Is the compensation
and time commitment worth it?' It's less attractive than it used
to be."
A company director can make pretty good money for attending a
few meetings a year. A survey of about 600 manufacturing, service
and financial companies by The Conference Board, a New York-based
research firm that produces the much-analyzed consumer confidence
studies, said outside directors pocketed an average of roughly
$50,000 last year in fees, retainers and stock options.
But Roy Oppenheim, a Weston lawyer and former director at Catalina
Lighting Inc. in Miami, said he would join another board only
if it is clear up front that he is there to rock the boat.
"I would serve again only under one condition: with the understanding
that as the outside director I am coming in as an agitator and
that I will ask questions and will not just be sold a bill of
goods," Oppenheim said.
He said he is glad that the mood in the boardroom is going to
change. Rather than being lured by the country club ambiance,
prospective board members need to consider whether they can trust
senior officials, whether the board has real control over managers
and whether they will be covered by a sound liability insurance
policy.
"People have to really think twice about being on the board,"
Oppenheim said.
S. Florida openings
Among the local companies that will soon be in the hunt for directors
is Claire's Stores Inc., a Pembroke Pines-based chain of costume
jewelry shops popular with teenyboppers.
Right now, four of the company's seven board seats are occupied
by folks who would not be classified as independent directors
-- in other words, people who have no strong financial or familial
ties to senior managers or the company -- by the NYSE, where Claire's
shares trade.
Chairman and CEO Rowland Schaefer and two daughters, Marla Schaefer,
and E. Bonnie Schaefer, hold three of the board seats. The two
daughters also serve in senior management positions at the company.
Chief Financial Officer Ira Kaplan occupies the fourth seat.
According to NYSE's new rules, the four can remain on the board
if Claire's adds at least two more independent directors, so that
they will constitute a minority.
Claire's said it is examining options.
"We are definitely looking at corporate governance and succession
issues," said company spokeswoman Sonia Rohan. She refused to
elaborate.
However, in a filing with the SEC in late June, company founder
Rowland Schaefer said the company has hired a consultant to advise
on a succession plan that will include dealing with ownership,
governance and management.
Tyco International Ltd., which purchased Sensormatic Electronics
Corp. in Boca Raton last year, is planning to expand its board
from 11 to 15 directors. The company said the increase is necessary
to make sure a majority of seats are held by independents.
The Bermuda-based company said in papers filed with the SEC that
the change is required not just by the NYSE directive, but also
by a 1999 amendment in Tyco's own by-laws.
Tyco has scheduled a special shareholder meeting for Sept. 5 to
vote on the expansion of board seats.
Code of ethics
Rearranging board seats is only the first step, others point out.
Once companies sort out their boards, they must then focus on
a slew of other requirements. They need to approve a code of ethics,
allow independent directors to meet without management present
and establish detailed orientation sessions for new directors
that will cover what the company does, significant accounting
practices, the risks facing the company and background on committees
they may be joining.
Alan Levan, chairman of BankAtlantic Bancorp Inc., said he feels
comfortable that his company already meets the new guidelines.
"We believe we comply in all respects with the new regulations,"
he said of the NYSE rules. "We're not anticipating any changes."
But one governance consultant said she believes some companies
may have more work cut out for them than they think.
"A lot of people still don't understand how all these [reforms]
fit together and they are waiting to see what finally goes into
effect," said Marta Alfonso, a corporate governance specialist
at Lewis B. Freeman & Partners Inc. in Miami. "But, in the end,
there will be a series of companies that will have to go through
some fundamental changes."
The NASDAQ and NYSE say the goal of the new measures is to prompt
tougher questioning and deeper scrutiny of everything that passes
through the boardroom for inspection and approval, from stock
option payments to financial statements to major acquisitions.
Those who back the measures offered by the stock exchanges say
they offer some protection against the look-the-other-way attitudes
that helped cover up cheating in a string of scandals from Enron
Corp. to WorldCom Inc.
"It doesn't matter if it's Enron or one of the others, it all
comes down to a moment where the board has a chance to avoid a
major mistake," said Nell Minow, a Washington, D.C., shareholder
rights advocate who helped shape some of the reforms approved
by the NYSE. "The question is what can be done to make a different
result next time."
Antonio Fins can be reached at afins@sun-sentinel.com
or 954-356-4669.
Copyright © 2003, South Florida Sun-Sentinel
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