GRADUALISTS

Employees and shareholders at Adelphia Communications Corp., Enron Corp., Tyco International and WorldCom learned firsthand how costly a weak board of directors can be. Still, chief financial officers aren't quite ready to advocate radical changes in their boards' makeup or mission.

It's not that they doubt the value of an independent board. Of the CFOs surveyed by Institutional Investor, 23.4 percent say investors prefer corporations with strong boards, even if the company is not doing well -- not a small factor at a time when profits are declining and earnings forecasts are less reliable.

And 57.4 percent of those polled believe new independent board members should only be selected by other independent directors, a change many corporate governance experts believe would strengthen corporate integrity.

Nonetheless, CFOs generally shoot down the more extreme proposed remedies. A majority, 59.1 percent, see no purpose in putting term limits on board service. Although the remaining 41 percent endorse set terms, half of this group think the limit should be a generous three terms, which at most companies would mean nine years.

More radical proposals generated even less enthusiasm. A whopping 91.3 percent of those polled believe nonmanagement employees should not be given a seat on corporate boards. And 89.1 percent wouldn't even encourage giving a seat to a representative from institutional investors.

But this is a pretty discriminating group. Most CFOs surveyed would not invite their chief operating officers to join the boards of their companies. And they don't envision themselves -- at least in their current jobs -- as board material either. Sixty-six percent of those surveyed say they would not give a fellow CFO a seat at the table.

Do you see a value in having nonmanagement members on the board of directors?

Yes 97.8%

No 2.2

 

If yes, what value? (Check all that apply.)

It looks good to have distinguished people on the board 22.2%

It instills confidence in investors 57.8

Nonmanagement members offer fresh advice 95.6

Nonmanagement members can apply the perspective of other businesses 97.8

Nonmanagement members keep an eye on management on behalf of shareholders 77.8

Nonmanagement members can bring up concerns of shareholders 73.3 

 

If no, why not? (Check all that apply.)

Having them implies that management is dishonest 0.0%

Nonmanagement members have little specific knowledge of the company's problems 100.0

Nonmanagement members are picked by the CEO and, therefore, are not really independent 0.0

There are too many "professional" directors, in it for the fees and perks 0.0

It's a distraction for management to have to brief nonmanagement members in the detail required for them to be able to advise 100.0%

 

How should independent directors be nominated?

By the CEO 17.0%

By the existing board 23.4

By the independent members of the existing board 57.4

By the retiring board members 2.1

By any shareholder 0.0

 

Should the audit committee of the board of directors be made up exclusively of independent directors?

Yes 97.9%

No 2.1

 

Should the board be legally liable for audits?

Yes 87.0%

No 13.0

 

Should the compensation committee of the board be made up exclusively of independent directors?

Yes 68.2%

No 31.8

 

Should the CEO also be chairman of the board?

Yes 97.9%

No 2.1

 

Should the CEO be a member of the board?

Yes 55.3%

No 44.7

 

Should the COO be a member of the board?

Yes 34.0%

No 66.0

 

Should the CFO be a member of the board?

Yes 34.0%

No 66.0

 

Should the board have a representative from nonmanagement employees?

Yes 8.7%

No 91.3

 

Should the board have a representative from institutional investors?

Yes 10.9%

No 89.1

 

Will investors shy away from companies with boards perceived as weak?

Yes, if the company is doing poorly 57.4%

Yes, even if the company is doing well 25.5

No, if the company is doing well 17.0

 

Will investors be attracted to companies with boards perceived as strong?

Yes, if the company is doing well 57.4%

Yes, even if the company is doing poorly 23.4

No, if the company is doing poorly 19.1

 

Should members of boards have term limits?

Yes, one term 2.3%

Yes, two terms 18.2

Yes, three terms 20.5

No, they should serve as long as they wish to serve and are reelected 59.1

The results of CFO Forum are based on quarterly surveys of a universe of 1,600 chief financial officers. Because of rounding, responses may not total 100 percent.