So much for independence: a first-time director finds himself far from the realm of board best practices.

• Author: Thomas, Blake
• Position: Endnote

THE SARBANES-OXLEY ACT (SOX) and the New York Stock Exchange's corporate governance rules have established new standards for board membership and board composition. Basically, independent directors are the order of the day. Among other things, a majority of directors serving on a board must be independent, and nominating and audit committees must be composed entirely of independent directors. This new independence in the boardroom can bring meaningful benefits to public companies.

In 1992, 10 years before SOX was passed, I was elected to the board of an NYSE-listed company. I was elected because I had been instrumental in negotiating an exchange offer for the company's preferred stock. It was the first time I had served on the board of a publicly traded company.

It was an old computer and technology company, with its roots dating back to the late 1960s. In the late '70s it came just shy of reaching $1 billion in annual revenues. In the '80s and '90s, however, it lost its way, and annual revenues were halved and then halved again. Upon my arrival the company was generating 95% of its revenue and all of its operating profit through its 11 European subsidiaries, having essentially lost its once-lucrative business in the United States. This was a company that had possessed the technological capital to have become Cisco, Sun, Dell, or to have even challenged Microsoft, but failed to do so.

While many reasons can be offered up for the company's downturn, leadership at the top and in the boardroom rank as prime contributing factors. Sitting at the top as chairman and CEO was a corporate raider who had won the company in a takeover of the board in the mid '80s. As was often the case in many of those types of contests 20 years ago, promises to unlock shareholder value never materialized.

Reality bites

When I joined the board, two things became immediately apparent to me. First, of nine board members I was the only one who would have met today's SOX standards for being an independent director. All the other directors were hand-picked by the chairman and were beholden to him in one way or another. Second, Delaware's business judgment rule governed the board and its decisions. What the chairman wanted, he got, and the business judgment rule was often contorted to validate it.

I was elected to the board to represent the preferred stockholders and ensure that the company complied with the terms of the exchange offer. Over the course of the next two years...