By Adrian Cox
Bloomberg News
Most U.S. public-company boards remain under the sway of senior management, even after directors at Enron Corp., WorldCom Inc. and Adelphia Communications Corp. were duped by their chief executives, a survey said.
Those three companies had $188.8 billion in assets before collapsing under massive securities frauds. The study, released Thursday by Financial Dynamics, a public-relations adviser, and Directorship magazine, found 92 percent of directors said they rely on the CEO as a main source of company information.
Only 13 percent of the 203 board members surveyed cited investor feedback as one of their main sources of information.
While U.S. lawmakers have stepped up corporate governance controls since Enron’s collapse in 2001, including passage of the 2002 Sarbanes-Oxley law, which increased criminal liability for senior executives, the survey’s results suggest directors may still not be doing enough to protect shareholders
“There’s a trend towards directors exercising their independence more so than there had been in the later years of the last century,” said attorney Edward Smith, a governance expert at Chadbourne & Parke LLP in New York. “That trend maybe is developing more slowly than some people would like.”
Seventy-nine percent of the survey’s respondents serve on the board of a publicly held company with more than $1 billion in annual revenue, the authors said. About 87 percent serve on two or more boards.
Of those surveyed by Directorship and Financial Dynamics, based in New York and London, 70 percent said they depend on other managers for corporate information while 63 percent said they relied on board books. Some 56 percent said they used analyst reports to glean data about the company while 32 percent said media coverage informed their decisions.
“It’s one thing to be technically independent based on the guidelines of Sarbanes-Oxley,” said Harlan Teller, the U.S. director of reputation management at Financial Dynamics and co-author of the study. “It’s another thing to be able to have enough information at your fingertips from both inside and outside sources to exercise independent thinking and judgment.”
