The Business Roundtable, an elite association of 150 chief executive officers (CEOs) of leading corporations, has released guidelines to increase trust in U.S. companies post Enron. In a press release dated May 14, 2002, the CEOs encouraged all U.S. public companies to adhere to these guidelines, which address controversial topics including revolving-door and whistle-blowing policies.

Key practices endorsed in the guidelines:

• Employees should be given a way to alert management and the board to potential misconduct without fear of retribution.
• Audit committees should recommend the selection and tenure of the outside auditor.
• Audit committees should also oversee the company’s policies with respect to changing the outside auditor, rotating the audit engagement team personnel or limiting the hiring of such personnel.
• Corporate boards should ensure prompt disclosure of significant developments.
• Stockholders should approve stock options and restricted stock plans in which directors or executive officers participate.
• Companies should create and publish corporate governance principles so that everyone from employees to potential investors will understand the rules under which the company is operating.
• A substantial majority of the board of directors should be comprised of directors who are independent in both fact and appearance.
• Directors should be required to be independent in order to sit on the board committees that oversee the three functions central to effective governance — audit, corporate governance and compensation.
• Directors should ensure the company has a management compensation structure that directly links the interests of management to the long-term interests of stockholders, which includes a mix of long- and short-term incentives.

The guidelines were developed by a task force, headed by Fannie Mae Chairman and Chief Executive Officer Franklin Raines. Mr. Raines said the task force debated the issue of whether firms should be urged to rotate their outside auditors every five years. It decided the decision should be left to audit committees, but it is recommending that its members adopt a so-called "cooling off" period before hiring staff from an outside auditor into senior financial management positions.

Download a copy of the 2002 Principles of Corporate Governance.

-Rosemary Schlank