By William E. Sheeline

(FORTUNE Magazine) – These are wrenching times for corporate directors. The current surge of takeovers, leveraged buyouts, and recapitalizations has put directors' decisions under a brighter spotlight than ever before. Center stage right now is Charles E. Hugel, head of a group of directors who will decide which of three rival suitors will win RJR Nabisco in a deal that will affect the fortunes and change the lives of stockholders, bondholders, managers, and employees. Concludes George C. Dillon, chairman of Manville and a director of Phelps Dodge: ''The issues of corporate governance are burning hotter and hotter.'' Among them: -- Whom does a director represent? It's a commonplace that he works for the shareholders. But he may also consider the interests of other constituencies -- employees, bondholders, communities where the company does business, customers, suppliers, and franchisees -- provided that acting in their interest benefits shareholders. This, in fact, is the law in Delaware, where most major companies are incorporated. But once directors decide to sell a company and are down to weighing various bids, says Richard Beattie, a partner at Simpson Thacher & Bartlett and a legal adviser to Kohlberg Kravis Roberts, ''the directors' sole obligation is to maximize shareholder value.''

-- Is the highest offer always the best deal for shareholders? Dillon recalls serving as a director of Barber-Greene, a highway construction materials company that the board decided to sell or merge in 1986. Three or four suitors came forward offering different amounts, some all in cash, some a mixture of cash and stock. The directors opted for the middle price, all in stock. ''It was the right qualitative judgment,'' Dillon says. Shareholders now benefit , from what he calls the ''sparkling performance'' of Astec Industries, the acquirer. -- Who are the shareholders, anyway? Martin Lipton, partner in the law firm Wachtell Lipton Rosen & Katz and unsuccessful defender of Kraft against Philip Morris's takeover, wrote clients recently attacking institutional investors who hold large blocks of stock. Having gained control over virtually every major company, he said, these investors ''show no restraint and no regard for the public good. They must be policed.'' -- And what about bondholders? When a company is threatened by a hostile tender offer or takes on huge debt in an LBO, the value of its outstanding bonds can plunge. Bondholders may sue, but Harvey Goldschmid, an expert on the subject at Columbia University law school, says that ''directors have no general fiduciary responsibility to them. Bondholders are protected by their contract.'' A company can look out for its bondholders by using a new defense called a ''poison put.'' Under this arrangement, a bondholder can demand and get full redemption of his bonds when control of a company changes hands. Robert S Pirie, president of the Rothschild investment bank in New York and leader of the recent Macmillan takeover by Britain's Robert Maxwell, thinks poison puts could hinder managers who borrow heavily to finance LBOs. Others say that they could deter takeovers. -- How should directors view managers who want to buy their own companies? Usual answer: no differently from anybody else. But opinions diverge on how much a chief executive can decently pocket. The New York Times said F. Ross Johnson could get more than $100 million from this proposed RJR Nabisco LBO. That figure may be off, but he does stand to make a killing. The issue bothers Charles Anderson, former associate dean of Stanford business school and veteran board member of four companies that were taken over: ''Management is hired to run the company for the shareholders, not to do a financial arrangement to enrich themselves.'' By putting RJR Nabisco in play, Ross Johnson has enriched the shareholders. Whether he will enrich himself will be decided by Charles Hugel and the rest of RJR's directors, and, ultimately, the shareholders, who still get the final vote.