The evolution of corporate governance, continued …

Directors & Boards, Fall, 2006 by James Kristie

In 1997 DIRECTORS & BOARDS published a timeline of the evolution of corporate governance from the early years of the 20th century. For our 30th anniversary issue, we extend the timeline to 2006. What follows are key developments and iconic moments in the current history of boards.

[ILLUSTRATION OMITTED]

1998

Cendant Corp. blows up in a colossal fraud scandal, presaging a lengthy list of financial blow-ups to come.

TIAA-CREF lays siege to Disney over board independence, the start of a multi-year campaign by various institutional investors and other parties over Disney's governance that will last until 2005.

[ILLUSTRATION OMITTED]

The first push to put barriers between auditing and consulting: The Independence Standards Board floats a proposal to force accounting firms to meet with corporate audit committees to explain why consulting and auditing engagements can peacefully coexist without endangering objectivity of audits.

1999

Both the SEC and the Investment Company Institute, a mutual fund trade group, launch initiatives to strengthen the independence of mutual fund boards.

Activist investment manager Ralph Whitworth, a board member of Waste Management Co., is named acting chairman in a move to help straighten out the troubled company.

[ILLUSTRATION OMITTED]

Time crunch growing for directors: Home Depot director Dr. Johnnetta Cole resigns from the board, pleading lack of time to meet the demand to make at least 20 formal visits to stores each year.

AFL-CIO unveils its Executive PayWatch website (www.paywatch.org) to critique excesses in executive comp.

2000

Most value-destructive board-approved deal of all time? America Online and Time Warner agree to merge. Years of turmoil follow.

[ILLUSTRATION OMITTED]

Trying to eliminate selective disclosures of potentially material information by executives, the SEC's Regulation FD (for fair disclosure) sets out new, more restrictive guidelines on how companies can communicate to the market.

Much attention paid to a McKinsey & Co. survey that finds institutional investors are willing to pay a premium (up to 20% or more) for shares of companies that demonstrate good corporate governance.

Eyeballs start popping over CEO severance: Jill Barad (pictured) exits Mattel amid mounting losses with a package valued at close to $50 million.

[ILLUSTRATION OMITTED]

Back to school for board members: Big institutional investor State of Wisconsin Investment Board advocates continuing education for directors on their role and responsibilities.

Median total direct compensation for outside board members at large U.S. companies crosses the $100,000 threshold for the first time--to $104,000, according to a Mercer Human Resources Consulting study of 350 major corporations.

2001

Enron Corp. declares bankruptcy, precipitating a crisis of confidence in board oversight and ushering in a new cycle of reexamination of the corporate governance and accounting systems. DIRECTORS & BOARDS Editor James Kristie, quoted in the Houston Chronicle: "It looks like every possible party had fallen asleep at the switch."

[ILLUSTRATION OMITTED]

A record number of securities-fraud class action lawsuits are filed, doubling the previous high set in 1998, according to Stanford Law School's survey. D & 0 insurance costs leap--for some companies, by as much as 50-100% or more.

Outrage against conflicts of interest on Wall Street: Merrill Lynch becomes the first major securities firm to bar its analysts from buying stock in the companies they cover.

2002

The Sarbanes-Oxley Act, officially termed the Public Company Accounting Reform and Investor Protection Act, signed into law by President Bush on July 30. Widely regarded as the most significant change to federal securities laws since the 1930s, the act tightens accountability standards for officers, directors, and auditors.

CEOs under post-Enron reputational assault as problems surface at Tyco, WorldCom, ImClone, and other ugliness: Emblematic sentiment voiced in the Wall Street Journal by Al Goldman, chief market strategist of A.G. Edwards & Sons, about the market's fear of "... who'll be the next CEO to be proven a bum."

[ILLUSTRATION OMITTED]

SEC requires greater disclosure of stock option awards and other executive compensation.

ISS's power prompts debate: The firm introduces its Corporate Governance Quotient (CGQ) scoring system for rating a company's governance; also, the firm is credited with tipping the victory in the bitter battle between Hewlett-Packard Co. and H-P board member Walter Hewlett over the acquisition of Compaq Computer by recommending shareholders approve H-P's bid.

More action on Wall Street conflicts of interest: Disclosure mandated in research reports of whether firms have investment banking relationships with clients.

2003

SEC approves new rules adopted by the NYSE and Nasdaq intended to strengthen corporate governance standards. Among the provisions: the audit, compensation, and nominating committees be composed entirely of independent directors; disclosure of which directors are independent; and an affirmative determination that a director has no material relationship with the company.