Wachovia Corp.'s decision to use the companies of three of its board members to help construct its new $24 million office building has raised some eyebrows.

Robert M. Holder Jr., Herman J. Russell, and Charles McKenzie Taylor, all members of Wachovia's board of directors, own companies that were deemed best for the job, according to Wachovia's proxy, which was distributed to shareholders in March.

Observers said the practice of using board members' companies for contract work is no longer altogether acceptable.

"In the past it had been common, but today it is perceived as not good corporate practice," said John M. Nash, chief executive officer of the National Association of Corporate Directors.

"From a public perception and from a corporate governance point of view, it is not a good idea."

Construction begins this month on the 235,000-square-foot building, which will be located near the company's Winston-Salem, N.C., headquarters.

Holder-Russell Construction Co., a joint venture that is composed of a firm owned by Mr. Holder and one owned by Mr. Russell, won the bid to act as general contractor for the project. Wachovia estimates that it will pay Holder-Russell about $753,000, plus expenses, for its work.

Mr. Taylor is an officer, director, and owner of Taylor & Mathis Inc., which was hired to plan, design, and oversee construction of the office project, handle budget matters, and guide architectural design. Taylor & Mathis will receive approximately $360,000 for its work, according to the proxy.

Mr. Taylor's firm also assisted Wachovia by helping negotiate the contract with the Holder-Russell Construction Co., the proxy said.

Mr. Nash credited Wachovia with fully disclosing the situation to shareholders and said it did not appear there was anything illicit in the arrangements.

But he said he still saw problems with the situation. "This appears to be the good old buddy system. The question that begs to be asked is, How independent are these board members? Is this 'You scratch my back, I'll scratch yours'?"

Wachovia spokesman Paul Mason said the contracts resulted from a thorough, competitive review and provided "a substantial economic benefit to Wachovia."

Mr. Holder further defended the dealings, saying that membership on a board should not preclude a business relationship. "The process should be very competitive and very arm's-length. If it's carefully done as it was in this case, I think it's O.K."

Mr. Holder said he did not participate in his company's bid for the business, nor did he vote on Wachovia's acceptance of that bid.

Mr. Taylor and Mr. Russell could not be reached for comment.

Wachovia's most recent contracts with the two firms are part of a long history of business dealings. Taylor & Mathis received $109,000 in 1996 to manage Wachovia's corporate headquarters building, for example, and Holder- Russell handled construction work for the headquarters building in 1995. Wachovia leases branch and office space in Atlanta from a partnership Mr. Holder and his family control.

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