When Webplan CFO John Laskey first became an outside director, joining wireless-software maker AdaptiveInfo Inc.’s board in 2000, he considered such directorships to be a critical career enhancement. The position exercised his strategic thinking and built up his role as a player in corporate governance. AdaptiveInfo’s invitation itself is part of a powerful trend. In filling board seats these days, companies seek outside finance chiefs almost as assiduously as they seek outside CEOs.
So why is he now dragging his feet on responding to other board offers he’s received? “There’s a lot of risk out there,” says the 52-year-old Laskey, whose own company makes supply-chain software that balances manufacturers’ supply and demand. “Times are tough, and investors are always looking for a way to explain why their net worth went down after things didn’t work out.” Sometimes that means putting the blame on board members. If Laskey does decide to take another directorship, he’ll ask lots of questions, dig deep into financials, and examine how the company delivers on promises. “Since you’re not involved in the day-to-day, you’ve really got to be able to trust the management,” he says.
The latest warning signs about directorships might just as well read E-N-R-O-N. The energy-trading company’s board–superstars like former Commodity Futures Trading Commission chair Wendy Gramm and Comdisco CEO Norm Blake–has been humbled for failing to catch the problems that so suddenly turned Enron Corp. from cutting-edge financial success story into bankruptcy case study. To the insult, add potential injury: of the inevitable shareholder lawsuits, one at least carries the sting of insider-trading allegations against some directors, seeking to freeze more than $1 billion of directors’ and executives’ individual assets.
Indeed, General Electric Co., among others, actually discourages outside-director commitments. Official policy requires CEO approval before any GE employee can join an outside board, and no top executive currently serves on any. “GE is in a very wide range of businesses,” says company spokesman David Frail, “and the purpose here is to avoid potential conflicts of interest.”
But there are other reasons for caution. Standard insurance protection for directors and officers is getting weaker, even as it grows costlier. Indeed, rates for D&O coverage rose as much as 200 percent for some companies last year. Plus, “there are many policies that wouldn’t cover something like an administrative proceeding” by the Securities and Exchange Commission, “or provide protection if the company went bankrupt,” says Stephen J. Gulotta Jr., a partner with Mintz Levin Cohn Ferris Glovsky and Popeo PC. And moonlighting, of course, means less time for managing during your day job. Even without problems, board duties typically soak up one to three days per month, according to several finance chiefs interviewed for this article. Still, one of every five Fortune 500 CFOs serves on at least one other board, according to recruiter Spencer Stuart.
In a sense, board member CFOs say, their services are needed precisely because of the greater corporate risks. New challenges to companies, and regulations designed to help them cope, have elevated the search for finance chiefs to fill board seats to unprecedented levels. “About a quarter of our active searches involve a preference for a CFO–twice what it used to be,” says Roger Kenny, managing partner of search firm Boardroom Consultants. Meanwhile, pay for directors has soared. On average, outside directors at large companies made $105,032 (including equity) in 2000, a 5.9 percent rise from 1996, according to a survey by William M. Mercer Cos.