Corporate Boards: The Risks for CIOs

The last year and a half will probably go down as one of the most tumultuous periods in the history of corporate America. Enron’s accounting improprieties led to its thunderous collapse 18 months ago. Soon thereafter, problems surfaced at a host of public companies?Adelphia, Global Crossing, Tyco and WorldCom among them. Dubious accounting practices led to bankruptcy or company founders being led off in handcuffs, as was the case with Adelphia’s former CEO John Rigas. Myriad accounting firms and investment banks joined the fray, becoming embroiled in lawsuits and investigations over conflicts of interest. And don’t forget the allegations of insider trading encircling Martha Stewart and ImClone CEO Sam Waksal.

This epidemic of corporate chicanery inspired an uncharacteristically rapid response from the government. To assure the public that the White House was taking seriously the call for corporate reform, President George W. Bush signed the Sarbanes-Oxley Act into law on July 30, 2002, just seven months after Congress passed it. (For more on the accounting reform act, see "What the Sarbanes-Oxley Act Means for Board Members," Page 90.)

While this stormy corporate climate makes joining a board of directors a seemingly risky proposition, it’s also rife with opportunities for current and former CIOs to shape business history. At a time when big business needs to make big changes to restore investors’ confidence and bring some stability to a sluggish economy, the meticulous nature and analytical mind of CIOs could cast them as the cadre of executive most capable of playing watchdog.

The backdrop of bad business behavior is already changing the boardroom agenda. When the seven members of the Sybase board of directors gathered last July in Half Moon Bay, Calif., for the company’s second quarter meeting, they spent 20 percent of the time discussing the ramifications of Sarbanes-Oxley and the new requirements for financial reporting, says board member Cecilia Claudio. To prepare for the meeting, Claudio spent a lot more time scrutinizing the company’s annual and quarterly financial statements (10-Ks and 10-Qs, respectively) than she had before the corporate scandals.

"There’s a higher level of engagement on the financial side...understanding all the 10-Ks and 10-Qs and making sure everything is done according to the new act," says Claudio, the senior vice president and CIO of Farmers Insurance Group who has served on Pleasanton, Calif.-based Sybase’s board for three years. "There’s a higher degree of responsibility that each one of us feels."

Many current and former CIOs serving on boards echo that sentiment. David Weick, the senior vice president and CIO of McDonald’s who sits on the board of Lake Forest, Ill.-based Trustmark Insurance, says the corporate scandals have "redoubled" his understanding of his role in representing the shareholders’ interests. Carl Dill, who served as CIO of McDonald’s and Time Warner before retiring and joining the boards of two technology companies, says board members are required to exercise more oversight and practice better checks and balances. That makes the role much more time-consuming. "There are probably three times as many meetings and reviews on my calendar for 2003 as there were previously," he says.

Companies having difficulty finding executives willing to assume these added responsibilities are increasingly viewing current and former CIOs as an untapped pool of talent. One notable example is international apparel retailer Gap, rated by BusinessWeek last September as having one of the worst, most clannish boards in America. That same month, Gap tapped onetime Wal-Mart CIO Bob Martin for a seat at its table. In a press release announcing Martin’s appointment, Gap Chairman Donald G. Fisher said, "Bob’s good business judgment, information technology expertise and international retail experience will be an asset to us."

CIOs and former CIOs such as Martin bring important skills and perspectives to bruised and battered boards. Their expertise in designing and implementing financial systems is a boon to boards struggling to comply with government regulations requiring more frequent?if not real-time?financial reporting. Their experiences with compensation and retention issues can prove invaluable during discussions about motivating the executive team. CIOs have also gleaned knowledge of different aspects of business over the years?from supply chain management and sales to marketing and HR.

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