The failures of Enron
and Global Crossing and the implosion at Arthur Andersen have
increasingly brought the critical role of any company’s
Board of Directors into the spotlight. With that public review
has come a substantial increase in both financial and public relations
risks for Board members of public companies. No director wants
to find his or her name on a list of Directors of a failed company.
This is particularly true if the failure involved serious fraud,
negligence, criminal activity or major management failures and
considerable public outrage and shareholder litigation is likely
– no director wants to risk being a party to a lawsuit.
The ripples of this kind of visibility can affect the Director’s
personal life, his/her financial exposure and, at least for outside
Directors, impact on their own firms or institutions.
At the same time, an individual Director can only do so much
in overseeing a company. Directors did not sign up to spend large
amounts of time conducting personal due diligence on the companies
they serve. Even if they were to devote all their time to such
an activity, they rarely, if ever, have the resources or time
needed to understand and evaluate the operations and risks associated
with a large, complex, and often global corporation.
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