Recommended Reading - What Iceberg? Just Glide to the Next Boardroom, NY Times

Gretchen Morgenson, the New York Times’ well known business reporter has done it again. Sunday’s business section included a story by Morgenson entitled, What Iceberg? Just Glide to the Next Boardroom, in which she examined many of the board members that were pushed out of their positions after the financial crisis of 08′ and 09′ and how they managed to get new board positions elsewhere. One would assume this is exactly the kind of circumstance that would not occur but it did.

Three large public companies provide excellent examples. They are Sunoco, the oil company; Paccar Inc., a truck manufacturer; and Tetra Tech Inc., a management consulting and technical services concern. Each of these companies has two directors who, until recently, were on the boards of institutions that were centrally involved in the mortgage meltdown.

… The main reason for director dysfunction is that board members have little fear of being fired for incompetence or sleepwalking through meetings. Because of the way director elections are structured, board members can win their seats if they receive just one vote of support. And even if a majority of shareholders withholds support from directors at annual elections, the directors who are singled out are often allowed to stay.

Anyone interested in corporate governance must read the Morgenson story

Recommended Reading - Why 'say on pay' won't work - Fortune

Colin Barr wrote a fascinating piece for Fortune on why investors, particularly institutional investors, will not restrict top executives’ salaries. According to Barr,

Waiting for investors to slam the brakes on runaway executive pay? Don’t hold your breath. Although Congress may give shareholders more of a say on pay soon, big money managers seem content to keep their mouths shut.

…The biggest investors — institutions such as mutual funds and pension funds that hold more than half of all shares — have shown little interest in playing pay watchdog. And it’s not clear that will change even if the government mandates say on pay as part of the financial reform taking shape in Washington.

“We just haven’t seen a huge amount of effort being put out by institutional shareholders to affect compensation levels,” said Bernard Black, a law professor at the University of Texas. “Whether it’s because they don’t mind the pay practices or because the money managers are making millions themselves, you don’t see them jumping up and down.”

… A recent study co-sponsored by a union pension fund and a top governance firm dubs many of the biggest mutual fund firms — including Ameriprise (AMP, Fortune 500), AllianceBernstein (AB), Barclays (BCS) and MFS — as “pay enablers” for supporting management pay proposals and opposing those by shareholders.

I highly recommend investors and corporate governance specialist read Barr’s piece.

Recommended Reading - Too Many No Voted to Be Ignored, The New York Times

Gretchen Morgenson, the New York Times business reporter, wrote another spot-on story in Sunday’s Business section on the need for ending what she calls the often “cozy relationships” between corporate board members and management. Morgenson’s story, Too Many ‘No’ Votes to be Ignored stated,

For years, shareholders have done little to voice complaints about such cozy relationships, but it seems that the financial fiasco of the last few years, and the lackadaisical performance by directors at major banks that contributed to the meltdown, is encouraging investors to become more vocal.

Signs of such a welcome development can be seen in the results of this year’s director elections at annual corporate meetings.

… Even with such thumbs-downs nearly doubling year-over-year, negative votes on directors still remain relatively small and suggest that investors have plenty of room for improvement if they want to make themselves heard.

… Investors are clearly angry with their companies, and they have their reasons. Director accountability to the shareholders they are supposed to serve has been sorely lacking for decades. Even as they rubber stamp risky corporate practices and excessive executive pay, directors continue to win re-election to their increasingly lucrative board seats.

Liberum has also been examining this issue over the last two years. Investors often need to be vocal about how they view management and the responsibilities of board members. Investors must also stay on top of specific board changes for they could mean a potential change in management or strategy. To get more information on the specific statistics Morgenson referred to in her story check out the study performed by Proxy Governance, Inc. entitled SHAREHOLDER VOTES OPPOSING DIRECTOR NOMINEES SHOW SHARP INCREASE IN 2009 PROXY SEASON.

Recommended Reading - Are Directors Ready to Move from Informing to Persuading?, Karen Kane blog

Karen Kane, a corporate governance consultant, recently wrote a blog piece examining the shift many board of directors are experiencing in relation to their work. While I consider Ms. Kane’s post with a grain of salt there is a bit of truth in what she says. Anyone interested in the role of board members or in corporate governance should check it out.

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 - 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.

Recommended Reading - Chairman-CEO Split Gains Allies, WSJ

Joanne Lublin of the Wall Street Journal wrote a piece examining the growing acceptance of the need for splitting the corprate chairman and CEO positions. Lublin discusses a recent report,

… prepared by the Millstein Center for Corporate Governance and Performance at Yale University’s School of Management, the Chairmen’s Forum proposes that companies appoint a separate chairman after an incumbent CEO-chairman leaves — or explain why not to shareholders. The group is considering asking the New York Stock Exchange and Nasdaq to adopt listing rules that would require separate chairmen.

More U.S. companies are dividing the roles, but the trend is spreading slowly because many CEOs resist sharing power. About 37% of companies in the Standard & Poor’s 500-stock index have separate chairmen and CEOs, up from 22% in 2002, according to the Corporate Library, a research firm in Portland, Maine.

I would expect this trend will grow as the economy comes under increasing government regulation. Check out the story.

CEO Watch List - Sir Stuart Rose, Marks and Spencer, Update 1

Sir Stuart Rose, the CEO of British retailer, Marks and Spencer who despite a great deal of opposition took on the role of Executive Chairman of the firm back in March (see blog) finds himself back in the news again.  According to a story by Julia Finch for the Guardian,

Marks and Spencer shareholders are being urged to vote against the retailer's chairman Sir Stuart Rose at next month's annual meeting in protest at his promotion from chief executive.

Corporate governance research group Pensions and Investment Research Consultants (PIRC) has advised its clients - who include many local authority pension funds and faith-based investors - to show their disapproval of Rose's new role. Commenting on the PIRC voting guidance an M&S spokesman said: "They are entitled to their views. We have made our position clear."

... The Association of British Insurers, whose members include many of M&S's biggest shareholders, has stopped short of recommending a vote against Rose. But in its voting guidance to members it gave the company an "amber top" - which urges shareholders to consider the issues carefully before voting.

Keep a close eye on the vote results.  

Credit Crisis - Corporate Governance = Splitting of CEO and Chairman, Wachovia

Yesterday, Wachovia WB (NYSE) took the Chairmanship away from Kennedy Thompson the bank's CEO.  The change came shortly after the company's loss was twice as large as expected.   Thompson finds himself in real hot water.  The credit crisis continues to impact the bank. According to a story by David Mildenberg for Bloomberg,

"Ken Thompson is in a very hot seat,'' said Jaime Peters, an analyst at Morningstar Inc.  "People are starting to call for his head the same way that they were calling for Chuck Prince's at Citigroup,'' Peters said, alluding to how Citigroup Inc. replaced CEO Charles O. Prince after posting a record-fourth quarter loss. Morningstar rates Wachovia at three out of five stars, similar to a hold rating, she said.

The bank's lead independent director, Lanty Smith, assumed the chairman's position.  While the change meets with standard governance requirements, I am skeptical it will make a real difference in the running of the bank.   Smith is known as a recent supporter of Thompson. According to story by Rick Rothacker in the Charlotte Observer,

The change elevates a director who has stood behind Thompson in recent weeks -- and who has also faced criticism himself. The shift comes at a critical time for Thompson, the bank's CEO since 2000 and a fixture on the Charlotte civic scene.

Smith has said in recent weeks that Thompson has the board's full backing. The bank said neither was available for comment Thursday. Asked whether the move signaled any change in the board's confidence in Thompson, Phillips-Brown noted that he maintains all of his duties running the company.

In his role as lead independent director, Smith assisted the chairman, approved meeting agendas, served as a liaison between independent directors and ran any meetings in which the chairman wasn't present. Now, as non-executive chairman, he will be in charge of all board matters and preside over its meetings.

Smith has served on the board since 1987, taking the lead director spot in 2000. He is also chairman and CEO of a Raleigh merchant bank. While Thompson has absorbed most of the heat during the bank's recent travails, Smith also has come under attack.

The only good news for Thompson is he is smart enough to read the tea leaves and can be expected to work hard to save himself and the bank.  The splitting of the chairmanship and CEO positions in this situation is just window dressing and should give Thompson more time to save himself.  According to a story in the Atlanta Business Journal,

Nell Minow, co-founder of The Corporate Library, a research firm specializing in corporate governance, said proposals to split the chairman and CEO roles often come up at companies that have encountered problems.

"In companies where the shareholders have lost some confidence, that is one of the go-to strategies for change," she said. "It's a way for shareholders to begin a very important conversation. It gets people's attention.

We will just have to wait and see what happens over the next few months.

For more:

Reuters

AP

Wall Street Journal