Most of the punishment from the recent wave of business scandals has fallen on corporate executives and in some cases the accountants and other professionals who advised them.
But corporate board members, who are directly responsible for protecting shareholder interests, have largely escaped untouched. Now that may be changing.
A handful of recent developments, highlighted by the tentative agreement of 10 former WorldCom Inc. outside directors to pay $18 million of their own money as part of a $54 million settlement of a shareholder lawsuit, suggests that board members at scandal-ridden companies may indeed wind up paying a significant price for failing to stop alleged misdeeds.
Two former WorldCom directors not involved in the $54 million deal are in settlement discussions. The settlement with the 10 other former directors has been signed by all parties and is expected to be filed in court for the judge's approval today.
What was once a gilded position offering hefty compensation for minimal work is becoming a more challenging job fraught with the risk of significant financial liability. "All of this will make directors begin to take their jobs far more seriously than they do now," said Laura G. Thatcher, an attorney and corporate governance expert at the law firm Alston & Bird LLP.
The legal landscape surrounding corporate board members is clearly shifting.
In addition to the WorldCom settlement, directors at Walt Disney Co. are being sued in Delaware over their approval of a $140 million severance package given to Michael S. Ovitz, who spent a disastrous 14 months as Disney's president. Experts said that before the rash of scandals, such a case would likely never have made it to court.
New York Attorney General Eliot L. Spitzer filed suit last year against former New York Stock Exchange director Kenneth G. Langone over Langone's role in engineering a $139.5 million payment to then-NYSE Chairman Dick Grasso. (Spitzer sued Grasso as well.)
In May, a judge in Delaware found two outside directors at Emerging Communications Inc. liable for approving a sale price for the company that shareholders said was too low. The judge said the two directors possessed enough financial expertise to know the deal was not a good one.
Former outside directors at Enron Corp., meanwhile, agreed last year to pay a total of $1.5 million out of their own pockets to settle a suit filed by the Department of Labor.