Black & Decker Corp. directors and managers have spent countless hours over the past year examining their corporate governance policies. The result: more information for investors on its Web site and a new governance committee on its board that is intended to ensure that the Towson, Md., company will be run in the interests of shareholders, not management.

But while those efforts have won praise from many shareholders and a stellar report card from at least one widely used consulting group, some investor groups bemoan other actions by the tool-making giant. The company nearly doubled the pay of chief executive Nolan D. Archibald to $4.33 million for 2002, even as its stock price was falling and it said it had to save money by closing a Maryland plant at a cost of 1,200 jobs.

Furthermore, Black & Decker has opposed two shareholders' proposals backed by many investor groups. One would bar Black & Decker's auditors from doing any non-audit work for the company, even tax work. Another would force the company to treat executive stock options as an expense against earnings.

The auditor proposal was submitted by Bart Naylor, who consults on shareholder issues. Accounting critics have charged that auditors will be less aggressive watchdogs if they fear losing lucrative consulting or tax work.

In his supporting statement in the proxy, Naylor wrote only two words: "Consider Enron."

Enron Corp., the energy company that 18 months ago exploded in a financial scandal, was the first of a series of companies whose accounting problems cost investors billions of dollars. The financial blowups led lawmakers to pass new accounting and corporate governance laws and triggered dozens of investigations by regulators and prosecutors.

A blizzard of proxies being sent out to shareholders in anticipation of annual meetings this spring are the first chance for investors to see how corporate America is responding to the scandals. The proxies explain changes a company has made to improve its governance, or why a company opposes other changes. So far, the proxies are painting a picture of a corporate America moving in fits and starts to convince investors that boardrooms can be trusted. Many experts say it's too early to say how effective the reforms will be.

"There's no question that companies and boards are all looking very hard in terms of governance practices, that these are really on the front burner in assuring themselves and public shareholders and potential litigators -- you name it -- that they are doing what they ought to do," said Wally Scott, professor at the Kellogg School of Management at Northwestern University. "But in the end, you can't legislate integrity."

Not all companies have adopted all the changes they need, corporate governance experts say. Still, "the changes have been real," Patrick McGurn, vice president of Institutional Shareholder Services Inc. in Rockville, said of the effort his firm has seen at companies. "What makes good corporate governance? Communications. Communications. Communications. That's how trust is developed with the marketplace. A company with chronically low corporate governance scores faces a higher risk of being in trouble, even though a high score will not guarantee a company will do well."

Public Information

The issues for Black & Decker's investors are the same ones that have been the rallying points for criticism of corporate America in general in the post-Enron era.

ISS, which advises pension funds on how to cast proxy votes and grades firms on how well they are run, gives Black & Decker a top grade of nearly 100 percent, up from about 75 percent last year, on its corporate governance practices.

Although the score improved in part because of changes in how ISS calculates grades, most of the improvement resulted from changes Black & Decker has made, ISS executives said.

Those changes include creating a corporate governance committee on its board of directors and publishing its governance policies on its Web site. Within days, the company will have a new section on its Web site that will provide shareholders with much more information, including up-to-the-minute access to all of its financial filings with the Securities and Exchange Commission.

"We felt and we still feel we operate in an ethical way," Barbara Lucas, Black & Decker's corporate secretary and spokesman, said of the company's yearlong efforts. "From the inside looking out, I know we are doing everything we can to be accountable."

Some critics, however, would like to see companies like Black & Decker do more.

"While they are making an effort to comply with the letter of corporate governance best practices, we're not yet convinced they are complying with the spirit," said Nell Minow, editor of the Corporate Library, a corporate governance consulting group that this year also will begin grading companies.

Minow said she expects Black & Decker will receive a mediocre grade when her group unveils its scores next week, largely because of Archibald's pay package and the company's position on stock options and its decision to allow auditors to perform non-audit work.

"Reasonable people can disagree on these issues," said Lucas. She said months of review satisfied Black & Decker executives and directors that the company did not have to make many changes to satisfy new rules implemented by Congress and by federal securities regulators in response to accounting scandals. The company mostly needed to publicize its policies better, she said.

For example, she said, although Archibald's pay might seem high, it is in line with what other company heads make. His bonus for 2002 of $2.75 million, although three times his $850,000 bonus in 2001, was based on improvements in the company's earnings per share in 2002, when the economy was weak.

Earnings per share was $2.84 last year, an improvement over $1.33 in 2001, but still less than the $3.34 in 2000, when Archibald's bonus was $1.25 million. The company's earnings per share in 1999 was $3.40.

"We have a good relationship between pay and performance," Lucas said.

Some union groups have been particularly upset by the compensation package.

"It's troubling to see him get such a raise in the context of what went on, cutting jobs here and shipping them out to Mexico and China," said Ed Durkin, who oversees $38 billion in pension assets for the United Brotherhood of Carpenters, half of it in stock in Black & Decker and other publicly traded companies.

Lucas responded that the company has to compete with international companies that use cheaper labor. If the company did not close plants to cut costs, it would eventually fail, and even more employees would lose jobs, she said.

She said trimming the pay of top executives like Archibald would hardly make a dent. A pay cut of $1 million would only add about a penny per share to earnings, she said.

Whose Watchdogs?

On the auditor independence issue, Black & Decker said in the proxy that the proposal is too broad and would eliminate services "that enhance the audit of the financial statements." It said the company "has taken measures to ensure that any engagement of Black & Decker's independent auditor for non-audit services is consistent with the maintenance of auditor independence."

Some critics say that new SEC rules adopted in January changing how companies report audit and non-audit fees will make it harder for investors to assess auditor independence. Barbara Roper, director of investor protection for the Consumer Federation of America, said she is concerned the changes will permit businesses to inflate their audit figures and downplay their non-audit consulting services, masking financial ties that could compromise an auditor's ability to make objective decisions.

The stock option proposal, submitted by Durkin on behalf of the union pension fund he oversees, would force Black & Decker to treat executive stock options as an expense. Failure to do so allows company boards to award large pay packages without revealing the true impact on shareholders, he and others argue. Treating options as an expense would have cut Black & Decker's reported earnings per share of $2.84 for 2002 by 22 cents, he said.

In the proxy, Black & Decker argues that it already gives investors the earnings impact in a footnote, as accounting rules require, and that to do more would be misleading because no one has found a good way to measure the cost of stock options.

Durkin, who has submitted or helped submit similar proposals at 100 companies, said he hopes to garner at least 40 percent of shareholder votes at many of those firms. That will give some support to the Financial Accounting Standards Board, a government-sponsored but privately run board that sets rules. FASB is considering requiring companies to treat options as an expense, but many large high-tech companies, as well as mainstream manufacturers like Black & Decker, oppose such a change.

Some investor groups have also raised questions about whether Black & Decker's directors can be tough watchdogs over management, because many have informal ties to Archibald.

Lucas responded that the company's eight board members are independent from one another and, with the exception of Archibald himself, from the company, even under proposed new rules being considered by the New York Stock Exchange and the NASD.

Norman Augustine, who retired in 1998 as chairman and chief executive of Lockheed Corp., has been on the Black & Decker board since 1997. Archibald has been on the Lockheed board for a year. Lucas said that because neither has sat on the compensation committee of each other's board, they have avoided the potential conflict of interest of being able to influence each other's salaries.

Three of the board's members have worked at Beatrice Companies Inc., where Archibald was a top executive for six years before joining Black & Decker in 1985. That is a "red flag" that there is a "potential for cronyism" at the board, said Ann Yerger of the Council of Institutional Investors, a trade group for pension funds and other large institutional investors.

Lucas said the Beatrice connections do not compromise the directors' independence. She said one of the three, Malcolm Candlish, is retiring and, pending shareholder approval at the company's annual meeting on April 29, is to be replaced by Kim B. Clark, dean of the faculty at Harvard Business School.

Governance gurus acknowledge that there are different ways to measure how well companies are run. That explains why ISS gives Black & Decker a high score, and Minow's group is likely to give it a much lower one.

"Some companies are going to look on paper like they are golden, but in reality there's a top-down cultural change that needs to occur, and there's no way to know for sure if that happens," Yerger said. "When it comes down to whether there's a real commitment, I think the jury's out."

Some investor groups have suggested that Black & Decker Corp.'s directors would not be tough watchdogs over management because many have informal ties to Nolan D. Archibald, the company's president and chief executive.