By Jay Holtzman. Boards of directors and the roles they play in governing corporations are under closer scrutiny than ever these days. The stunning collapse of Enron and a succession of corporate scandals set off a tidal wave of concern and indignation among investors ? as well as regulators ? who still worry about whether these failures might only be the tip of the iceberg. Perhaps nowhere has the anxiety been more focused than in the boardroom both on, and among, board directors who find themselves dealing with sometimes-conflicting roles as they weigh the interests of shareholders on one hand, and the requirements of management on the other.

While few say they believe that publicly held builders are likely to fall prey to a comparable fatal lapse in oversight, the builders and the boards that guide them are not immune to the undercurrents of concern.

"We've seen a trend toward analyzing corporate governance issues since the mid-80s as a result of the hostile takeover environment at that time," explains Patricia Ayers Crawford, executive director of the Center for Corporate Governance of the Tuck School of Business at Dartmouth, in Hanover, N.H. "The term 'corporate governance' emerged then and became a household word with the implosion of Enron in late fall [of] 2001," she adds.

In remarks last year, Federal Reserve Board chairman Alan Greenspan identified several long-term factors that have impacted corporate governance. Corporate ownership has become more dispersed, reducing the likelihood that a few stockholders will "have sufficient stakes to individually influence the choice of board of directors or chief executive officers." As a result, company officers today operate with less shareholder input and oversight at the same time the investment community presses them for short-term earnings that can overbalance long-term objectives. Some SEC regulations and accounting practices have changed, too, with a negative net result on "the quality of corporate disclosures," Greenspan added.

Reacting to Reforms

The results have been manifold. Last summer, the Sarbanes-Oxley Act tightened company internal controls, put more responsibility on independent directors, and changed the relationship between accounting firms and their publicly held clients. The New York Stock Exchange approved new standards and changes in corporate governance practices for listed companies, and the American Stock Exchange quickly followed. Organizations like the Business Roundtable and The Conference Board have published their own guidelines. Standard & Poor's and others, such as Institutional Shareholder Services (ISS) and Governance Metrics International, began offering corporate governance rating services.

KB Home
Board of Directors
Bruce Karatz, Chairman, CEO, KB Home
Jane Evans, CEO, Opnix Inc.
Dr. Ray R. Irani, Chairman, CEO, Occidental Petroleum Corp.
Ron Burkle, Founder, managing partner, The Yucaipa Cos.
Dr. Barry Munitz, President, CEO, The J. Paul Getty Trust
Sanford C. Sigoloff*
Henry G. Cisneros,* Chairman, CEO, American CityVista
Kenneth M. Jastrow II, Chairman, CEO, Temple-Inland Inc.
Guy Nafilyan*
Luis G. Nogales, Managing partner, Nogales Investors LLC
James A. Johnson, Vice chairman, Perseus LLC
*As a result of new corporate governance guidelines, Guy Nafilyan and Henry G. Cisneros stepped down from KB's board last month; Sanford C. Sigoloff also retired last month after 23 years.

A look at the board of directors of publicly held home builders using "traditional" criteria suggests they are no more or less independent of company management, diligent in their responsibilities, or responsive to shareholders than the hypothetical mean. As criteria shift, however, public builders face a new era of corporate governance re-evaluation. Changes have already begun. In February, KB Home announced changes in its board resulting from updated company guidelines that redefined "independent" directors and limited employee-directors to a single seat on the board. In March, Pulte announced new charters for several board committees and expanded corporate governance guidelines, as well as a new code of ethics for a number of principal officers. The changes earned Pulte an ISS ranking higher than 95 percent of other S&P 500 firms.

Earlier in the year, Fannie Mae became the first U.S. Company to receive a Standard & Poor's corporate governance score. Its score of 9.0 indicates the firm's corporate governance practices are at a "very strong level on a global basis of comparison, as judged by S&P."

Guidelines and ratings focus on four primary areas of corporate governance: fairness, accountability, responsibility, and transparency, explains Andrea Esposito, managing director for governance services at Standard & Poor's. The Standard & Poor's rating and the report that accompanies it, "is intended to assess a company's corporate governance practices and policies and the extent to which these serve the interest of the company's financial stakeholders," Esposito says. The firm examines and scores companies on their ownership structure and influence; financial stakeholder rights and relations; financial transparency and information disclosure; and board structure and process.

Declaration of Independence

Probably every publicly owned company in America is or will be taking a second look at its board of directors in light of these new developments. Both the composition and the independence of the board can be matters for review, and despite new guidelines all around, the criteria for review aren't always clear.

"Many corporate governance experts talk about a lot of different issues, but we know there is no perfect checklist that you can use to say you're a great company or that you are failing in some area," explains Crawford. "There are plenty of examples of companies that perform well with egregious governance practices and plenty of opposite examples, too."

The independence of directors can be a difficult issue, especially for companies that have relatively recently been transformed from personal or family businesses, where the name on the door matches many of the names on the board.

NVR Inc.

Board of Directors

J. Carter Bacot, Director, consultant, Bank of New York
C. Scott Bartlett Jr., Director, Janus Hotels and Resorts Inc.
Robert C. Butler, Director, Carter Holt Harvey Ltd.
Manuel H. Johnson, Co-chairman, senior partner, Johnson Smick International Inc.
William A. Moran, Chairman, Elm Street Development Inc.
David A. Preiser, Senior managing director, Houlihan Lokey Howard & Zukin
Dwight C. Schar, Chairman, NVR Inc.
George E. Slye, CEO, owner, GESCOM Inc.

John M. Toups, Director, CACI International

"Independent as applied to directors has taken on a broader meaning recently," Crawford says. "It has come to mean that a director is not connected at all with the company or the chairman," she says. Another related issue on the corporate governance radar is that of family members who receive compensation from the company, Crawford adds. "It goes back to the question of whether the company is employing the best people possible for shareholders. The family member may be the best, but this is another area where people are paying more attention these days."

More Board of Directors
Beazer Homes USA
Centex Corp.
Hovnanian Enterprises Inc.
Lennar Corp.
M.D.C. Holdings
Pulte Homes
The Ryland Group
Toll Brothers

Crawford says institutional investors are already turning to the new rating services. "The ratings ? not just the score, but the substance ? are a way we can have substantive conversations about corporate governance. In this way they are good and healthy for capital markets," she says. Last year, institutional investors said they put governance on a par with financial indicators when evaluating investment decisions and "an overwhelming majority are prepared to pay a premium for companies exhibiting high governance standards," according to the Global Investor Opinion Survey conducted by McKinsey & Co., management consultants. Respondents stated a number of reform priorities aimed at "rebuilding the integrity of the system," including promoting board independence, better director selection, more disciplined board evaluation processes, and great time commitment from directors.

Boards of directors can probably look for more scrutiny, not less, for the foreseeable future.

Beazer Homes USA

All board members are selected by the Nominating/CorporateGovernance Committee, which is composed entirely of independent directors (as are the other two board committees ? audit and compensation). The committee is assisted in this process by national/international executive recruitment firms. The board maintains a majority of independent directors and splits the role of chairman and CEO. The candidates for nomination to the board are selected to provide a wide range of experience to the company. This experience range covers geographic, industry specific, and role experiences for each candidate. The company requires that directors not stand for re-election after passing their 72nd birthday.? Ian J. McCarthy, president, CEO, Beazer Homes USA
Board of Directors
Brian C. Beazer, Non-executive chairman of the board, Beazer Homes USA
Laurent Alpert, Partner, Cleary, Gottlieb, Steen & Hamilton
Ian J. McCarthy, President, CEO, Beazer Homes USA
D.E. Mundell, Director, ORIX USA Corp.
Maureen E. O'Connell, Executive vice president, chief financial and administrative officer, Gartner Inc.
Larry T. Solari, Former chairman and CEO, BSI Holdings Inc.
David S. Weiss, Executive vice president, CFO, Beazer Homes USA
Stephen P. Zelnak Jr., President, CEO, Martin Marietta Materials Inc.

Centex Corp.

Centex has been publicly held since 1969 and its board of directors has evolved over that time. Currently, the board has 11 members, with the length of individual service ranging from less than one year to nearly 35 years. Eight of the 11 members are "outside" directors, while three are considered "insiders." Centex board members come from both the public and private sectors with backgrounds in a variety of disciplines and industries, providing many different perspectives as issues are considered. This has always been, and will continue to be, Centex's strategy for its board.? Laurence E. Hirsch, chairman, CEO, Centex Corp.
Board of Directors

Barbara T. Alexander, Senior adviser, UBS Warburg LLC

Daniel W. Cook III, Senior director, Goldman Sachs & Co.
Juan L. Elek, Co-chairman, Elek, Moreno Valley Asociados
Timothy R. Eller, President, CEO, Centex Corp.
Laurence E. Hirsch, Chairman, CEO, Centex Corp.
C. W. Murchison III, Private real estate development and other investments
Charles H. Pistor Jr., Retired vice chairman, Southern Methodist University
Frederic M. Poses, Chairman, CEO, American Standard Cos.
David W. Quinn, Retired vice chairman, Centex Corp.
Thomas M. Schoewe, Executive vice president, CFO, Wal-Mart Stores Inc.
Paul T. Stoffel, Chairman, Paul Stoffel Capital Corp.

Hovnanian Enterprises Inc.

The Hovnanian Enterprises Inc. board of directors is composed of nine members, five considered outside independent, and four inside management members. In determining the make-up of the outside board members, several criteria were considered. Knowledge of the company, business, and financial acumen, attaining a cross-section of disciplines, integrity and reputation, and time ability were the key criteria. Thus, the outside members include an investment banker, two CPAs, an attorney, and a banker. All had significant knowledge of the company prior to joining the board. With the new laws and regulations concerning corporate governance, the need for independent members with financial knowledge is critical. Thus, the newest member is a CPA. ? Peter S. Reinhart, senior vice president, general counsel, Hovnanian Enterprises Inc.
Board of Directors
Kevork S. Hovnanian, Chairman, founder, Hovnanian Enterprises Inc.
Ara K. Hovnanian, President, Hovnanian Enterprises Inc.

Arthur M. Greenbaum Esq., Senior partner, Greenbaum, Rowe, Smith, Ravin, Davis & Himmel

Desmond P. McDonald, Former director and president, Midlantic Bank, N.A.
John J. Robbins, Former managing partner, Kenneth Leventhal & Co.
Stephen D. Weinroth, Chairman, Core Laboratories N.V.
Geaton A. DeCesaris Jr., COO, president, home building operations, Hovnanian Enterprises Inc.
J. Larry Sorsby, Executive vice president, CFO, Hovnanian Enterprises Inc.
Edward A. Kangas, Former chairman, CEO, Deloitte Touche Tohmatsu

Lennar Corp.

A good board of directors will be made up of individuals with a wide range of expertise who possess diverse experience in the economic environment and business environment and who can therefore add perspective to the approach we take to the things we deal with on a day-to-day basis. In addition, a good board will have the broadest possible base of understanding and set of connections that go beyond just the academic realm. Board members need to have tangible experience that has yielded results that may or may not be intuitive. Our board is reflective of many of these concepts. ? Stuart A. Miller, president, CEO, Lennar Corp.
Board of Directors

Stuart A. Miller, President, CEO, Lennar Corp.

Robert J. Strudler, Vice chairman, COO, Lennar Corp.
Irving Bolotin, Retired senior vice president, Lennar Corp.
Steven L. Gerard, CEO, Century Business Services
Jonathan M. Jaffee, Vice president, regional president, Lennar Corp.
R. Kirk Landon, Chairman, Innovative Surveillance Technology; former chairman, American Bankers Insurance Group
Sidney Lapidus, Managing director, E.M. Warburg, Pincus & Co. LLC
Herve Ripault, Associate of Optigestiom S.A.
Steven J. Saiontz, Chairman, Union Bank of Florida
Dr. Donna Shalala, President, University of Miami

M.D.C. Holdings

The Company selects directors to serve on its board based on their experience and background. The directors are expected to have a sophisticated understanding of the company's core business and needs. The company also seeks to maintain an appropriate balance of inside and outside directors. Our directors make what we believe to be an extraordinary time commitment to the company in performing their duties, meeting regularly 11 times per year, with additional committee and subsidiary board responsibilities. ? William M. Flatley, vice president, controller, M.D.C. Holdings

Board of Directors

David E. Blackford, President, CEO, chairman of the board, California Bank & Trust
Steven J. Borick, Director, president, COO, Superior Industries International Inc.
Herbert T. Buchwald, Principal, Herbert T. Buchwald P.A.
Gilbert Goldstein, Principal, Gilbert Goldstein P.C.
William B. Kemper, Private real estate investor
David D. Mandarich, President, COO, M.D.C. Holdings
Larry A. Mizel, Chairman of the board, CEO, M.D.C. Holdings

Pulte Homes

The Pulte Homes board of directors is an independent board with 10 out of 12 directors as non-employees. They represent a variety of industries and disciplines, with strategic expertise and extensive top-level management and board experience. Together they provide Pulte Homes leadership and experience to help achieve our strategic growth objectives. ? Mark J. O'Brien, president, CEO, Pulte Homes

Board of Directors

D. Kent Anderson, Chairman, Beacon Management Corp.

Debra J. Kelly-Ennis, President, COO, Saab Cars USA Inc.
David N. McCammon, Retired vice president of finance, Ford Motor Co.
Mark J. O'Brien, President, CEO, Pulte Homes
Patrick J. O'Meara, Chairman, Ann Arbor Acquisition Corp.
William J. Pulte, Chairman, Pulte Homes
Bernard W. Reznicek, National director/specialty markets, Central States Indemnity Co. of Omaha
Michael E. Rossi, Retired chairman, Bank of America
Alan E. Schwartz, Partner, Honigman Miller Schwartz and Cohn
Francis J. Sehn, CEO, The Fran Sehn Co. Inc.
John J. Shea, Retired vice chairman, president, CEO, Spiegel Inc.
William B. Smith, Advisory director, Morgan Stanley Dean Witter & Co.

The Ryland Group

The members of Ryland's board of directors are intentionally diverse in both their areas of expertise and their composition. In fact, we're proud to have one of the most diverse board of directors in both our industry and in Southern California. We feel that it is very important for our board of directors to reflect the diversity of our home buyers and of our employees. ? R. Chad Dreier, chairman, president, CEO, The Ryland Group

Board of Directors

R. Chad Dreier, Chairman, president, CEO, The Ryland Group

Leslie M. Frécon, President, L Frécon Enterprises
Roland A. Hernandez, Former chairman and CEO, Telemundo Group Inc.
William L. Jews, President, CEO, CareFirst Inc.
William G. Kagler, Retired chairman, CEO, Skyline Chili Inc.
Ned Mansour, Retired president, Mattel Inc.
Robert E. Mellor, President, CEO, Building Materials Holding Corp.
Norman Metcalfe, Private investor
Charlotte St. Martin, Executive vice president, Loews Hotels
Paul J. Varello, Retired chairman, CEO, American Ref-Fuel Co. (ARC)
John O. Wilson, Senior partner, chairman, Investment Policy Committee, SDR Capital Management, Bank of America

Toll Brothers

A board of directors should consist of a diversified group of individuals with varied backgrounds and experience who can help the company in many ways. Our board currently has 11 members, some of whom have been with us since we went public in 1986. The majority of our directors are independent, "outside" directors. Only one is with an organization we do business with. Four are "insiders" from company management. Collectively, the board has a significant background in many areas and provides a number of perspectives?business, legal, taxes, securities ,and public markets, for example ? that have proven valuable to the company. ? Joel H. Rassman, CFO, Toll Brothers

Board of Directors

Robert I. Toll, Chairman, CEO, Toll Brothers

Bruce E. Toll, Vice chairman, Toll Brothers
Zvi Barzilay, President, COO, Toll Brothers
Robert S. Blank, Partner, Whitcom Partners
Edward G. Boehne, Former president, Federal Reserve Bank of Philadelphia
Richard J. Braemer, Partner, Ballard, Spahr, Andrews & Ingersoll LLP
Roger S. Hillas, Former chairman & CEO, Meritor Savings Bank
Stephen A. Novick, Vice chairman, chief creative officer-worldwide, Grey Global Group
Carl B. Marbach, Founder & president, Internetwork Publishing Corp.
Joel H. Rassman, Executive vice president, CFO, treasurer, Toll Brothers
Paul E. Shapiro, Executive vice president, chief administrative officer, Revlon Inc.