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| Best Practices |
The Chapter After 11
Suzanne McGee
05/03/2004
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Governance experts argue that it is hard for a board
dominated by former creditors to restore a company’s credibility. “Their
priority is not spending money on infrastructure, governance, risk management
and other things that give companies a solid long-term operating structure,”
says Robert Bostrom, managing partner of the New York office of law firm Winston
& Strawn. In Peregrine’s case, the creditors understood that and acted,
approaching Hirschfield and others to take their places.
BEFORE YOU JOIN • Consider the causes of
bankruptcy and see if they
are conditions the board has the power to change.
• Investigate
whether potential liabilities remain in place.
• Shield your personal assets from future liabilities. |
It took Hirschfield
about a month to decide that he would be willing to join Peregrine’s fourth
board. He sifted through mountains of financial documents and talked to other
directors. Then he flew down to San Diego for intensive talks with key managers.
Andy Brown, former chief financial officer of Legato Systems, another new board
member and head of the audit committee, undertook similar due diligence. “I had
to understand the risks,” he says.
The new directors agree it will take
another year or so before Peregrine has shaken off the legacy of the fraud and
bankruptcy and their task becomes easier. For now, being a Peregrine director
means biweekly meetings on Tuesday afternoons for at least two hours, all by
telephone; Brown dials in from his Silicon Valley home office, Hirschfield from
Wyoming or his second home in Los Angeles, while Mutch sits in Peregrine’s San
Diego head office. They know the board cannot afford to tolerate poor attendance
at the meetings. Only once has a Peregrine director missed a board meeting, says
Jim Jenkins, a portfolio manager at distressed bond investment firm Mellon HBV,
a division of Mellon Financial Services. “Then it was only because he was stuck
on a plane.”
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