The Way it was: 2000.

Vulnerability to Fraud

Imagine that you are the CEO of what was the then-56th largest company in America with a $38 billion market capitalization. You just finished a very positive conference call with several hundred investors during which you told them that the company is going to meet or exceed the Street's expectations for the quarter. An hour later, your CFO calls and says, "Are you sitting down? We've got a problem." That was the beginning of this nightmare.

We expect the numbers in financial statements certified by a Big Five accounting firm to be true. We expect managements to be aggressive in projecting growth but we don't expect them to lie about the base from which they are growing. We expect optimism regarding the return on capital but we don't expect the capital to be fictitious. The first and most important point that one comes away with from an experience like ours is a staggering realization of the importance of truthfulness in our financial and corporate governance system, and how vulnerable that system is to fraud.

Henry Silverman, chairman and CEO of Cendant Corp., in "Regaining Credibility after a Crisis" [Winter 2000]. He made these comments in a speech to the National Investor Relations Institute.

The Dreaded Word: Restatement

As the 21st Century dawns, there are few words that have come to be as dreaded throughout Corporate America as "restatement:' The number of high-visibility companies announcing restatements has recently burgeoned. It is, therefore, not surprising that eradicating fraudulent accounting has become a cause celebre of the chairman of the Securities and Exchange Commission.

Jonathan Lerner and Colleen Mahoney, partners in the law firm of Skadden, Arps, Slate, Meagher & Flom, in "Ten Steps to Avoiding a Restatement" [Winter 2000].

Shortcomings of Internet Boards

In a number of key areas -- size, composition, and compensation -- the boards of public Internet companies provide a contrast to those of their big-company cousins.... What concerns many informed observers is the lack of some of the governance basics and controls that are generally considered part of the foundation of a stable and successful board. Basics such as:

* Sound committee structure with a strong, independent audit committee.

* Independent directors with a range of perspectives (not just finance).

* Directors with prior governance experience as well as experience running larger companies.

* An emphasis on succession planning.

Many...