Ex-Directors of Bankrupt Companies Get Invites to Join Other Boards

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Directing a company that filed for bankruptcy amid scandal is apparently not enough to keep former board members from leading other companies.

Former directors of scandal-ridden companies such as Enron and WorldCom are in demand, Reuters reported. Far from being treated as untouchable, some ex-directors have not only kept their board memberships at other publicly traded companies, but gained some as well.

The Corporate Library, a corporate governance analysis firm, followed the career tracks of more than 20 people who served on the boards of Enron Corp., WorldCom Inc., Adelphia Communications Corp. and Global Crossing Ltd. — firms that all filed for bankruptcy protection. These individuals hold more than 50 seats on boards of publicly traded companies.

The Corporate Library said directors of companies that file for bankruptcy are required to disclose this fact to any new board they join for the next five years. Some companies have stopped sharing this information with shareholders, however.

Some former directors are now at smaller public firms that are below the radar of media and governance groups, but some are directing major corporations. For example, former Enron director Frank Savage serves on the boards of defense contractor Lockheed Martin Corp. and money manager Alliance Capital Management Holdings. Former Global Crossing director William E. Conway is a director of both Nextel Communications, Inc. and United Defense Industries Inc.

Why are companies seeking out these directors?

Corporate governance expert Richard Steinberg, founder of Steinberg Governance Advisors, Inc. of Westport, Conn., said ex-directors of troubled firms need not be excluded from directorships at other firms.

"I believe it needs to be considered on a case by case basis," he said.

Researchers Jackie Cook and Randy Evans said in the Corporate Library report: "Shareholders do seem to care and do recognize directors' reputations, but the consequences of all this are rather mixed." They went on to say, "Some directors with Enron or Global Crossing skeletons in their closets are being squeezed off boards. But it must be difficult to judge a new board nominee based on their resume alone."

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