Chris Churchill Business Writer
Section: Business,  Page: B1

Date: Sunday, July 22, 2007

Correction: Correction published July 24, 2007 A story in Sunday's business section about the pay of members of local public companies' boards of directors misspelled the name of the editor at The Corporate Library, a Maine-based corporate governance watchdog group. She is Nell Minow.

How would you like to earn $111,000 to attend a dozen or so meetings a year?

It may sound like a pipe dream, but it's not: That's exactly how much Glenville-based Trustco Bank last year paid each director on its six-member board. TrustCo pays directors well by Capital Region standards, amounts that far exceed the compensation received at companies such as American Bio Medica Corp., where most directors received less than $20,000.

But the TrustCo compensation is not out of step with what some of the other larger public companies in the area are paying.

Many directors at Albany International Corp., for example, received more than $100,000.

And entertainment retailer Trans World Entertainment Corp. last year paid each of its board members more than $118,000.

In fact, Trans World gave board member Isaac Kaufman the region's highest director compensation, according to a Times Union review of filings with the U.S. Securities and Exchange Commission.

Kaufman, a senior vice president at a Maryland company that manages medical practices, got $141,889 in stock and cash.

That kind of payment, of course, pales in comparison to the $2.8 million received in 2006 by Trans World Chief Executive Robert Higgins. But while CEO pay has in recent years received heightened scrutiny, the compensation received by directors gets far less attention.

That might be changing. Corporate observers say there's growing demand from shareholders that directors do what they're paid to do - keep close tabs on the company and its executives.

"I often say that boards of directors are paid too much for what they do, but too little for what we want them to do," says Nell Minnow, an editor at The Corporate Library, a Maine-based watchdog group.

A good board, Minnow and others say, should include outside directors - members who don't work for the company - who are aggressively challenging the CEO and other executives to ensure the company is on track. And the board should be keeping shareholders' interests paramount.

But such boards are too rare, observers say. Instead, many directors defer to the chief executive. They show up at meetings, raise their hands when required - and little else.

"You get people who think they're going to get a paycheck for doing nothing," says University at Albany management professor Paul Miesling. "And those paychecks can be pretty substantial."

"They don't want to be perceived as bad guys and guys who rock the boat," adds Frederick Rowe, president of Investors for Director Accountability, a group in Dallas.

That can have disastrous consequences.

Just ask Minnow, who just completed a book, "Corporate Governance," that details what makes a good Board of Directors. She easily can rattle off examples of bad boards.

There is, for example, the board that sleepily approved a CEO's request that a federal conviction not be grounds for termination. That executive was Dennis Kozlowski, the Tyco International head now serving a federal prison sentence for looting $400 million in corporate money.

Then there was the board that agreed to waive the company's conflict of interest rules to allow the CEO to pursue new business opportunities. That board oversaw a Houston energy firm called Enron Corp.

"Boards have almost always done a good job in an emergency," Minnow says, "but they have often done a bad job in preventing emergencies."

It's not surprising that directors don't challenge CEOs, because they're often hand-picked by that very same CEO. Too often, observers say, they're even his friends.

When Michael Eisner was CEO of the Walt Disney Corp., the board at one time included his lawyer, his architect, and the principal of an elementary school attended by one of his children, according to Business Week magazine.

In the wake of Enron and other corporate scandals, there have been pushes for changes. Shareholders at many companies have gotten more aggressive.

Minnow says shareholders at some companies have successfully lobbied for rules requiring that directors receive approval from at least 50 percent of shareholders. That rule comes because director elections typically are uncontested, with just one vote getting a candidate on the board.

Minnow would also like to see the adoption of measures that would tie director pay to corporate performance, and a rule that would forbid directors from cashing in stock options until they've been off the board for three years.

Still, some worry that there may be too many rules, and shareholders may be getting too aggressive with directors.

Martin Lipton, an attorney at New York City's Wachetell, Lipton, Rosen & Katz, says shareholder activism - and particularly litigation being filed by shareholders - is a threat to American business.

"Proliferating lawsuits, certification requirements, and governance rules, as well as the increased threat of personal liability," Lipton said in a May speech to the Institute on Federal Securities in Miami, "are forcing boards to spend more time and energy on compliance, due diligence and investigations, and less on the actual business of their companies."

"This shift in focus," he added, "tends to create a wall between the board and the CEO."

Lipton wonders if the hassle factor will keep qualified people from serving on boards.

And most observers agree that good boards are stocked with folks who are qualified to bring specialized expertise to the meetings. Good boards also have members who have the time to devote to the job, which The Corporate Library estimates should take up about 250 to 300 hours annually.

"The problem with boards often is that you have individuals who are on too many boards," Miesling says. "How can you be knowledgeable about what's going on?"

Michael Hurley, a business professor at The College of Saint Rose in Albany, has served on three boards, and he believes they did their job well.

But well doesn't necessarily equal efficiency.

"There's arguments and different points of view, there's no doubt about that," Hurley says. "There's aggravation at times, but it brings issues out."

Unfortunately for investors, observers say it's very hard for an outsider to know if a board is performing well. Investors can perhaps assess whether a board is well-qualified - but even a well-qualified board may be failing to challenge corporate executives.

"How would you really know, unless you're sitting in on the meetings?" Miesling says.

Chris Churchill can be reached at 454-5442 or by e-mail at