NCPA - National Center for Policy Analysis

Being A Corporate Director Isn't What It Used To Be

May 20, 2002

Life has changed for directors of corporations. Today's corporate boards -- even the most dedicated and efficient -- are in upheaval. The entire system of corporate governance is taking cannon fire, observers report.

Just about everyone is investigating ways to ensure that corporate boards fulfill the oversight role that shareholders expect of them.

  • The New York Stock Exchange has set up a committee to study corporate-governance issues for its listed companies.
  • The Securities and Exchange Commission has asked Congress to give it more authority over directors.
  • In June, the Council of Institutional Investors is meeting with judges from Delaware -- where more than 300,000 companies are incorporated -- to air their grievances about corporate governance.
  • Even Treasury Secretary Paul O'Neill once proposed that directors face personal liability when they are negligent in uncovering a company's misconduct.

Currently, directors are liable only if they intentionally defraud the company or profit at a company's expense. Directors are almost always covered -- for both their liability and legal fees -- under their corporation's directors-and-officers insurance policies. But that doesn't mean they don't have to defend themselves from civil lawsuits, which have increased sharply in recent years. Moreover, insurance companies have been tightening up their D&O policies to the point that some experts call them unreliable.

Source: Katrina Brooker, "Trouble in the Boardroom," Fortune, May 13, 2002.


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