Last week, the pension fund of the International Brotherhood of Teamsters named what it called the 23 least valuable directors in corporate America, citing poor attendance, conflicts of interest or service at companies whose chief executives were underperforming and overpaid in 1994.
The ensuing hubbub has not stopped. Some critics denounced the rating system as incomplete or out of date. Others, while lauding the goal, rose to the defense of some on the list. They asserted that the contribution of some directors was not in oversight but in the business connections they provided.
And some shareholder-rights activists are annoyed with the Teamsters for potentially undermining their own efforts to rate individual directors. They want to proceed carefully, so whatever action they then take based on their own reviews will not easily be dismissed.
However ham-handed the Teamsters' effort was, though, it did start discussion on a topic that is increasingly important to investors how effective are their representatives in the boardroom?
Evaluating directors, corporate-governance experts agree, is the next logical step for investors, who over the last decade have pushed for independent boards and otherwise ratcheted up the pressure on managers of poorly performing companies.
Such evaluations would put an end to board seats as sinecures and underscore directors' accountability to shareholders. But, as the Teamsters showed, the process is fraught with pitfalls.
Securities laws offer little help. Beyond basics like a director's age and job, regulations require disclosure only of items such as compensation, attendance, how much stock each director owns, other board service and dealings with their companies that might pose conflicts, such as a consulting arrangement.
"The notion that a pension fund can make an evaluation of my effectiveness based on my attendance record is nonsense," charged Vernon Jordan, the Washington lawyer who sits on numerous boards and who was on the Teamsters' hit list. "That's like saying you can't be a Phi Beta Kappa without attending all classes."
The corporate veil enveloping boardrooms is another obstacle. In most cases, it's made of Kevlar unpierceable. Even when tidbits about boardroom dynamics leak out in cases where, say, boards dismiss a chief executive the actions of specific directors generally remain secret.
Getting information about an individual director's contribution at routine meetings is much more difficult.
"I don't know how you do that, save for a firm really doing a background check comparable to one for hiring a very important person," said Peter Garrett, senior vice president of Directorship, a Greenwich, Conn., consulting firm that identifies potential directors for companies based on public information and reference checks.
"To find out what an individual contributes is possible," Mr. Garrett said. "But is it feasible? Probably not, because of the cost.
"You'd have to do a lot of interviewing, probably off the record. It's very extensive in terms of time and money."
Further complicating the picture is the fact that boards act collectively. "It's hard to make any individual responsible for the whole," said Joseph Grundfest, a Stanford University law professor and a former member of the Securities and Exchange Commission.
"You can have wonderful individuals that form a dysfunctional group. Just look at the Congress of the United States, and let's assume it is full of wonderful people."
Pub Date: 3/22/96