Indicators of trouble: here are a few of mine as I always seek to ascertain the tone at the top.

• Author: Sutton, Gary
• Position: SUTTON'S LAWS

GOOGLE THE PHRASE "backdated options" and try, just try, to find an article written before 2005. Tough, eh?

As a director back then, you didn't list "backdated options" among your top 10 worries, or even in the top 100. Neither did your auditors. There were all these other things, like SOX and recognizing revenues and capitalizing expenses that created way too many known opportunities for humiliation. Besides, backdating options simply was not and is not illegal, as long as they are disclosed and properly expensed as compensation.

You cannot hope to anticipate every abusive tactic that an ethically challenged CEO may conceive. Sorry. He's full-time and you're part-time. He, hopefully, understands the details way better than you anyway. So the odds favor him.

You can, however, sense ethical lapses in the way many other things get handled. Then you quietly resign from the board. But let the other directors and this CEO know why you're quitting.

It's the "tone at the top" that leads to most problems. That's more important than an impossibly obtrusive effort to scrutinize every past detail or guess the next fraud.

Remember the uproar over "friends and family" IPO shares? That one's still a mystery to me. Bill Ford was chastised for getting Goldman Sachs IPO shares, and had to return them. I got Goldman IPO shares and, being way less visible, flipped them. Was that a crime? I thought not and think not. If the IPO shares were issued too cheap, then Goldman was abusing itself. Didn't it have that right? I had a personal account with Goldman but controlled no corporate business that was big enough to get its attention.

Bernie Ebbers was derided for getting Rhythms Netconnections IPO shares. But I got some myself, flipped them, and made some modest money. Was that wrong?

If subpoenaed, and if I brought along documents for the half-dozen other IPO shares I got (which all lost money), perhaps the judge or jury might see these events as what they were--about as significant as arguing over the luncheon check. But had I been entangled in some public stock meltdown, those IPO gifts and...