If securities lawyers feel they deserve combat pay in the post-Enron era, think how corporate counsel feel.
In the wake of recent corporate scandals, the Sarbanes-Oxley Act of 2002 and the new corporate governance rules at the New York Stock Exchange, in-house lawyers have had to handle myriad new rules and responsibilities. Now they must contend with yet another new challenge: filling vacancies on their company boards of directors. Many say this onetime formality has turned into an uphill battle.
In fact, experts say that at small to midsize companies, attracting board members can take twice as long as it did 10 years ago. And corporate counsel for companies of all sizes are finding they need to be more involved than ever in the tough job of attracting and retaining independent director talent.
Part of the blame can be placed on Sarbanes-Oxley, which puts new emphasis on the independence of board members. “Before [Sarbanes], the audit committee was the only one that had to be made up of strictly independent directors. Today, there [might] be three committees made up of independents,” says Jim Ukropina, chairman of Los Angeles-based consulting firm Directions LLC and a board member at Lockheed Martin Corp.
When it comes to finding those additional independent board members, lawyers say they can no longer rely on their company’s reputation alone to attract top talent. Because Sarbanes and other recently released securities regulations make it virtually impossible for board members to claim ignorance in the face of corporate malfeasance, candidates want to know exactly what they’re walking into. And experts say it’s up to corporate counsel to oversee–even guide–their investigation. Translation: a lot more work.
“Most director candidates now want to read [board meeting] minutes from years earlier and receive detailed briefings about all litigation before they’ll consider the job,” says Mike Roster, vice president and general counsel of Oakland, Calif.-based Golden West Financial Corp. This background work, he says, only snowballs because it brings up even more issues, such as how to deal with requests for indemnification and how to preserve the confidentiality of sensitive information.
From the Outside In
Corporate counsel are also doing more prep work to get their boards ready to accept new members and even to continue on with business as usual.
“Corporate counsel really have to work harder to educate their nominating committees and top officers,” says Chicago lawyer William S. Kirsch. “Workloads are heavier because board members have more reading and preparation to do for meetings.” Furthermore, the new laws are hastening the end of the days when top CEOs and upper-level executives held multiple outside board slots, further reducing the pool of experienced directors, says New York headhunter Julie H. Daum.
“Experienced directors are now reassessing whether they are devoting enough time to full-time jobs [where they also] face increased governance issues,” says Daum. “Understandably, many of these people are finding their primary work is a higher priority.”
Daum anticipates that the dearth of candidates will open new opportunities for those previously excluded from high-level corporate governance. Yet this means companies will have to increase due diligence for these less-experienced candidates–creating even more duties for corporate counsel, who, says Roster, will have to work overtime to ensure that applicants “meet the test.”
Whether board recruitment will get easier as time passes and the memories of corporate scandals fade remains to be seen. But Kirsch doesn’t see it happening anytime soon, if at all.
“In many ways, this is like the Y2K phenomenon,” Kirsch muses. “It’s going to change the way everyone does business.”