Morgenson's slant on "teflon" directors

Gretchen Morgenson writes in today’s NYT:

while being on the bridge during such a shipwreck would be a career-ender for most, directors are different from you and me. Even those involved in notorious corporate debacles can still find a warm welcome in the occasional boardroom.

The article's title unsubtly refers to "teflon directors," and concludes with a quote from an AFL-CIO investment fund official who says that shareholders should "yell about their exclusion from boardroom elections. Proxy season is upon us. For directors who put their shareholders second, withhold should be the word.” In other words, "teflon directors" = need for more reform.

Yet the article also points out that Enron's outside directors have gone from 11 have seats at 21 other companies on Enron's collapse to two having four seats today.  It would seem that this teflon needs a factory recall.

The story says that two Hollinger directors are still directors at other companies. It quotes an investor in one of these as saying

Anybody who has served on the Hollinger board should be considered automatically unqualified to serve as a director of a public company in the United States or Canada by virtue of demonstrated incompetence in a fiduciary role.

So some outside directors still serve, and this is where the "teflon" supposedly comes in. Apparently the outside directors shouldn't keep any jobs. But why should the market’s verdict be uniformly guilty? These are, after all, outside directors, not inside fraudsters, and had varying degrees of responsibility for what happened. They may have been on the deck, but not necessarily on the "bridge," as Morgenson suggests in her opening lines. So the monitoring failure may or may not reflect equally badly on them. Even if the press wants to condemn all of them, we should be happy that the market has a more nuanced response.

The article suggests that shareholders may not be able to figure out whether director nominees had served at troubled companies, or what they did there. It notes that a former Enron director's past affiliation has not been mentioned in the proxies of a company on whose board he sits now. So should we require disclosure of past affiliations?  The proxy rules already require disclosure of material information that the disclosure forms don't specify.  If we add a rule, what should it require? What affiliations would be material?  Maybe Enron and Hollinger are obvious cases. What about, say, AIG?  Should we bury the investors with detailed disclosure of exactly what these directors did or didn't do at their prior companies?

By the way, Morgenson doesn’t point out systematic evidence that the market does punish those who were on the "bridge" of errant companies. As I noted here, executives of firms that restate earnings lose their jobs more often and have poorer employment prospects than those in control firms.

Bottom line: the article has an agenda, stated in the title and at the front and back ends. The impression one gets from the article supports the agenda.  But if one reads the article carefully, that impression is not fully supported by the data in the article itself. And there's relevant material the article omits.

Yet articles like these in important newspapers, misleading or not, will help create public policy.