Jim Brady doesn't flinch at hazards of audit role

February 01, 2005|By BILL ATKINSON

JIM BRADY'S part-time work could leave him broke, or even in jail, if he slips up. At best, he may be - as one observer delicately puts it - a glutton for punishment.

The former head of the state's economic development office under Gov. Parris Glendening, Brady now is a professional corporate director who chairs the audit committees at three public companies that are among the largest in the Baltimore region - Constellation Energy, McCormick and T. Rowe Price - and a fourth local firm, Aether Systems.

That makes him the man who provides key oversight of the executives who sign off on the books of companies in which thousands invest their retirement and college savings.

FOR THE RECORD - An article in Saturday's business section about Constellation Energy Group should have said its customers include 65 Fortune 100 companies, not Fortune 500 companies.

In the post-Enron era, his is one of the scariest jobs in corporate America, four times over. Just ask the directors of MCI and Enron who had to raid their bank accounts for millions to settle lawsuits.

"The reality is sitting on corporate boards is a very different thing than it was five years ago," Brady said recently in an interview at the Center Club. "I think there is much more time required. ... For someone with a financial background you are a first-round draft choice."

Roger W. Raber, president and chief executive of the National Association of Corporate Directors in Washington, says he would never advise anyone to head more than two audit committees. "That is the most difficult position at a public company," he said. "What I have seen the regulators doing is `when in doubt give it to the audit committee.' Every kind of risk out there is up to the audit committee."

To head more than two audit committees, someone would have to be a "glutton for punishment," Raber said. He makes an exception for Brady, though, because of his experience and time he can dedicate.

Brady, 64, is a former managing partner at Arthur Andersen - the Big Four accounting firm essentially put out of business by the misconduct of its Houston office in the Enron scandal. He has more than 30 years in the business and ran the accounting firm's Long Island, N.Y., and Baltimore offices.

When he left Glendening's administration in April 1998, Brady became a consultant. Now, he spends about 90 percent of his time as a professional director. To investors who might question whether one man can effectively do all he has taken on, his answer is: "There has to be some level of trust."

Brady estimates that he spends 30 hours a week working as a director. He has eight to 10 formal meetings a month, conference calls and documents to read. He pores over internal audit reports and presentations made to rating agencies and investors.

It's a good thing, he says, that he's not a typical corporate board member - a high-powered executive who sits as a director on the side. "I am not a superman. If I was a sitting CEO there is no way I could do what I am doing now."

Brady has been a director at McCormick and Constellation since 1998, but the job has gotten more complicated since the Sarbanes-Oxley law was passed about three years ago. The law was designed to make sure companies couldn't dupe investors with financial trickery as Enron, WorldCom and Tyco did. Now, accountants, auditors and corporate executives face harsh fines - out of their own pockets, not their insurers' - and can be thrown in jail for cooking the books.

The law has made chairman of the audit committee the "most time-consuming position on the board," Brady said. "It's a challenging menu."

Brady said the committee is responsible for reviewing the corporation's financials, management's letter to shareholders and making sure the independent auditors, who report directly to the audit chairman, have prepared documents accurately. They hire and fire the auditor.

He may be the ideal director for the Sarbanes-Oxley era. The law requires at least one director on the audit committee to be a financial expert, which by itself would put him in demand in Baltimore. Plus, he runs in the political and corporate circles that CEOs want their board members to be able to access.

"He understands the issues and really bores into them," said George Roche, Price's chairman. Roche said Brady will "methodically look" to make sure the mutual fund company is complying with Sarbanes-Oxley. If accounting issues come up, he "will look at your particular situation very carefully and understand where you come out on it."

Brady sees himself as protector of the investor. "We are not the homeboys for the CEO," Brady said.

Brady doesn't do all his work to be charitable: If he makes all of his meetings, he can bring in about $240,000 a year at the four publicly traded companies where he serves, according to a compilation from their latest proxy reports. He also receives stock, stock options and restricted stock.

He's gotten into this knowing full well that his chances of being sued are greater than ever. But he also sees the chances of losing a suit as low. "I say that because the role of the director has been clarified better than it has before," he said.

Companies can have codes of conduct and mission statements, but if the "tone at the top" is flawed the level of risk rises, he said.

So the key to avoiding the risk, he says, is making good choices of directorship offers. "The tone at the top is exactly on target," Brady said of the companies where he has agreed to serve. "If I was not [comfortable], I would be long gone."

Bill Atkinson's column runs Tuesdays and Fridays. Contact him at (410) 332-6961 or by e-mail at bill.atkinson@baltsun.com.

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