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WASHINGTON — When Rick Burdick was asked to join the board of directors for AutoNation Inc. more than a decade ago, he didn’t hesitate. Now, the Akin Gump Strauss Hauer & Feld partner says, he might think twice. “Lawyers used to go on boards as an entree to developing business with a client,” says Burdick, the partner in charge of Akin Gump’s D.C. office. “Now it’s seen more as undermining independence. We won’t see as many lawyers serving on boards in the future.” Burdick is on the boards of two publicly traded companies, AutoNation Inc. and Century Business Services Inc., and he says he’s comfortable with his service on both. But with the regulatory stakes and liability risks outweighing the business benefits for many lawyers on corporate boards, governance experts and firm managers say fewer attorneys are saying yes to board memberships. “The liability of serving on a corporate board has gone up exponentially,” says Cynthia Krus, a Sutherland Asbill & Brennan partner in Washington who teaches classes in corporate governance at the Georgetown University Law Center. “Firms are re-examining their policies for allowing partners to serve on both private and public boards.” As shareholder litigation continues to increase, so does the likelihood of a worst case scenario: that a firm with a partner on the board of a public company could be held liable if the company is sued by shareholders. That prospect is particularly threatening since the professional liability policies held by many firms don’t cover liability stemming from a partner’s directorship with a company, Krus says. And of course, the Sarbanes-Oxley Act of 2002 raised the bar on independence standards applied to outside directors, as did new rules adopted by the major stock exchanges governing independence standards. Among the New York Stock Exchange standards are requirements that companies listed on the exchange have a majority of directors whom the board determines have no material relationship with the company, although the exchange doesn’t consider ownership of even a significant amount of stock a bar to independence. The rules also impose a $100,000 limit on how much independent directors can be paid by the company for consulting work, for example, beyond compensation for their service on the board. But that hasn’t stopped a crop of Washington power brokers from keeping a string of corporate board memberships on their resumes. Take for example Vernon Jordan Jr., senior counsel at Akin Gump who has served as a board member for more than a dozen major U.S. companies. According to filings with the Securities and Exchange Commission, in 2002 Jordan’s board memberships included America Online Latin America Inc., the American Express Co., the Asbury Automotive Group Inc., Dow Jones & Co. Inc., the J.C. Penney Co. Inc., the Sara Lee Corp., Revlon Inc., Shinsei Bank Ltd., and the Xerox Corp. He also serves on the international advisory boards of DaimlerChrysler and Barrick Gold. For his board service Jordan was paid a total of about $400,000, plus stock options, according to SEC filings. In 2003, Ralph Ferrara, head of Debevoise & Plimpton’s D.C. office, was elected to the board of casino giant Caesar’s Entertainment Inc. After 30-plus years counseling boards on corporate governance issues, the experience has been an eye-opener, Ferrara says. “I’ve taken all of my colleagues by surprise,” says Ferrara. “They said to me, �Knowing everything you do about corporate governance and Sarbanes-Oxley, why would you do it?’ I thought it would be enormously useful for me from a forensic point of view to be on the receiving end of advice.” Joining the ranks of the likes of George Mitchell, a Piper Rudnick partner and the newly minted non-executive chairman of the Walt Disney Co. who serves on numerous boards, is Covington & Burling partner Eric Holder Jr., former deputy attorney general who joined MCI Inc.’s board last year. Holder, Mitchell, and Jordan did not return calls for comment. Despite the increasingly rigorous scrutiny of public company directors, board memberships can be lucrative for directors personally and for their law firms. Proof can be found in annual proxy statements filed by companies with the SEC. According to the filings, in 2001 and 2002 Disney paid Verner, Liipfert, Bernhard, McPherson and Hand, of which Mitchell was chairman, more than $1.7 million in fees. Since Verner and Piper Rudnick joined in October 2002, Piper hasn’t provided Disney with legal counsel. But Mitchell, who has been a board member of more than a half-dozen companies, was still getting paid by Disney. In addition to his $45,000 annual retainer and stock options for sitting on the company’s board, the former senate majority leader from Maine earned $50,000 for consulting services in 2001, an arrangement that was terminated later that year. Disney wasn’t the only company that counted Mitchell as a director and looked to his firm for legal help. In 2002, Starwood Hotels & Resorts Worldwide Inc., owner of luxury brands such as W Hotels and St. Regis, retained Verner and Piper Rudnick. The hotel conglomerate pays directors $50,000 each year for board service, according to SEC filings. The filings say the company planned to keep Piper, but don’t disclose how much it has paid the firm. Piper managing partner Jeffrey Liss declined to comment on the firm’s representation of companies for which Mitchell serves as a director. Speaking to corporate lawyers in Washington on March 11, Mitchell recognized that shareholders are increasingly examining board composition and processes more carefully. He defended Disney’s governance practices, saying that the company was one of the first U.S. corporations to begin taking a tougher look at independence standards for directors, a process it began in 1996. “Independence is a word used so much in discussions about governance that sometimes people lose sight of what it really means,” said Mitchell. “The purpose is similar to checks and balances in our government — it is intended to ensure that the interests of shareholders are protected.” However tantalizing the rewards of board membership might be, Arnold & Porter managing partner James Sandman says the risks of exposure to liability outweigh the appeal of having lawyers as directors to public companies. “Post Sarbanes-Oxley, the firms that had traditionally been more liberal in permitting board memberships are likely to be revisiting their policies,” says Sandman, adding that his firm’s partnership, while short of placing an absolute prohibition on board membership, has rarely permitted it. That follows American Bar Association guidelines. The ABA’s Model Rules of Professional Conduct do not bar lawyers from sitting on clients’ boards, but the association’s Standing Committee on Ethics and Professional Responsibility discouraged the practice in a 1998 opinion. Many firms find it hard to say no to a corporate client that requests a particular partner for its board, says the managing partner of a large D.C. firm. But it should be a red flag to a firm if a lawyer takes on board responsibilities as a way to win business from a company, he adds. “If anybody is going on a board with that mind-set, it should be a signal of heightened risk to a firm,” he says. “It’s about more than just appearance. It increases the risk that the firm’s advice to a client could be colored.” Historically, that hasn’t been such a concern. In the past, many prominent partners sat on the boards of major clients, serving to safeguard their firm’s relationship and lines of communication with the client. Now, it isn’t as common for attorneys to represent a company when they serve on the board, says James Doty, a Baker Botts partner who counsels boards of directors**** and audit committees on governance issues and Sarbanes-Oxley compliance. At the least, more firms are beginning to require lawyers to clear board memberships with partnership committees, Doty says. “Firms are paying a lot of attention to the nature of a company, its business, its insurance,” says Doty. “There is going to be a much more searching discussion of the role of directors whose firms do business with an issuer.” That doesn’t mean lawyers will stop serving on corporate boards, adds Doty, but it does mean that board membership will be a more “conscious process” weighed by lawyer and board and by partner. “Now firms have to look at long range goals for serving on a board, not the immediate prospect of capturing legal business,” says Doty, who does not serve on any corporate boards, but says he would consider it after retirement from Baker Botts. Akin Gump’s Burdick says that he agreed to join AutoNation’s board at the request of a major shareholder with whom he had a long-term relationship. His firm’s lawyers provide counsel to both AutoNation, a new and used car retailer with $19 billion in annual revenue, and Century Business Services, a tax, accounting, and payroll services provider whose board Burdick joined in 1997. That means conversations between himself and the partners representing the two companies are “perfunctory” and respect the separation of his role as a lawyer from that of company director. In turn, board members are also clear about the separation of his roles and that when they speak with him, attorney-client privilege does not apply, adds Burdick. “They never turn to me and ask, �What is the law on this?’ ” Burdick says. “ My interaction with them is very much as a peer. Most of them don’t think of me as a lawyer.” Lily Henning is a reporter for Legal Times , a Recorder affiliate based in Washington, D.C.

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