It's not just what you do, it's the way that you do it: exercising oversight in the sanctity of the boardroom and proving that you have done it are two different things. In order to restore trust, boards have to prove it.

• Author: Panetta, Leon
• Position: Board Leadership

THE BOARD OF DIRECTORS was created to be a vehicle for leadership in public companies. In the current debate about corporate governance, that fact has gone relatively unnoticed. There should be no question that leadership is our role as directors. There is only the question of how that leadership should be exercised and-- in the current era of corporate mistrust--demonstrated.

Here is another often ignored fact: Despite the spectacle of corporate disappointments during 2002, most boards have worked effectively over time, quietly helping companies negotiate all sorts of challenges without roiling the markets. Still, outside the boardroom, questions persist about the role of the board of directors in public companies.

Some would say more refinements to the structure of boards will resolve the questions that remain. Among board members and experts, we can debate the merits of European-style nonexecutive chairmanship, the definition of financial expertise for audit committee members, and other possible refinements that can enhance the structure of governance and help limit the liability of board members.

But broader questions still set the tone for public concern: What do board members do? Are they doing it well? How do we know they are doing their job if we cannot see them do it?

Credibility under pressure

Although new rules like those put in place by the New York Stock Exchange offer a needed improvement by codifying best practices, the credibility of the public company board as an institution remains under pressure. At this point, it seems that the tension between public expectations and board performance is less a matter of the structure and function of boards and more a matter of public demand for visible demonstrations of leadership by boards and their members.

In short, as a result of corporate crises, investors, employees, regulators, and critics of public companies are not just looking for good stewardship by board members, operating within new guidelines. They are looking for evidence of the ongoing process of leadership as it unfolds.

Anyone who has served in government or closely observed politics will be familiar with the challenge this presents. My own perspective on the emerging visibility of boards and their actions is based on my perspective as a veteran both of the public policy arena and of several boardrooms.

Governing by crisis

I am a believer that we govern our democracy either through leadership or through crisis. If leadership is there, and it's wise and understanding and is willing to take risks, I think you can avoid crises. But if that is not present, then crises take place.

Today, we have a number of examples of governing by crisis, whether it's energy or the budget, or health care and prescription drugs, or even foreign affairs. I think corporate governance is an example of an area that has been driven by crisis, and if there's any question in your mind, just look at the continuing headlines of the papers, whether it's The Wall Street Journal, New York Times or the Washington Post.

Just to give an example, I looked at the Washington Post business section one day in September, and saw these headlines: "Tyco CEO Arranged for Giving of Loans"; "Welch Cuts Back Perks"; "Options Accounting Changes Backed"; "Citigroup Pledges Lending Changes." Four of the five stories on the front page of the business section involved corporate problems of one kind or another. Perhaps by now we've grown so used to the litany of negatives that we forget how unusual this convergence really is. Each of these corporate events would have been difficult enough to accept on its own. But the series of scandals that has come together -- beginning with Enron, going to WorldCom, Global Crossing, Tyco, Arthur Andersen, Martha Stewart, et cetera--may have changed the environment for corporations for a generation.

Stepping forward

There have been effective responses as a result of this crisis. The NYSE felt it was important to address these problems with new listing standards, probably some of the toughest listing standards we've proposed in the 210-year history of the market. I was a co-chair of the committee that developed those standards, and while it was difficult, I think it was important for the NYSE to step forward with those kinds of requirements.

Congress obviously stepped forward with the passage of Sarbanes-Oxley, and the SEC is engaged in a number of investigations, enforcement efforts, and regulatory...