Crimes: The makeup and behavior of corporate boards remains controversial. More and more dust is being kicked up by the misbehavior of directors – especially executive directors – and the general dysfunction surrounding the operation of so many of these really key institutions.
While it can be difficult to penetrate through those dust clouds to the truths hidden within, we can be sure of one thing that they confirm over and over again: the interests of managers and owners do not coincide. Consider the case of a small local bank reviewed in this WSJ article.
It seems that the compensation committee was composed of all 13 board members, and three of them were executive directors. They had the full committee vote the three of them raises on the order of 100%, prompting the resignation of three other directors. That resulted in SEC filings, which caught the attention of the listing exchange, and of the press, exposing the issue to the public. Prior to this, even the shareholders hadn’t been advised of the sudden and dramatic pay hikes.
When you ignore matters of basic integrity – and I don’t mean here morality, but structural and fiduciary viability – you are going to have people probing the limits of what this untenable situation will bear – and this time I do refer to all of structural, fiduciary, and moral integrity.
The solution is not prosecution of willful violators of positions of trust – that is a recent and welcome phenomenon, but, at the end of the day, it’s only a stopgap. Listen to this quote from the referenced article, by one of the bank’s independent directors:
I have to question whether we are a board of directors — or a board of directed.”
Inside directors tend clearly and overtly to create the latter. And boards of directeds, if you will, will continue to make the news in this way as long as they exist. The fundamental solution is for firms (not legislators, please) to abandon the practice of including insiders on their boards.
Random Fact #4: I have never been in jail.
Once, a buddy and I were batting the breeze with our immediate supervisor, telling stories about growing up in our various parts of the country. Our boss was regaling us with one of his adventures, which concluded with his being tossed in the can by the local police. He laughed with the memory, and nodded to us, “It was my first time in jail,” as though it were a rite of passage he knew we would have experienced, ourselves.
We looked at him and each other with embarrassed incomprehension (how many of you are reacting like this?). He noticed, and looked at us, remarking with true amazement, “You mean, you’ve never even once been in jail?” (How many of you are reacting like that?)
Well, no, we each answered, shamefaced, we haven’t.
This manager was one of the most creative, open-minded, energetic, and forceful operators I have had the good fortune to work with. He knew how to provoke the creation of innovative solutions among a team, integrate them into an ingenious and effective project, and – most importantly – execute it.
His decisions and actions were impelled by organizational purpose and value. It is those forces that formed the lines within which he operated; not habit or irrelevant tradition. And not hall monitors.
As for me, well . . . I have been given to understand that the topic has been discussed once or twice, but, no, I’ve never been in jail.
How about you?
Today’s tag goes to Robin Yap at Yap 3.0.
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Technorati Tags: corporate boards, directors, executive directors, managers, owners, WSJ, compensation committee, executive, SEC, shareholders, independent directors, Inside directors, Robin Yap
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