Double Standards?

With all the talk about governance and accountability, you might assume that all public companies have a majority of independent directors on their boards. Well, not exactly. In fact, a surprising number of companies, including Primedia Inc. and Weight Watchers International Inc., are identifying themselves as "controlled" in their financial reports, avoiding the independence rules entirely.

There's nothing sneaky about it. Under New York Stock Exchange and Nasdaq listing standards, controlled companies — in which more than 50 percent of the voting power is held by an individual, a family, or an investor group that votes as a block — are not required to have a majority of independent directors on their boards. They may also include nonindependents on their nominating and compensation committees.

The NYSE maintains that voting control generally entitles the holder to determine board makeup, and that it did not want to deprive holders of that right. But should controlled firms get to play by different rules than their peers?

It depends who you ask. At The Corporate Library, senior research associate Beth Young says controlled firms may be in the greatest need of outside board influence. "Often companies with controlling families are run more like private companies," she says. "The family can be very invested in the company's success, but there can also be instances where there's a lack of accountability."

But some controlled companies bristle at the idea that governance issues are ignored because they are family-run. Steve Hankins, CFO of Tyson Foods Inc., which is controlled by the Tyson family and does not have a majority of independent directors, says the company is committed to improving its governance — at its own pace. "[CEO] John Tyson is very focused on enhancing the board," says Hankins. "We are now 50-50, since we just added a new outside director." (Albert C. Zapanta, CEO of the U.S.­ Mexico Chamber of Commerce, became Tyson's latest independent member in May.)

Still, not all companies entitled to the exemption take it. The New York Times Co., for example, is controlled by the Ochs-Sulzberger family, but corporate secretary Rhonda L. Brauer says its board voted against designating the company as controlled. "We recognize that we're a public company," she says, "and we want to comply not only with the letter but also the spirit of all governance requirements." —Kate O'Sullivan

Name Game

Don't be surprised to see the names of jurors in the first Enron case pop up in press coverage of the trial. That's because a federal judge has denied the prosecution's request to keep them secret.

U.S. District Court Judge Ewing Werlein Jr. didn't find that the case — which concerns an alleged sham transaction of a Nigerian barge and does not involve the most notorious Enron defendants — warranted the measure, which is used in organized-crime cases. The prosecution hoped to avoid a repeat of the Tyco case, in which a mistrial was declared after a juror, who was identified in the Wall Street Journal and the New York Post, received a threatening letter.

The decision, says Michael Gass, a partner at Boston law firm Palmer & Dodge LLP, is in line with the trend to keep court proceedings as open as possible. "It's rare to keep the jurors' names secret," he explains. Other measures to limit jury tampering, such as sequestering the jury or closing the courtroom to the press, are also unlikely.

But jurors' names could still be kept secret during the trial of former Enron CEO Jeffrey Skilling. "It's such a high-profile case," says Gass. "And so many people were devastated by it." —Joseph McCafferty

Congress Weighs In — Again

It was bound to happen. Legislation to derail the Financial Accounting Standards Board's plan to expense stock options has taken shape on Capitol Hill. The question is: will it have legs?

In June, Rep. Richard Baker's (R-La.) bill to require companies to expense options only for their top five executives passed the House Financial Services Committee, 45­13. The bipartisan legislation, H.R. 3574, would also defer approval of FASB's expensing plan until the completion of a federal economic impact study.

The bill has provoked criticism from the finance community. The Financial Accounting Foundation, FASB's parent, warned Congress not to play politics with the standard-setting process — something it did quite effectively during the last stock-options showdown. "H.R. 3574 preempts and overrides FASB's ongoing effort to improve accounting for equity-based compensation through public due process," said FAF president Robert Denham in a statement. "Once Congress starts setting accounting standards through its political process, the integrity of accounting standard setting in this country will be dangerously compromised."

That hasn't stopped the momentum in the House, however. As CFO went to press, the number of co-sponsors for the Baker bill had grown from 58 to 118. And while similar legislation is expected to face tough resistance in the Senate, H.R. 3574 seemed destined for the House floor. "If I were a betting man," says Jeffrey Peck, chief lobbyist with the International Employee Stock Options Coalition, which has waged a concerted effort in favor of the bill, "I'd say that the full House will definitely consider this."

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