Recommended Reading - Proposal gives shareholders non-binding say on exec-pay, USA Today

The Obama administrations appears to be close to getting its proposal through Congress for a non-binding say over executive compensation in public companies. According to a story by Del Jones, for USA Today,

The Obama administration offered legislation Thursday that would require publicly traded companies to give shareholders a non-binding vote on the compensation of CEOs and other highly paid executives and to vote on exit packages, known as golden parachutes, at the time of a merger or acquisition.

It would appear the Obama administration is working hard to go right down the middle on this issue. While top executives from key associations are adamantly opposed to even non-binding resolutions on executive pay their counterparts such as corporate governance advocates and a number of institutional investors would prefer far greater teeth in the new proposal. At least this is a minor beginning.

CEO Watch- Jeffrey Peek, CIT

Jeffrey Peek, CIT’s CIT (NYSE) CEO since 2003 appears to have entered a status similar to many of the financial CEOs that were forced out during the financial crisis over the last year and a half, e.g., Stanley O’Neal of Merrill, Sir Fred Goodwin, Royal Bank of Scotland, Martin Sullivan, AIG … CIT has been in free fall of late and is looking to the government for help. It is unlikely Peek will remain as CEO after the company’s crisis manages to come under control. According to a story by Paul Tharp in the New York Post,

The White House is “in advanced talks” trying to extinguish a sudden financial wildfire that could swallow CIT Group, the financial firm that bankrolls the nation’s small businesses.

… The company, which reported more than $3 billion of losses in the past eight quarters, said it hired Skadden, Arps as an adviser. Skadden is known for its work in mergers and acquisitions and bankruptcies.

CIT warned yesterday in internal documents that it’s in danger of running out of cash unless it can get a second round of federal bailout help like that of Wall Street’s banks and other cash-strapped financial firms.

Peek can be expected after the crisis is handled to find himself a lightning rod for the company’s risky business decisions. Keep a close eye on how Peek handles the current crisis and how he is ultimately portrayed by institutional investors and the government. In a story by Ari Levy and Linda Shen of Bloomberg they examine the difficulties Peek and CIT are facing. The writers quote Sean Egan, president of Egan-Jones Ratings Co. in Haverford Pennsylvania,

“You could make a cogent argument that senior management didn’t have a good grasp of the financial storm that was on the horizon,” … “CIT has been through a number of near-death experiences. This time they cut it too close.”

The Bloomberg reporters go on to say,

… On Peek’s watch, the shares soared to a record $61.59 in February 2007 before plunging 98 percent as the company reported eight straight money-losing quarters. CIT’s debt rating was cut by Standard & Poor’s yesterday to seven levels below investment grade, as the ratings firm cited company requests to draw down on credit lines.

Moody’s also slashed its rating yesterday, to B3 from Ba2, or six levels below investment grade, because of “inadequate progress” toward improving liquidity. CIT, which lends to 950,000 businesses, warned that a collapse would put manufacturing and retail clients at risk.

It is only a matter of time for Peek.

For more:

Financial Times (update July 16)

New York Times (update July16)

Half-yearly Executive Turnover Continues to Decline

Liberum continues to see overall declines in executive turnover across key categories. In our latest research, the first half of 2009 saw declines in CEO turnover of 35%, CFO turnover by 42% and C-level turnover of 36% respectively when compared with the same half-year period in 2008. The declines were similar for the second quarter when examined on a quarterly basis. Below are graphical representations of Liberum's most recent research on executive turnover trends for the first six months of 2005 - 2009. Liberum expects executive turnover to begin to slowly increase as we move into the Fall. Summer turnover is expected to remain slow despite the fact that overall unemployment remains extremely high.

Wolseley Switches CEO

Wolseley WOS (LSE) the distributor of building materials announced its CEO since 2006, Chip Hornsby, would resign immediately. Hornsby was made CEO in 2006. Not long after his ascendance to the top, the company found itself facing the growing housing difficulties particularly its operations in the United States. At the point at which the housing market began to decline, Hornsby initiated a number of strategies to cut overall expenses particularly in the building supply area. Even with these policies in place, the firm saw its share price and profits continue to decline.

In Hornsby's place the board has selected Ian Meakins. He was previously chief executive of currency exchange company Travelex. Prior to that he held executive positions with the pharmacist chain Alliance UniChem and drinks maker Diageo. Meakins is an accomplished executive it is difficult to determine if he is a good fit for Wolseley. One can expect some real changes in strategy after he takes over his post and gets situated. Stay tuned.

Recommended Reading - Funds take greater role as activists, Globe and Mail

Steve Ladurantaye wrote a piece for Canada’s Globe and Mail about the increasing activism associated with Mutual Funds with respect to corporate management. According to Ladurantaye’s piece,

Mutual funds are becoming increasingly aggressive in voting against company management and using annual general meetings to push socially responsible agendas.

“You are seeing a less friendly attitude toward director nominees, for one thing,” said Laura O’Neill, director of law and policy for the Shareholder Association for Research and Education. “It’s a relatively positive sign that shows some movement toward a more critical approach to management.”

Don’t expect mutual funds to pressure management across the board but we can expect to see increased pressures on management by mutual funds when they determine specific corporate policies are not in their interest.

Recommended Reading - Financials Post Sign of the Times: CEO Wanted, Wall Street Journal

Susanne Craig and Joann S. Lublin wrote a story that appeared in today’s Wall Street Journal that examined the dearth of financial CEOs available to come in and run many of our troubled financial companies. According to the story,

The strain of the credit crisis, curbs on executive compensation and the specter of government scrutiny are making it harder for financial firms to lure chief executives, according to directors, executives and search firms.

“There aren’t any highly attractive CEO prospects in the financial-services industry,” said Peter D. Crist, head of Crist|Kolder Associates, an executive-search firm in Hinsdale, Ill. “The best players won’t risk their careers going to a troubled enterprise.”

… One problem is that the financial industry’s crisis has shown that some firms simply might be too much for anyone to conquer. Eventually, boards will find new CEOs who are confident enough to give it a try no matter how big the risks. For now, the pickings are slim, said recruiters involved in continuing searches.

I am not quite as sanquine about the prospects for finding new CEOs to run the troubled financial firms as are those referred to in the story e.g., executive search firms, directors and executives. I agree that finding the right candidates will be challenging but that is always the case. There are good candidates out there and many are up to the challenge, even if compensation does not meet their initial expectations. Decide for yourself, check out the story.

Recommended reading - Who could replace BofA's Ken Lewis?, Deal.com Dealscape

Dealscape today ran a piece about an IDD story on what Bank of America might do should Ken Lewis get the ax. The crus of the matter is the bak would turn to its Board of new members for Lewis’s replacement. According to the story,

IDD Magazine is reporting that BofA has a “Plan B” if the board decides to ditch CEO Kenneth Lewis. That Plan B, unsurprisingly, is to replace Lewis with one of the bank’s new board members, all of whom have banking experience.

Even a cat only has nine lives, we will just have to wait and see.

Recommended reading - Yahoo: Carol Bartz Live From Stanford Directors’ College, Barron's Tech Trader Daily Blog

Carol Bartz, the new CEO of Yahoo who has already managed to successfully defy predictions about her appointment to run Yahoo, offers a number of very useful ideas about the role of corporate board directors. Yesterday Eric Savitz posted a terrific piece on Barron’s Tech Trader Daily blog that examined Bartz’s Sunday keynote speech at the Stanford Director’s College. Anyone interested in corporate governance or the roles of board members must read the blog piece.

Recommended Reading - Why CMO Role is Not as Important as You Think, Advertising Age

Natalie Zmuda wrote a story today in Advertising Age that examined the Chief Marketing Officer title and its relative importance in Fortune 1000 companies. Zmuda refers to a recent study conducted by Ernst & Young as evidence for the title of her story.

A study conducted by Ernst & Young and presented as part of a panel with chief financial officers at the ANA Marketing Accountability and Effectiveness Conference found that 13% to 15% of Fortune 1,000 companies employ some sort of marketing position with a chief or senior-executive-level title, such as chief marketing officer or chief revenue officer. And only 70, or 7%, of those firms list the head marketer — carrying any title, not just CMO — in financial filings. Being listed in those public filings means an individual is among the highest compensated executives at the company and sits on the operating board, which is charged with fiduciary and operating responsibility for the company.

Anyone interested in CMOs and their relative importance within large public companies should read the piece.

Recommended Reading - Top investor wants annual board re-elections, Reuters

Raji Menon wrote a story for Reuters today that examined a call by the UK’s institutional investment firm, Legal and General Investment Management (LGIM), for the annual election of corporate board members. LGIM’s call is intended to help push for greater board accountability. Hopefully the same calls will be raise here in the United States and Canada by institutional and activist investors.

Anyone interested in greater corporate accountability should read Menon’s story.