Let's consider 'employee directors'.

We read with deep interest the article of Scott Wendelin ("Independent Directors Are a Good Thing," March/April 2004). Our interest in this article is based on the fact that we just finished writing a manuscript raising serious potential problems about the independent directors' presence in corporate boards. We refer to them as the "federal-government-sponsored-directors," whose employer is not the shareholders but the federal government.

In certain circumstances, we see the presence of these independent directors as transforming corporate boardrooms into a "war zone" of ideologies, even egos. The result is a serious distraction in the smooth operation of the board and the company as a whole.

We also see these independent directors as the failure of some unethical and morally bankrupt members of Corporate America to live up to the expectations of an advanced society like the U.S. We know, of course, that the vast majority of the leaders of Corporate America are ethical and honest individuals.

We have a profound solution to the problem without the federal government sponsoring an independent director--directors representing the employees. As you know, throughout the history of capitalism in the Western World, employees have never been recognized as a key player in the corporate process. Employees are commodities whose services are traded in the labor market.

Essentially, our corporate enterprise is a "table for two" between management and the board. In our view, the corporate process is a "table for three," to include employees, who have more stake in the success of the corporation than the investors (not owners). From their vantage point, they have all the details of operation that can serve as a countervailing force against management's knowledge of operations. Besides, the employees are new owners of the corporation through 401(k)s and other stock savings plans that are not recognized in the corporate process.

We think that having an employees' director, plus an independent audit committee, is enough to make things right without allowing the federal government to force its own directors into the board. We need a cooperative board, not an independent board.

We believe that the balance of power in the corporation tilts heavily in favor of management, due primarily to its intimate knowledge of operations, as well as the amount of information at its disposal. Yet, our free enterprise system works well when there is balance of power between the board and management.

Can the presence of an independent director, sponsored by The Sarbanes-Oxley Act, rebalance this concentration of power in the hands of management? We don't think so. But employees can--and the amount of information that they will bring into the table will serve as a countervailing force against management.

Prof. Manuel A. Tipgos

Prof. Tom Keefe

Indiana University Southeast 

New Albany, Ind.