A Fair Day’s Pay?
Many have wondered where the folks in the big corporation boardrooms were while their companies were tanking, and then taking taxpayer money to stay alive. Well, maybe it was a case of not wanting to rock the boat, because board members of big corporations are paid quite well to maintain the status quo of executive management.
As an example: BusinessWeek recently published the pay records of 10 of the highest paid board members of various big-name companies. The average pay to sit on the boards of these companies was $1,686,297 for the year 2008.
The highest paid of the group was Anthony P. Terracciano, who was paid $4,789,993 for sitting on the board of SLM—a giant student loan company. To Terracciano’s credit, he also turned down more compensation in the form of bonuses and additional stock options.
The biggest problem for most directors is that, because of the Sarbanes-Oxley legislation, they have had to increase their annual hours worked from an average of about 100 hours per year, to an average of about 225 hours per year.
A fair day’s pay for a fair day’s work?
Who Controls Big Business?
Many folks have been criticizing the Boards of Directors of big companies for not controlling their CEOs, and for allowing their companies to get into serious financial trouble (among other things). Of course the board members are elected by the Shareholders, who essentially “own” the companies and who are responsible for electing the right people to oversee their ownership.
But, just who are these shareholders? I ran across an interesting statistic the other day that pretty well answers that question. In 1960, 92% of the stock of American companies was individually held by private citizens…everyday people who elected the Board of Directors of the companies they held stock in.
Today…75% of the stock of American companies is held by “institutions.” This includes mutual funds, pension funds, Wall Street funds, and “other” large block investors. It is the fund and plan administrators who pick and vote-in the directors—not the individual stock owners.
In addition, I recently read a review of a report, put out by the Zurich-based Swiss Federal Institute of Technology, which studied 24,877 stocks in 48 countries. This report determined that the “backbone” of each country’s financial market “…consisted of remarkably few shareholders.”
Here is what the report said about American companies: “…while each American company may link to many owners, …analysis found that the owners varied little from stock to stock, meaning that comparatively few hands are holding the reins of the entire market.”
So, it appears that big companies are controlled by other big companies. Is it any wonder that everyday private citizens have little say on how the world economy functions? Or even how our own stock ownership is handled, because we cannot compete with the massive blocks of stock under control of “other” big businesses.
This sounds a little incestuous to me—does it to you?
Finally–Shareholders Take Action
The investment group, Finger Interests Number One, Ltd., owns a small block of Bank of America stock, and has charged, in a regulatory filing, that the board of directors of Bank of America ignored shareholder interests when they approved the purchase of Merrill Lynch & Co.
Now, three board members; Ken Lewis, CEO; O. Temple Sloan, lead director; and Jackie Ward, director, are up for reelection, and the investment group is asking shareholders to vote these incumbents out and bring in new blood. The election of board members will take place at the Bank of America annual meeting in late April.
It is about time shareholders discarded their complacency and started fulfilling their obligations as “owners” of companies–especially those “owners” of failing companies. Makes one wonder what role shareholders played in the current crisis on Wall Street. I wonder how many shareholders actually spoke out during the nomination for board members–or even voted for that matter.
Have you looked closely at your portfolio lately?
Board of Directors??
Enron, WorldCom, AIG, Lehman, Merrill Lynch, Big 3 automakers, bank after bank…and on…and on. Failed, and failing, companies all—and the employees and shareholders (not to mention the public at large) would like to string up all the executives of the failed companies to the nearest “hanging tree.”
Yet, I have seen very little mention of the roles played in these failures by their Board of Directors. The buck does not stop with the CEO; it stops with a company’s directors. A board of directors oversees the assets of the company for the good of the shareholders. More specifically, the board of directors is the highest governing authority within the management structure at any publicly traded company. It is their job to:
- Select a chief executive to whom responsibility for the administration of the company is delegated.
- Evaluate his/her performance regularly and set compensation (including bonuses) accordingly. (We can hardly blame a CEO for taking a huge bonus from a failing company when it is handed to them by the board of directors).
- Govern the organization by broad policies and objectives.
- Ensure adequate financial resources (where were the boards before the bailouts?).
- Account to the stakeholders for the products and services of the company.
- Provide for fiscal accountability. Yes, this is one of the primary duties of the directors. In fact, the Sarbanes-Oxley Act introduced new standards of accountability on the board of directors for any company listed on U.S. stock exchanges. Under the act, internal control is now the direct responsibility of the directors…for all the good that has done in recent weeks and months
The executives of the failed and failing companies in the U.S. are often just incompetent, or self-serving (a few are criminals), but the boards of these companies is where the blame should ultimately lie. Directors of public-traded companies receive substantial compensation for sitting on a board, and many of them have certainly been derelict in their duties…or lazy…or stupid…or all of the above. Many of them serve primarily to rubber-stamp the actions of the CEO (the person they hired), without demanding that he/she perform successfully.
Someone needs to hold the Board of Directors, of these failed companies, accountable for the poor performance of their respective CEOs. If no one in government cares, then it needs to be the shareholders.
If you own stock in any company, do not let others select the board members for you—do your homework and vote for the member you think would be best for the company, and its shareholders. Better yet, become an activist and make sure the best people possible are nominated for your company’s board.
Now, where’s the nearest hangin’ tree………
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