As gatekeepers, independent directors of public companies face additional scrutiny and liability in the post-Enron/WorldCom world

The settlements in WorldCom and Enron, together with enforcement actions by the SEC and the new remedies under Sarbanes—Oxley, indicate that independent directors will face very real financial, regulatory and criminal liability if they fail to execute their duties properly. This paper, written by two attorneys with the SEC, reviews some of the recent cases concerning independent directors. In recent years, the SEC and the private plaintiffs' bar have indicated a willingness to hold independent directors accountable for essentially negligent or reckless supervising by pursuing enforcement actions. In addition, the SEC has brought cases against other public companies to enforce the public's right to know any facts that might compromise the director's independence, particularly when directors receive undisclosed compensation at the direction of management. The paper concludes by noting that early indications suggest that independent directors are taking action and exercising their powers in the face of government investigations of the public companies they serve.