Lessons From Grace

Intrigue. Nepotism. Private investigators. Allegations of financial and sexual impropriety. A vicious power struggle. The drama at W.R. Grace & Co. unfolds like a John Grisham novel. Yet the story is all too real, and it vividly illustrates what can happen when a corporate board falls down on the job. Corporate America should carefully heed its two main lessons:

A chairman is not a dictator: J. Peter Grace, who died of cancer on Apr. 19, wielded far too much power for far too long at the conglomerate he had run since 1945. Worse, with a minuscule stake in the company, he had little incentive to align his interests with those of shareholders.

Directors should be independent: Most of the company's 22 board members were tightly linked to Peter Grace through juicy consulting contracts, investments, and family ties. Little wonder they failed to exercise independent judgment on behalf of shareholders.

Still, there were heroes at Grace. Unsung and unknown, the company's employees delivered record earnings while their superiors acted like courtiers at Versailles. The turmoil is far from over. Even with new CEO Albert J. Costello in place and a more assertive board, Wall Street believes the dismemberment of the company is a possibility. The employees deserve better.