Finding new directors: The Law of supply and demand;

              FINDING NEW DIRECTORS
The Law of Supply and Demand
by ABRAHAM NAD/Publisher, Directorship
What kinds of directors will we need in the 1980's and where will they come from? To answer these questions, we must look at where we stand today in developing the kinds of boards which will satisfy public expectations. In fact, determining whose public ex-pectations must be satisfied is a major question for the 1980's.
This is not an academic question. The answer will significantly affect the kinds of board structures we will have in 1990 and how directors' re-sponsibilities will be defined. Pres-sures for change are being exert-ed continuously-by the federal government, by religious groups and social-action organizations, and by shareholders holding traditional views of the fiduciary responsibility of directors and officers. Groups such as the Business Roundtable, the Am-erican Society of Corporate Secre-taries, and the American Bar Associa-tion also have been heavily involved in the ongoing debate over the direc-tion of change.
Enter the SEC
There is no question, however, that the principal impetus for change
has come from the Securities and Exchange Commission. The SEC has been aided and abetted by Congress—particularly in the Foreign Corrupt Practices Act of 1977, a law which most people now agree does considerably less to eliminate overseas bribery than it does to put the SEC into the accounting and auditing departments of every domestic company reporting to the commission.
But the SEC has been active in the courts as well No one should forget the Texas Gulf Sulphur case of the late I960's, or BarChris, Stirling Homex, or Penn Central. The commission also has used with considerable effect the power of consent decrees, and it has been able to persuade companies to make substantive changes in the composi-tion, structure, and operations of their boards. In many cases, it has required them to establish audit committees with very specific duties.
In addition, the SEC's corporate governance inquiry, which began in April 1977 and is continuing, has been a major force for change. Two annual rounds of rule changes for proxy statement disclosure have
taken place already, and a third-round report is expected from the commission this year.
The State of the Art Today
Under pressure—although voluntarily in many cases, with no hint of pressure—corporations themselves have changed the way their boards work. General Motors, for example, established a nominating committee in 1972, becoming one of the first corporations to do so. Of such committees today, General Motors has one of the most highly devel-oped. in 1968, Texas Instruments adopted a board structure which is now well known. And others, such as Connecticut General Insurance Company, Mead Corporation, and Armco Steel, are continuing to evolve the role of their boards of directors and are establishing suitable com-mittee structures.
But generalizations can be mis-leading, considering the number and diversity of publicly owned corporations in the U.S. Even within the ranks of the Fortune 500 indus-trials, practices vary considerably with respect to the size of boards, the proportion of insiders to outsiders.
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