Jerome B. York, chairman, president, and chief executive officer of Micro Warehouse and former longtime CFO of IBM Corp. and Chrysler Corp., is bucking the recent trend of senior executives backing politely away from outside board obligations.
York, who already sits on the boards of Apple Computer Inc. and MGM Mirage, has decided to take on the mother of all board assignments--Tyco International Ltd. A glutton for punishment? Nope, asserts York, just a savvy businessman.
"I have a personal investment philosophy that when I see a big company stock getting hammered, I do some investigating," says York, who will also sit on Tyco's audit committee. "After Tyco got hammered, I went through its public filings, and I discovered that they had a lot of really good assets."
He was particularly impressed with the information on the company's ADT alarm division, an industry he knows a thing or two about. "I ran Wells Fargo Alarm in the 1970s," he explains, "so I am familiar with that business. The upside on Tyco is a major multiple of the downside." He put his money where his mouth is and bought 35,000 shares.
Shortly afterward, he got an unrelated call from a search firm wondering if he'd like to sit on Tyco's board. York met with new CEO Edward D. Breen Jr., and based on his own investigation and the meeting with Breen, he said yes.
Potential lawsuits resulting from the misdeeds of the company's former executives don't concern him. "Because I'm new, I can't be charged with anything that happened before," he says.
York is also confident that by performing his audit-committee functions diligently, he can help head off any issues for which he and the new members of the board might be held liable.
Despite the additional time commitments (20 to 30 hours a month in addition to the 100 hours a year he already spends on his board commitments), he thinks CFOs should accept board seats if they can afford the time. "It's true there will be more time commitments," says York, "but it's also rewarding to fix up a situation. It's great experience."
In Search of Skeletons
How nervous is Corporate America these days? Ask Gordon Grand, who leads the financial officers practice at New York-based executive recruiter Russell Reynolds Associates Inc. For the first time in his career, he says, he's fielding lots of requests to arrange in-depth background checks of CFO candidates.
Pinkerton's Inc., Kroll Inc., and other firms that do such checks say at least half of their referrals come from executive recruiters--and business is up. "We have seen an uptick in the CFO line," says Peter Turecek, a Kroll managing director.
Companies are going the gumshoe route not only because some CFOs have been accused of fraud, but because some weren't even who they were supposed to be. Veritas Software Corp.'s CFO, Kenneth Lonchar, for example, resigned in October after admitting he had lied about having an MBA.
Educational records, says David Grossman, man-aging director at Pinkerton's due-diligence unit, are a standard part of checks that dig far deeper, even looking at sex-offender databases.
Do CFOs really need to be checked for sex crimes? "We recommend it," states Grossman, an ex-FBI agent. "The CFO is often a public face of the company."
Background checks would have turned up Lonchar's phony MBA, but can they screen out a potential Andrew Fastow or Scott Sullivan? That's where "developed references" come in, says Grossman. References supplied by candidates are used as a starting point to identify a broader pool of people for questioning. "The most-thorough checks include reputational inquiries," adds Turecek. Barry J. Nadell, president of Chatsworth, Calif.-based InfoLink Screening Services Inc., says such checks of one CFO candidate turned up evidence of embezzlement from a previous employer.
CFO candidates should know the law offers them certain protections. Under the Fair Credit Reporting Act, companies can't investigate candidates without permission, they must share the results if asked, and candidates have the right to dispute the findings.