ANOTHER ENRON IS LIKELY UNLESS BOARD DIRECTORS FOLLOW 10 GUIDELINES FOR ETHICAL BEHAVIOR

Nationally-recognized corporate governance expert Joe D. Goodwin of Atlanta provides the top 10 rules board members must follow if public companies are to avoid the slippery slope of another Enron

NOTE: When and where will there be another Enron? Speculation is now swirling around that question. The answer lies within the practice of effective corporate governance, which can only be achieved by following some fairly simple -- and logical -- guidelines. Directors who do not follow these guidelines do so at their own peril -- and the peril of shareholders they have been elected to represent.

NEWS ANALYSIS

10 guidelines board members should follow
To be effective in their duty to shareholders

By Joe D. Goodwin
President, The Goodwin Group

Strong, effective boards of directors are essential to corporate health. When directors fail to practice certain common-sense guidelines in the performance of their duties, companies and directors themselves can find trouble. This code of ethics should be followed to the letter:
The 10 Demands of Board Members

1.   Maintain independence from management and the CEO. You should have the interests of the shareholders and other stakeholders paramount. If you allow management to direct your activities as a board member, you may be ineffective. You have an obligation to be curious, to ask questions.

2.   Avoid interlocking board relationships. If you are a CEO, it is unwise to sit on the board of one of your board members companies. At the least, it gives the appearance of cronyism. At worst, it could give the appearance of collusion (i.e., the vote trading of the Russian judge and the French judge at the Olympic skating competition). Independence can be as much perception as reality.

3.   Limit board service to no more than two outside corporate boards. This applies particularly to active CEOs. It will be impossible for you to find the time to adequately prepare yourself to be effective if you sit on more than two, in addition to your own.

4.   Attend all board meetings and committee meetings -- in person, not on the telephone. You simply cannot absorb all of the details and nuances of management presentations on a conference call. Board schedules generally are published a year ahead, so you can flag any possible conflicts.

5.   Do not accept supplemental or contingency fees for services from boards on which you serve. It is unwise and possibly unethical to allow the board to compensate you for rendering a service to the board you are already being paid to provide as a board member.

6.   Be sure all conflicts of interest are avoided with your company and the boards on which you sit. For example, if you are the CEO of an adhesive manufacturing firm, or you sit on the board of one, it probably would not be a good idea to sit on the board of a bandage company. Conflicts are obvious. Watch for them.

7.   Help your board implement mechanisms of change, such as term limits and a mandatory retirement age. Corporations grow and thrive on new ideas and fresh thinking. If term limits are written into policy, it is less difficult to replace members who have become ineffective or out of touch with the marketplace, capital markets and management trends.

8.   Review governance policies and corporate codes of conduct. After your initial briefing and orientation as a new board member, read the materials provided to you by corporate counsel. Actually read them, often.

9.   Work toward the appointment of a lead director who will have regular interaction with the CEO. The lead directors responsibilities include listening to the other board members and sharing their thoughts regularly with the CEO. The lead director also serves as a conduit of regular communication from the CEO to the other board members between board meetings.

10.   Work toward establishment of a board peer review system and annual performance evaluations. This is a useful mechanism that provides grounds to improve board performance and remove ineffective board members.

(Goodwin, a consultant in retained executive search for 25 years, specializes in boards of directors and senior leadership. He can be reached at jgoodwin@goodwin-group.com or at 404-495-0886)