All Aboard: Sun Microsystems

It seems like the only time we hear about a board of directors is when its members are up to no good. Proxy battles, compensation scandals, and takeover proposals bring these stewards of corporate governance into the spotlight, but when they're simply doing their jobs, nobody pays any attention. So this Fool is here to highlight a few boards of directors, whether good or bad, to give you a more detailed picture of their companies. No need for scandals.

This time, we're looking at the dot in "dot-com," where the network is the computer -- Sun Microsystems (Nasdaq: SUNW  ) . The company just reported stellar earnings, befitting its astronomical business name, wherein management bragged a little bit about its community reputation. Ethisphere recently named Sun one of the most ethical companies in the world and showcased Sun CEO Jonathan Schwartz as a leader in ethical business leadership, so I thought it timely to have a look at the boardroom, too.

Meet the board
According to the company bylaws, the board will have between six and 11 seats at any given time, and there are currently 11 board members. Each director is up for re-election every year, with no staggered terms, "poison pill" provisions, or other takeover defenses. Either the company isn't worried about takeover attempts -- and at an enterprise value of $14.6 billion, it's quite a mouthful for a would-be buyer to swallow -- or the board prefers to take on any such situations on open terms.

Two-thirds of the directors have to be independent by the standards set in SEC, Nasdaq, and Sarbanes-Oxley requirements. Only two directors are internal, so that test is passed with flying colors. The first internal board member is Chairman Scott McNealy, who has served on this board since the company was founded in 1982. He devotes all his working time to Sun, with no other board memberships or executive positions, except for a high-ranking spot in the International Engineering Consortium (IEC).

The other one is the aforementioned Jonathan Schwartz, president and CEO since 2006 and a longtime Sun employee. His only other professional commitment is a board seat for privately held software company Dorado. Schwartz and McNealy, among other executives, are active bloggers, and they use that informal forum to communicate business details that don't quite fit into a standard SEC filing.

Jim Barksdale of Netscape fame is the chairman of Sun's Corporate Governance Committee. He is also a longtime director of FedEx (NYSE: FDX  ) and a member of President Bush's Foreign Intelligence Advisory Board. His brocade of industry experience makes him well-suited to look after the business conduct policies, and judging by the high esteem bestowed on the company by governance observers, he's doing a bang-up job. Besides the ethical spotlight, Sun placed 71st on the "best corporate citizens in America" list from Corporate Responsibility Officer. Not the absolute highest ranking we've seen, but it's certainly a respectable position.

Robert Finocchio heads up the Audit Committee, making him more responsible than most board members for the accuracy and completeness of the company's financial statements. A former chairman and CEO of Informix and president of 3Com (Nasdaq: COMS  ) , Robert is now a private investor with heaps of board memberships -- though Sun is easily the highest-profile job he's got.

The Leadership Development and Compensation committee is headed up by Intuit (Nasdaq: INTU  ) CEO Stephen Bennett -- who better to set pay policies than a bona fide financial expert? Twenty-three years in the General Electric (NYSE: GE  ) management machine doesn't look bad on a resume, either.

A couple of connections pop up more than once. There are three people from McClatchy (NYSE: MNI  ) subsidiary Knight Ridder on this board, including that company's CEO, Anthony Ridder. Control networks specialist Echelon (Nasdaq: ELON  ) is also well-represented, and there are at least three envoys from advisory firms like Kohlberg Kravis Roberts and Cassius Advisors. I say "at least" because it depends on how you define a management advisor or investment firm.

Finally, let me point out that Sun has given board seats to members of the open-source community, a reflection of its commitment to that development strategy and to open standards.

Perks and power
Independent directors get paid a $42,000 annual salary for their services, except for Audit Committee members, who get $47,000; committee chairs, who receive $52,000; and, of course, the chair of the audit committee, with a $62,000 payday. The insiders have to rely on their executive pay instead.

Each non-employee board member received options on 20,000 shares of Sun stock when joining the board -- or 10,000 if employed by a company with financial interests in Sun -- and then gets 10,000 more for every year of service. At today's low-single-digit stock prices, that might not sound too good, but who knows what the future might hold?

Final Foolish thoughts
Sun's Investor Relations site looks great and works fine for most purposes. There are plenty of useful extras available, such as an at-a-glance summary of the company vision, mission, corporate philosophies, and more.

The company comes across as personable and transparent, from the open-source board involvement, through the executive blogs, to the shields-down takeover defenses. Word on the street is that the corporate culture matches this openness, and that management has the trust of its employees. Speaking as a former Sun admin myself, this attitude is a far cry from the downtrodden worldview of only a few years ago, and it seems like this is the way Sun was always supposed to act but never quite could. Carry on, ladies and gentlemen.

Fool on:

FedEx is aMotley Fool Stock Advisor recommendation.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. His portfolio holds plenty of those "most ethical" businesses. You can check out Anders' holdings if you like, and Foolish disclosure keeps Fools from running on the wrong side of the tracks.


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