Few boards are willing to be caught without one, in fact. The number of S&P 500 companies disclosing experts shot up from 21 percent to 91 percent between 2003 and 2004, according to Spencer Stuart research, while financial-expert searches made up 11 percent of all board searches in 2005. "Most boards these days don't feel comfortable unless they have someone grounded in the technical skills," McLean says. "They are looking for someone who is not going to be fooled — whether or not they are the designated financial expert."
Ultimately, though, the worth of the financial-expert designation remains to be seen. "Audit committees are working harder and paying more attention," says The Corporate Library's Minow. "But only time will tell if they're more effective."
Alix Nyberg Stuart is senior writer at CFO. Additional research was provided by Laura deMars.
See our chart on "Grading the Experts"
In the Crosshairs
Could financial experts be more vulnerable to liability?
Higher liability for the financial expert was a key concern when the rule was first written. "People tell me it's like wearing a target on my chest," says former Deloitte & Touche CEO J. Michael Cook, who chairs audit committees for Comcast and International Flavors & Fragrances and sits on audit committees for Dow Chemical and Eli Lilly. But to date no one with the designation has been hit with a lawsuit.
To assuage some of the initial concerns, the Securities and Exchange Commission noted in its final rule that the expert should not be considered more responsible than any other member of the audit committee. That move, plus state laws regarding director responsibilities, created a two-tier protection, say legal experts. Moreover, shareholder lawsuits have historically not even distinguished the audit committee from the rest of the board.
Still, Brian Pastuszenski, senior partner in the securities litigation and SEC enforcement group of Goodwin Procter LLP in Boston, expects that "plaintiffs will try to argue that these people should be held to a higher standard. But I won't say that's what's going to happen."
Those who have been designated financial experts, however, say they're not concerned. "I don't spend a great deal of time worrying about it," says Cook. Besides, says Peter Gleason, director of research at the National Association of Corporate Directors, "no one is going to take on that moniker of financial expert unless they truly believe they qualify. Why would you, given the litigious society in which we live?" — A.N.S.
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