Board Stiff
When Citigroup and Bank of America held their annual meetings last month, shareholders were in an understandably surly mood. Even as the companies’ C.E.O.s apologized for past failures and vowed to do better, shareholders blasted the executives for their incompetence, and talked about the need for dramatic change. Yet, after all the venting and repenting was done, something weird happened: every member of each bank’s board of directors was reëlected to office.
This may seem odd, but it was all too predictable. In the apportioning of blame for the financial crisis, corporate boards of directors have remained remarkably unscathed, even though they effectively approved the strategies that immolated so many companies. At Citigroup, for instance, there have been plenty of calls for Vikram Pandit, who took over as C.E.O. long after most of the damage to the bank was done, to leave. Yet Citi’s board still includes ten of the individuals who presided over the company during its lengthy foray into toxic-asset land. (And the record at Citi, where four board members did step down a couple of months ago, is actually better than at most big banks, where there has been next to no turnover.) There are hopes that this situation may change, since the Obama Administration, as part of its stress test, required banks to “review their existing management.” But so far, even as everyone rails against the banks’ disastrous behavior, boards have not been punished for failing to stop it.
It wasn’t supposed to be this way. Over the past couple of decades, a tremendous amount of attention has been devoted to improving corporate boards. New regulations, along with pressure from big investors, have forced companies to appoint more independent directors—people who have no direct connection to the company—and have tightened the definition of independence. And companies themselves have tried to draw from a wider pool of candidates. The result of these changes is that boards certainly look different: in 1950, half of all directors were insiders. Today, fewer than twenty per cent are. Boards are also more demographically and professionally diverse. And they’re paid more sensibly: increasingly, directors are compensated with company stock, making it more likely that they’ll look after shareholder interests.
See full Article.
Posts
