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Rethinking the "independent' director

If your company's banker sits on your board _ and you sit on his _ is the banker really an independent director?

And can you be considered an outsider if your company did nearly $600,000 worth of work for the corporation where you're a director?

How about a director who has a 10 percent interest in a restaurant chain run by the company on whose board he sits?

In each of the above scenarios, the board members would qualify as independent under current definitions. But that might not be true for long.

Part of the push for corporate reform includes a variety of suggestions for the redefinition of what makes a director independent. Currently, the definition simply means the person is not an employee or blood relative. And company filings seldom clearly identify which directors the company considers independent and which are not.

That makes untangling directors' corporate relationships at public companies in the Tampa Bay area challenging. Some, such as Lincare Holdings Inc. and Catalina Marketing Corp., meet proposed criteria that the majority of directors be independent and that members of the important audit and compensation boards be outsiders.

Other local boards fall short of that ideal. At Brown & Brown Inc., a general insurance agency in Tampa, six of nine board members are not employees of the company. But among the "independents" is Samuel Bell III, who is affiliated with a law firm that performs services of undisclosed value for Brown & Brown.

Another independent director is Theodore J. Hoepner, vice chairman of SunTrust Banks Inc., where Brown & Brown has a line of credit and a loan. Hoepner and Bell are on the company's compensation committee, where they determine pay for Brown & Brown's president, J. Hyatt Brown, who sits on SunTrust's board.

Family ties are strong on the boards of several local companies. At Superior Uniform Group Inc. in Seminole, the eight-member board has only three independent directors.

The company's 2001 proxy filing with the Securities and Exchange Commission included the following statement: "No family relationships exist between the company's directors, nominees and executive officers, except that Michael Benstock and Peter Benstock are sons of Gerald M. Benstock, and Alan D. Schwartz is his son-in-law." Translation: four of the eight board members are related by blood or marriage.

At Kreisler Manufacturing Corp., the seven-member board includes four employees, including a father and his two sons. Of the three independent directors, one is Robert S. Krupp, whose financial advisory company received $599,000 from Kreisler for services performed in 2000.

Krupp is one of two members on Kreisler's compensation committee. The other is the company's chief executive, Edward L. Stern.

At Outback Steakhouse Inc., the majority of the 13-member board is officially independent. But of the outsiders, one, Charles H. Bridges, owns a 10 percent interest in an Outback franchise. Another, Lee Roy Selmon, has even closer ties to Outback's fortunes. In 2000, he contributed $101,000 and the use of his name in exchange for 10 percent interest in the Lee Roy Selmon's restaurant chain owned by Outback.

Outback's compensation committee consists of three independent directors, including Bridges and Selmon. Selmon serves as the committee's chairman.