The San Diego-based corporation spent six months designing a comprehensive director-education program. It hired a veteran accounting professor who had taught at Stanford University's graduate school of business and asked him to lead the entire board through three days of intensive seminars and workshops at a conference center in Phoenix. Using case studies and slide shows, the curriculum delved into everything from understanding financial statements to the minutiae of accounting for energy derivatives.

By all accounts, the event was an unqualified success, says Sempra CFO Neal Schmale, who admittedly is not an unbiased observer: Schmale was the architect of the program and a big believer that Sempra should conduct in-house training rather than employ an "off-the-shelf" program.

"By going with the more focused program," says Schmale, "we were able to go into an in-depth understanding of the critical accounting rules that affect the business that we're in. We wanted to be absolutely sure," he adds, "that we had a high-quality program and were not wasting three days of our directors' time. We wanted to be sure that we were productive every minute that we imposed on them."

Whether companies employ internal "home schooling" as Sempra did or select any of the external programs that are offered by a myriad of vendors -- including law and accounting firms, universities and consultancies -- director education is emerging as a key component to good governance. Indeed, continuing education programs are increasingly seen as an important complement to new laws, such as Sarbanes-Oxley, stepped-up oversight from regulators and the stock exchanges and increasing scrutiny from activist institutional shareholders and an aroused business press.

"If you look in our policy statement on our Web site, you'll see that we call for directors to continuously take steps through director education to improve their competence and understanding of their roles and responsibilities," says Linda Scott, director of corporate governance at TIAA-CREF, the huge New York-based pension fund with $314 billion in assets under management. "And we also call for disclosure of whether companies are participating in such programs" (for more on TIAA-CREF, see the interview beginning on page 39.)

It is really only through such ongoing educational and training programs that directors learn the full scope of their responsibilities, recognize the weighty obligation with which they have been entrusted and learn "best practices" in carrying out their duties, says Richard Koppes, the former general counsel at the California Public Employees Retirement System (Calpers) and now an attorney at Jones, Day in Sacramento. "Most business schools don't teach you what it means to be a director," he says.

As someone who serves on several corporate boards, including Apria Health Care and Valeant Pharmaceuticals, and who lectures at several director education programs, Koppes believes that a new breed of director is emerging. While he attributes the emphasis on greater professionalism to "a whole new environment" arising out of the backlash to Enron-style scandals and corporate skullduggery, Koppes insists that director accountability is a big part of the equation as well.

"Directors are becoming more aware of their duty of oversight and the need to receive independent counsel and hold management accountable," he says. "They are taking a stricter view of compensation, exerting more independence and holding more executive sessions without having the CEO present."

In just the last couple of years, the handful of venerable programs for board members sponsored by The Conference Board, Stanford University's law school and the National Association of Corporate Directors (NACD) have been joined by a plenitude of seminars and specialized tutorials. "There's been a dramatic increase in the number of programs and a number of them are very good, especially at the universities," says Doreen Kelly Ruyak, director of marketing at the NACD, which has been increasingly working with individual companies to provide specialized programs.

But, to paraphrase George Orwell, it appears that some of the programs may be more equal than others. "Directors should just make sure that the faculty is made up of CEOs and directors who have real-world experience -- and that it's not just a re-tooled management course," Ruyak says. "The best programs give you more than just a compliance checklist of the directors' responsibilities and the things you have to do keep up with the law and new listing requirements of the stock exchanges. Directors should also realize that, to be effective, they have to be aware of the strategic aspect of the job and their role in developing corporate strategy."

Consulting firms are joining the fray, too. Towers Perrin, a management and executive compensation consultancy, reports greater demand than ever for the firm's expertise; it recently instituted specialized seminars to brief directors on their responsibilities and the latest trends. "A lot of the demand is the sobering realization by directors that they're accountable, and that any problems in the company's executive pay program sits squarely on their shoulders," says Paula Todd, a principal at the firm. "We're also seeing more churning of directors as new people are brought in and others say the job is too risky."

But the most visible new players in the director-education game over just the last couple of years are the big-name colleges: Harvard Business School, Dartmouth's Amos Tuck School and a combined program sponsored by the University of Chicago and the University of Pennsylvania's Wharton School of Finance. Meantime, Charles Elson, an attorney and law professor who directs the center for corporate governance at the University of Delaware's Alfred Lerner College of Business and Economics, is winning plaudits for a director-education program that is cosponsored with accounting firm PricewaterhouseCoopers.

Now in its second year, the Delaware program draws both an impressive faculty of lecturers and a star-studded student body of corporate directors from Fortune 500 companies -- so much so that Elson says he has to turn people away. If the praise from one participant is any indication, it's easy to see why the college's programs are oversubscribed.

"I've been to three or four of these corporate governance seminars, and I thought this was one of the best," Gene Fife, managing principal of Vawter Capital in Charlottesville, Va., says of Elson's program. A director of several corporate boards, including Caterpillar Inc. -- where he chairs the audit committee -- Fife adds: "The Delaware connection to the Chancery Court gives it a real-world connection. You're not just studying how to manage an audit committee. They bring in legal authorities to talk about real live cases and the implications involved. You walk out of there really knowing something."

In the world of corporate governance, the wheat is separated from the chaff by Institutional Shareholders Services (ISS), a Bethesda, Md.-based research organization that tracks corporate behavior and acts as an accrediting agency for director education programs. Attendance by a director at an ISS-accredited program helps boost a company's Corporate Governance Quotient rating, which is increasingly becoming an important reputational benchmark for corporate America.

ISS also grades several in-house programs offered by individual companies for its members. For example, Fifth Third Bancorp., which boasts an in-house program using NACD educators, has won both ISS accreditation for its directors' education program and an ISS award for its overall corporate governance policies.

Even so, Patrick McGurn, senior vice president and special counsel at ISS, generally prefers the external accredited programs that are more broadly attended. "The outside programs provide opportunity for the interplay with other board members," he says. "Almost uniformly, the best feedback we hear comes because directors had time to compare notes and the sessions were interactive."

ISS reports that, in a recent survey of companies included in the S&P 500 Index, four have had their full board participate in an accredited program; 12 companies had a majority of the directors participate; and 184 have had one or more directors, but less than a majority, take part.

Yet it is hard to measure just how much reform is actually occurring in the boardrooms across the country as a result of director education. Philip Lochner, a veteran troubleshooter who recently became a new director on the reconstituted board at scandal-ridden Adelphia Communications, says: "I think that the audience for these kinds of programs are self-selected. The people who attend the programs probably have an interest in governance, so you're not seeing any great shifts in the boardroom."

Even well-managed companies with good corporate governance programs in place can do more, insist critics like Brad Pacheco, a spokesman for Calpers, who would like to see director education press for greater ethical standards. But, the lessons learned at the directors' schools can go a long way to raising consciousness, says Caterpillar director Fife. And Joseph Chalfant, an adjunct professor of corporate governance at Indiana University Southeast, makes the argument that colleges should go one step further and teach MBA students about what it means to be a director.

While it is always hard to measure the results of such courses, he says, they can nonetheless be impressive. While on a recent consulting assignment, Chalfant says, he stumbled upon a former student.

"He was a CPA for a client, and he told me, 'I was in your board of directors' seminar 14 years ago, and I just had to use what I learned in that course because we got rid of the president at a hospital where I serve on the board. Unfortunately, we made the mistake of not checking him out well enough.'"

"That was completely out of the blue," Chalfant says. "We hear that [kind of thing] from time to time."

PAUL SWEENEY is a freelance business writer in Austin, Texas, and a frequent contributor to Financial Executive. He can be reached at 512.499.8749.

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