Rubin asked a Treasury official to lean on credit-rating agencies to maintain a more positive rating than Enron deserved. What does the subordinate say he communicated to Buffet? Perkins of discussing internal Hewlett-Packard deliberations with others last month. Schmidt was elected Tuesday…. Bostock , had a family connection to a hedge fund that does business with the firm. The relationships among directors, those were not situations where someone was getting compensated by the other.
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Chief Executive Officer David Wittig and another executive guilty of looting the electric utility of millions of dollars. Wittig and Lake have denied the charges, saying that their actions were legal, approved by the company's directors, and disclosed in corporate filings.
The three-judge panel ruled that prosecutors presented insufficient evidence to support convictions of former chief executive David Wittig and former executive vice president Douglas Lake , on charges of wire fraud, money laundering, conspiracy and circumvention of internal financial controls.
In reversing the convictions, the appellate court ruled that all the counts hinged on the government's ability to prove that Messrs. Wittig and Lake tried to hide from the Securities and Exchange Commission their personal use of corporate aircraft. However, the panel said, SEC regulations only require the reporting of such activity when it costs the company an amount above a certain threshold.
Because 'the government offered no evidence that the additional cost to Westar of either defendant's personal travel ever exceeded this threshold. The court ruled that the defendants could not be retried on the fraud or money laundering charges, but that they could be retried on the lesser charges of circumvention of internal controls and conspiracy. The court refused to give the instruction. There was no evidence that the value of personal travel ever exceeded the reporting threshold.
With hindsight, one could observe that the prosecutors really blew it! Grasso had the authority to select those who served on the Compensation Committee. He also regulated most of them. This conflict allowed Grasso to influence directors who might have wanted to pay him less, and to reward directors who would pay him more.
For example, one former Compensation Committee member was confronted by Grasso after he had privately expressed concern to Ashen about a component of Grasso's proposed compensation in The director testified that 'he was a little taken [a]back that there was an ear to the committees And when he's kind of indirectly your supervisor or your regulator, you have to be careful.
Grasso , et al. Shapiro tapped Reed to serve on the Monsanto board and Reed, in turn, asked Shapiro to the board of Citicorp, the bank where Reed was chief executive. Reed said, he impulsively offered the chief executive job to Mr. Reed walked up to Mr. Train, whom he knew as a fellow trustee of the Massachusetts Institute of Technology Thain would have the power to veto other prospective chairmen. Elson, who teaches corporate governance at the University of Delaware's business school, said.
To Sue or Not to Sue? Did the "handpicked" BOD later ratify Reed's impulsive act by its silence? Thain went on to become CEO of Merrill Lynch and, when the bumbling herd stumbled over a cliff into the arms of Bank of America, was terminated.
A former telecom executive, he was pushed out of Covad Communication Group shortly after Carly Fiorina named him to the board. At the time, his allegiance seemed inclined far too much to Fiorina, rather than to HP's investors. If she left tomorrow, I'd resign tomorrow. Some BODs may be so beholden to the CEO that regulators have to put a gun to their collective heads to get them to do what is in Shareholders' best interests.
In a securities filing yesterday, Fannie said its financial statements from through the third quarter 'no longer should be relied upon' because they were prepared with practices that didn't comply with generally accepted accounting principles. Raines , who had carefully cultivated personal relationships with the directors over many years … taking them to dinner at a Four Seasons hotel in Washington on the eve of board meetings. The directors came to no conclusions about Mr. Raines's fate Thursday, but agreed to hold a formal meeting on Sunday.
Directors … still didn't come to a conclusion on whether to force Mr. One idea advanced by Mr. Raines, according to a person close to the discussions, was for him to announce a retirement effective at some later date, which would have created the appearance that he wasn't to blame for the accounting fiasco. A final decision didn't come until Tuesday, when Mr. Fannie was subsequently placed into a conservatorship where it was forbidden to continue to make political contributions and to conduct lobbying efforts.
If you dissent on this board, we'll nail you. If company officials think I violated the law, they can call the cops. Spy on Him ". The report, which relied in part on private telephone records, fingered George Keyworth , a longtime director and former science adviser to President Reagan, as the source of many of the leaks about board deliberations. A boardroom showdown ensued, during which the board voted to ask Mr. Keyworth to resign, and he refused, saying he was elected by the shareholders.
Venture capitalist Tom Perkins , a friend of Mr. Keyworth, quit the board on the spot in anger. Keyworth will not be nominated for re-election to the board at its annual meeting next March. Dunn said she regularly informed the board of the investigation, but provided few details, at the investigators' request. Keyworth to leave, Mr. Dunn, saying, 'Pattie, you betrayed me. You and I had an agreement we would handle this offline without disclosing the name of the leaker.
Dunn says she never had such an agreement. Counsel was explicit the matter needed to go before the full board,' she says.
Perkins rose from his seat, slammed his briefcase shut, and said, 'I quit and I'm leaving. The law requires that when a director resigns, the company has to disclose whether it was the result of a fundamental disagreement.
I don't want people to speculate about my health. Perkins had no disagreement with the company, only with Ms. Therefore they decided they had no obligation to file details with the SEC. Instead, the board issued a statement on May 19 that simply said Mr. Perkins had resigned, effective immediately. Perkins was concerned with the way his resignation was portrayed by the company, however, and subsequently contacted the SEC with his concerns, according to people familiar with the situation.
Perkins has also been critical of the investigation, which he suggested involved illegal surveillance. Board members acknowledge some discomfort with the methods used by the private investigator who obtained the phone records, but H-P says it was assured by the investigators that the methods were legal. Assuming that the BOD provided any hearing of the allegations against George, he could have defended against his removal on the ground that the BOD had acted with "unclean hands" in acquiring its alleged proof.
What is the value of the private investigator's assurances? Would anyone expect an admission of illegal activities? The other message is that Directors are under pressure to conform and keep quiet, or else…. Or, does it mean that he regrets abandoning his friend and fellow Director in in his time of need? Perkins sent a letter to Hewlett-Packard wherein he set forth his version of the events surrounding his resignation, his follow-up efforts and various allegations of misconduct.
Pretexting, or posing as a person in order to obtain private phone or other information about them, is illegal in California. He added that H-P didn't know pretexting would be involved. H-P declined to disclose the name of the private-investigation firm it retained or the 'pretexting' firm that firm employed as a subcontractor.
Keyworth for another term as director. The company is scheduled to hold its next board elections in March The law firm had concluded that the methods used were legal, these board members say. But the law firm says it made no such conclusion on its own; it simply reported that the private-investigation firm involved and that firm's lawyers claimed their methods were legal.
Larry Sonsini, the attorney for H-P's board, yesterday declined to comment. When does a high-powered law firm reasonably rely, in matter crucial to its client, upon the favorable legal opinion of other and, likely, lesser powered law firm of their client's investigator? For what has the BOD paid?
A major issue remains whether and to what extent there is a semblance of due process in the board room before the death penalty is imposed upon a member who is invited, but refuses, to resign. Sonsini's firm has grown strained. Perkins of discussing internal Hewlett-Packard deliberations with others last month. The lawyer went on to demand that he name those he spoke to and what documents he gave them. Perkins's response was just as rough. Dinh … accused the law firm of conflicts of interest.
He accused the company of 'sanitizing' the minutes of the board meeting in which Mr. He told the company that Mr. Perkins was a victim of possible fraud, identity theft and misappropriation of personal records. Sometimes, CEOs make consensual Directors disappear. Hollinger International … did that late last year.
Shareholders like president of hedge fund Providence Capital, Herbert Denton … wanted three of the firms' directors to step down. ACS Chairman Darwin Deason , a flamboyant entrepreneur who built the company, teamed up with Cerberus Capital Management LP during the buyout frenzy earlier this year to take the company private.
But such a bid never materialized, and earlier this week Cerberus pulled its offer, citing turmoil in credit markets. ACS management along with some of its biggest shareholders, including Oppenheimer Funds, blamed the independent directors for allowing the deal to slip out of their hands -- by refusing to set a vote on the bid before pursuing alternatives.
The directors say they had a duty to look for other potential bidders, given that Cerberus's proposed deal included the participation of ACS's chief insider: The dispute is all the more extraordinary given the close, even cozy, relations Mr.
Deason once enjoyed with a number of the independent directors -- Robert B. Livingston Kosberg, Frank A. Several of them enjoyed business or personal ties with Mr. Deason in past years. The confrontation began Tuesday during a six-hour board meeting, when Mr.
Deason demanded the directors resign immediately. He threatened to nominate a new slate of independent directors for election at the next shareholder meeting, in May, if they refused He also said he would issue a news release accusing them of neglecting their duties if they didn't comply by yesterday, these people said.
The directors responded in their own sharply worded letter: Late yesterday, the independent directors filed a lawsuit against Mr. Deason and other ACS executives in Delaware Chancery Court asking for a declaratory judgment that they haven't breached their fiduciary duties.
The resignations came during a closed-door session in which the bloc sought to replace Chief Executive Alan Armstrong , who they felt was ill-suited to lead an independent Williams as it sets out a new course, the people said. Chairman Frank MacInnis was among those who resigned, as were a pair of activist hedge-fund investors, Keith Meister and Eric Mandelblatt , who joined the member board following a public campaign in , the people said. All three had championed the merger with Energy Transfer, which Mr.
Armstrong had opposed and continued to oppose even after it was agreed. The discussion turned to whether Mr. Armstrong was the best person to remain at the helm. The directors not including Mr.
Armstrong were split evenly, with six supporting Mr. Armstrong and six opposed. MacInnis, who had been Williams ' s chairman since , was opposed to Mr. Armstrong remaining as CEO, but resigned largely for personal reasons….
All three had been supportive of the merger. Did the newly departed leave with some benefits? Does one hand wash the other? Do CEOs and Directors say to one another, in substance, "I won't tell on you to Shareholders , if you don't tell on me"? A conflict of interests arises when Directors set their own compensation, e. It is just another conflict of interest for which there is no real accountability. Corporate governance watchdogs fret that CEOs use lucrative pay packages to co-opt board members.
Still, that's not bad for a part-time job that requires attending a handful of meetings a year. And because boards seem reluctant to rein in compensation, some critics conclude that the system is irreparably broken. Sinegal of Costco Wholesale pay package seems a throwback to another era, especially when compared with the lavish compensation of Henry R.
Sinegal's compensation is skinny, then corpulent is the word that comes to mind when considering the pay bestowed on Mr. Silverman, the chairman and chief executive of Cendant, the travel, real estate and direct marketing concern. The fear, of course, is that corporate executives, who have oodles to gain from mergers, have too much say about the terms, structure and consummation of the transactions. When management is at the controls, as often seems to be the case, directors are asked mostly to rubber-stamp the deals.
Melican , president of Proxy Governance. Melican, an executive vice president at International Paper from to , was involved in many of that company's mergers. And because there are going to be shareholder lawsuits, you can pretty much assume you'll be in depositions for many years. Melican said, when executives of the acquired company are promised high-ranking jobs at the combined entity, postmerger.
Melican says, boards have to get in early. But hey, that's what being a fiduciary means. Anyone Tell the Board? Where there is a will, there is a way! CalPERS is "concerned by the timing of a decision in May by PacificCare 's board to boost payout that executives would get if the company was sold.
Typically a board would know whether high-level merger talks had been occurring for months Upon what need for change was it based? What are the odds that the BOD's decision was based upon a "fairness" or consultant's opinion, which issued by someone who was well-paid by Management? Steven Milloy … claimed that Goldman's policies are … designed to advance Mr. He objected to Goldman's gift of , acres in Chile to the Wildlife Conservation Society , calling it a conflict of interest because Mr.
Paulson is chairman of the Nature Conservancy, which works with the society, and has a daughter, Merritt, who sits on the society's board of advisors.
Paulson batted away the charges with a simple defense: The board did it, not me. He was not even part of the discussions of the Chilean land deal. Paulson's involvement with the conservancy or his advocacy of environmental causes.
No one who makes it into the board room of a place like Goldman is unfamiliar with the time-honored strategy of gaining influence by showing interest in the CEO's interests, be they golf or global warming. Why wouldn't directors rubber-stamp Mr. There are no studies to prove this, of course. But the society pages hold a clue: It's the CEO who is toasted at benefits and photographed for posterity.
How often is the source of the funds -- the pockets of shareholders -- even mentioned? The Free Enterprise Action Fund , a tiny mutual fund with a conservative political bent, says the gift hasn't benefited Chile or Goldman shareholders. The fund petitioned the Wall Street firm on Friday to have its board review the gift as part of a broader study of Goldman projects supporting environmental causes, and seeks a shareholder vote on the proposal.
Treasury Secretary, defended the donation at Goldman's annual meeting on March 31, saying it was something 'Goldman Sachs wanted to do. Paulson's son, Henry Merritt Paulson. At the meeting, Mr. Paulson said he knew of the deal but recused himself from the decision, leaving it to the board. Paulson's underlying assumption is that whatever Goldman wants is proper. Now the country's most important court for corporate law has raised questions about some deals.
I n recent back-to-back opinions, the Delaware Court of Chancery criticized two publicly listed companies that have agreed to sell themselves to private investors. The rulings expressed concern that Topps Co. The author of both opinions, year-old Vice Chancellor Leo E.
Strine faulted the company's board for letting Chief Executive Robert E. Rossiter negotiate the deal with Mr. Icahn on his own. The Delaware court's increased scrutiny of possible conflicts comes amid rising complaints, and more lawsuits, criticizing buyout deals for allegedly enriching corporate executives at the expense of the shareholders.
In the current buyout craze, many buyout firms retain the management by offering rich pay packages and a stake in the newly private entity. These deals are being challenged in the courts by shareholders who allege that they are getting a meager payout for the company. They say boards are accepting deals based on factors other than the best-available price.
In addition, shareholders are accusing boards of running into the friendly arms of private-equity buyers to escape activist hedge funds, who are trying to oust them through proxy battles.
In the case of Topps, the New York producer of trading cards, collectibles and candy, shareholders have accused the board of breaching its duties to get the highest price for the company Strine warned in his Topps opinion.
Not only do CEOs get theirs, but , when they do wrong, Shareholders foot the bill. Once again, shareholders are shouldering the costs of unethical behavior they had nothing to do with. Hill and Richard W. Painter, professors at the University of Minnesota Law School. In 'Better Bankers, Better Banks,' they argue for making financial executives personally liable for a portion of any fines and fraud-based judgments a bank enters into, including legal settlements.
Hill said in an interview. If that's the case, bad CEOs are able to hang on to their jobs long after they should be driven out. In a new study titled Pay for Failure: Few of the plans, for example, required that the company's performance be measured against its industry peers.
It's a matter of mutual back-scratching, as another recent study confirmed. The authors are John K. They found that companies paying CEOs excessive amounts also pay directors excessive amounts. Companies that pay too much also tend to perform worse than their peers. Kozlowski was exceptionally extravagant with company money, Mr. Campriello showed jurors an expense report Mr. John Fort submitted for his attendance at a single three-day board meeting.
Campriello asked 'This is the way we traveled,' Mr. Permitting extravagant expenses is the morale equivalent of bribery. Raines received salary, bonus and other compensation last year However, Fannie Mae is not a person. The Broadcom Corporation … shareholders are being asked to vote on a company proposal to increase by 12 million the number of shares authorized for grants under its stock incentive plan.
In addition, a 'yes' vote will expand the types of stock awards that the company can offer executives and employees, as well as grant the compensation committee the right to reprice underwater options at any time. This objectionable repricing practice removes the risk for executives and employees that outside shareholders incur when their stock falls.
Had the proposed plan been in place last year, it would have cost shareholders an amount equal to about 75 percent of the company's revenue, the firm said. Berman had until 29 February been affiliated with a law firm that served as outside counsel to the Company and had since 1 March been engaged by the Company to render legal, regulatory and other professional services.
Berman was a director of Tyco until December 5, From March 1, through July 31, , Mr. Berman was engaged to render legal and other services. During this period, Tyco compensated Mr. Berman with health benefits, secretarial assistance, a cell phone and electronic security services for his homes. Weingarten said the two clashed over several issues, including the amount of Tyco business sent to Kramer Levin for which Berman received referral fees. Dennis Kozlowski , Tyco's former chief executive, and were not approved by the board or disclosed in filings with the United States Securities and Exchange Commission.
He also has drawn fire from critics for having business ties to Disney in the past while sitting on the board. Those payments ended two years ago amid an outcry from corporate governance experts.
Independence of new chairman, who had sided with Eisner, is called into question. Mitchell, 70, … who has little business experience, said … yesterday that he had no desire to play the corporate strategist, as many chairmen do. Instead, he sees his main job as negotiating among factions of unhappy investors, other board members and Michael D.
Eisner, the chief executive who lost the chairman's title in the wake of a resounding no-confidence vote at the company's shareholder meeting on Wednesday.
Mitchell's appointment is not sitting well with many of the investors … nor with corporate governance experts. They complained that not only does Mr. Mitchell have negligible corporate experience, but they say he is too closely allied to Mr. Eisner and his appointment does little to address investor discontent with Mr.
Eisner's management of the company. Mitchell takes umbrage at the notion he is beholden to Mr. He said he had only had three social dinners with Mr. Eisner actually approached Mr.
Mitchell in to gauge his interest in joining Disney as president. Mitchell said because the decision was made only on Wednesday, the duties of the job had not been completely defined. But he said the setup and his lack of business experience should not impede his ability to oversee Mr. The most beholden Directors may live in states of denial. And that has prompted some governance experts and investment fund officials to question his sincerity toward reform and sensitivity to appearances. Their concern is that directors may have competing loyalties between the shareholders they are supposed to serve and the executives who put them on the payroll.
Sidhu has … become a national force in community banking by repeatedly triumphing over rebellious directors and shareholders. Sidhu has excluded directors from important deal deliberations or waits until the last minute to brief them. Some investors say his public statements about acquisition plans are misleading.
Sidhu has a board of supportive directors who have scant banking experience, are compensated unusually well and, in some cases, enjoy access to Sovereign loans and business opportunities. While that's more than directors at similar banks get, Sovereign justifies the pay by noting that its directors meet 14 times a year, five more times than its peer average. Sovereign has had business dealings with and made increasing loans to its directors in recent years. Sovereign added that the Troilo leases all have been at market rates.
Troilo didn't return calls. Troilo so he could buy a Lawrenceville, N. To help secure the loan, Mr. Troilo used another Sovereign-mortgaged property, in Pennsylvania , that he also rented to the bank. The Monday filing said Mr. Troilo's bid was better because it included 'no financing, inspection or due diligence' conditions. Was Sovereign concerned that its building could not withstand "inspection or due diligence"? Upon what objective criteria was that decision made and by whom?
But, after all, it is just another instance of Shareholder assets being considered as chump change! The bank offers no relevant disclosure about the loans, including terms, interest rates or performance. Relational Investors discovered the full extent of them only by cross-referencing Sovereign's Securities and Exchange Commission filings with records at the Office of Thrift Supervision. Sovereign says the SEC filings excluded credit extensions that haven't been drawn down.
Since , however, Sovereign's filings have included no specific figures, just vague reassurances. Wall Street is skeptical that a three-year turnaround plan will work, and Fitch has cut its bond rating to triple C, which is low even for junk bonds. So far this year it is down another 27 percent. But there is little pain at the top. But there is no mention of internal equity -- of the justice of paying a lot to bosses when workers and investors are suffering.
Perhaps board members think they deserve an increase because their past stock grants keep losing value.
They face tricky choices in deciding how much to challenge year-old Mr. Mozilo, who co-founded the company 38 years ago. Countrywide's nonemployee directors collect fees, shares that they must hold for at least a year, and perks that include health insurance and spousal travel, according to the latest proxy statement.
The pay range is above median total compensation for directors of the largest U. Countrywide said directors review their compensation annually with the help of an independent pay consultant Countrywide rewards board members so well that 'at some point, you cross the line between paying for services provided and a very lucrative thing where board members aren't going to challenge management,' says Mark Reilly, a partner at 3C, Compensation Consulting Consortium.
Corporate Library has long argued that Countrywide's board has done a poor job of designing Mr. Mozilo's pay package, guaranteeing him too much compensation regardless of performance. The consultants urged directors to slim his hefty contract, partly by revamping his annual bonus formula Directors kept the formula and decided to replace the consultancy Snyder , 75, is Countrywide's lead director.
Institutional shareholders who have tried to engage the Countrywide board on issues like Mr. Mozilo's pay say that Mr. Snyder, who has been a board member since , prevents such dialogues from occurring. One complaint was that he does not share letters from stockholders with other members of the board.
Charles Prince , for instance, who stepped down under fire as Citigroup Inc. The rules are in place to allow boards to retain an appropriate mix of retired and active executives and push out members who no longer have the time for outside directorships because of more demanding new jobs. Still, many governance watchers and veteran directors say boards rarely accept a resignation after a member loses a CEO spot—no matter the reason.
Another former chief who kept a directorship is Richard Syron , ousted as head of Freddie Mac in when the U. He recently received a warning that he may face civil action from the Securities and Exchange Commission as part of its investigation into whether Freddie Mac properly disclosed its exposure to subprime loans. Syron held a board seat, rejected his offer to resign.
Syron didn't have to defend his actions to fellow board members. To be sure, boards occasionally drop a member after leaving a CEO post under fire. Advanced Micro Devices Inc. AMD declined to comment. I just could not resist the temptation.
The devil made me do it. The other dude done it. It was my poor upbringing. Then, there is reciprocal back scratching.
It would be so embarrassing at the country club to encounter a removed former fellow Director. Additional conflicts of interest are caused by the existence of a Director clique.
No one wants a wild card. It's not surprising that their objective is to get along. Statistical analyses can go just so far in detecting links between Directors.
For directors, it is simply bad form to nitpick over a couple of million dollars with another member of the club, particularly one who helps set director fees or serves on the compensation committee of other corporations.
Even legendary investor Warren E. Buffett was not immune to the collegiality. He recently wrote to the Shareholders of Berkshire Hathaway Inc. A certain social atmosphere presides in boardrooms where it becomes impolitic to challenge the chief executive, he wrote. Buffett is reputed to be the best of the best! Thus, Shareholders have no reason to expect better representation from any other Director. Buffet, the best of the best, found it necessary to ask a subordinate multiple times about a sizable transaction and walked away without getting the "details.
Was he suspicious when he had to ask a second time? What about the third time? Did the subordinate still retain his job? Is there a letter of reprimand in the file? What does the subordinate say he communicated to Buffet? Why was the questioning of Buffet not done under oath? Well, since he was questioned by regulators, if the truth not be told, there is always the obstruction of justice route. Hopefully, Buffet does better where he serves in the capacity of a corporate Director.
After his talk with Mr. Ferguson wrote an e-mail to Joseph Brandon, then General Re executive vice president, describing the conversation with Mr. Buffet, saying that he asked Mr.
Buffet whether the deal was proper. Ferguson reported that Mr. Buffet said the deal was proper, but not by a large margin. Buffet told regulators that didn't happen.
Buffet told regulators that he asked Mr. Brandon several times whether General Re's accounting on the deal was okay, but didn't learn details. Did Ferguson want to know? If not, why not? Was a copy of the email transmitted to Buffet when it was written? Did Buffet read it and not respond? When did Buffet first question Brandon? What triggered the question?
If Brandon was not answering Buffet, perhaps Buffet could have asked his external auditors? On the other hand, if one is suspicious, why alert the external auditors to look carefully at what might be a minefield? Perhaps the issue of a Director's fiduciary duty to Shareholders was lost in an ethical haze? He stated, in part, "I've sat on enough boards and audit committees to understand the kind of culture of seduction that characterizes many boards. It's a game that many CEOs played and played well by seducing their boards with perks and private attention and contributions to favorite philanthropies, and meetings that were short on substance and long on fluff.
The boards became willing accomplices. And it's part of the American personality to go along and become more fraternal rather than more vigilant.
Levitt did all that board sitting before From to , as Chairman of the SEC, what did he do or attempt to do to cure the specific problem? Also, it appears that Mr. Levitt is claiming that it would be un-American to require Directors to be vigilant on behalf of Shareholders. Directors who served at failed companies may rate a red badge of courage and additional opportunities to employ their varied talents.
In some cases, however, companies have stopped passing on this information in proxy materials distributed to shareholders…. But what about the directors of companies like Enron, WorldCom, Adelphia Communications, Global Crossing, Waste Management, Tyco International and others who oversaw the implosion of hundreds of billions in market capitalization?
In many cases, they got better jobs. But many companies don't make it easy for shareholders to find out where their directors have been. Sprint Nextel 's biography for William E. Conway , for instance, mentions nothing about his stint at Enron. Thornton of Goldman Sachs Group Ford's, someone with whom he shares several friends and even more interests.
Thornton was appointed to the Ford board at the recommendation of the company's chief executive and chairman The lawsuit … said the chief executive and chairman, William Clay Ford Jr. The suit said Mr. Ford's acceptance of the shares was a 'usurpation of an opportunity that belonged to the company' After shareholders complained in late , the company formed a committee that concluded that Mr.
Ford had not acted improperly. Ford's purchase in May of , shares of Goldman Sachs, the largest allocation to an individual, drew attention after a lawyer for Ford shareholders wrote to the company's board, demanding an investigation. The shareholders demanded that Mr. Ford return any profits and pay damages to the company for the lost investment opportunity.
Ford bought the shares, Goldman's co-chief operating officer, John Thornton, sat on Ford's board. Ford had no significant say in the awarding of investment banking business.
They also said … that Mr. Ford had a long personal banking relationship with the firm. Ford probably claimed a tax deduction for his charitable donation. And, how does one determine that "no wrongdoing had occurred"?
Ford did not violate the non-existent policy. Therefore, "no wrongdoing had occurred. In some cases, 10 percent or more of all donations went to these organizations. Companies, directors and non-profits routinely stress the importance of philanthropy and say the donations don't affect board members' independence. Critics, however, say big donations can create a clubby atmosphere that may make directors less likely to aggressively challenge management.
Although foundations detail their donations in annual tax filings with the Internal Revenue Service, companies are not required to disclose most non-profit affiliations of their directors, making it problematic for investors to know the full extent of such connections. Farmer , the 87 year old chairman of the company Farmers, who are members of the board, along with other directors The coming-together will be at a town in Georgia where the main attraction is a 'gentleman's club' exclusive enough to garner members by invitation only.
Augusta National Golf Club, which openly and proudly discriminates against women, will produce its Masters Golf Tournament with considerable help from the masters of corporate America.
It also makes a mockery of board independence, now required to protect stockholders and the public from cronyism in financial dealings. The cronyism that perpetuates gender bias against employees is every bit as harmful, and ought to be stopped just as forcefully.
At nearly all other companies, a simple majority will do. Purcell will color their judgment in any way. Indeed, Morgan Stanley bankers, not to mention the dissident executives, have accused the board of coddling him. It is packed with former chief executives, many from the Chicago area, where Mr.
Some have golfed together; others have worked for one another. First, there is the Kraft connection. Miles, the chairman of the nominating committee and … recruited two former executives who worked for him at Kraft in the mid's: Then there is the McKinsey connection. Four directors were partners at McKinsey, the management consulting firm, as was Mr. And finally, there is the fact that a number of directors, notably Mr. Miles, serve together on boards at other companies.
Miles, for example, serves on six boards, including that of the AMR Corporation, where he serves alongside Mr. Brennan also serves on six boards, and Charles F. Brennan during his battle with shareholders. Miles and Kraft on its merger with Philip Morris, and he is now advising the independent directors at Morgan Stanley on a range of matters, including their strategy for dealing with their antagonists.
One point made by the retired executives is that until recently, no director - including Mr. Purcell - had ever operated a line of business for a securities firm. That set Morgan Stanley apart from nearly every other Wall Street firm. Partners have fiduciary duties to one another. So much for the concept that BODs have undivided loyalty to represent the interests of Shareholders! Who is watching the supposed watchdogs of Management? Do conflicts of interest disappear if they are disclosed to Shareholders who have no effective means to remedy the situation?
Purcell, their first call for help when to the superlawyer Martin Lipton. Lipton quickly donned a number of other legal hats - advising the board, Mr. Purcell and the company itself on tactics, legalities and, most controversially, severance pay to departing executives. Purcell stepped down, a compensation specialist at Wachtell, Adam D.
Chinn, in tandem with the board's compensation committee, draft the controversial severance packages that awarded Mr. Chinn's reputation for cobbling together generous severance awards for departing chief executives is such that the contracts are known as Chinn-ups. As a result of these payouts, the board has been sued by shareholders and received irate letters from institutional investors who have decried the packages as a violation of the very governance practices Mr.
Lipton was hired to improve. Purcell's leadership, many Morgan Stanley executives were never quite clear about Mr. Several said they frequently asked each other: Was he advising the board? The answer, people close to the board said, is that Mr. Lipton was, first and foremost, an adviser to the board. When it became clear that Mr. Purcell would depart, he hired his own lawyer to negotiate. While the very best governance practices would argue for the hiring of separate counsel on the compensation packages, time and confidentiality considerations led the board to stick with Wachtell.
Lipton for being an apologist for corporate management, that assertion misses the point - that Mr. Lipton's fiduciary responsibility is to best represent and advocate in support of his client's interests.
If Lipton represented only the BOD and, thus, the Shareholders, his fiduciary duty was to get the executive to leave for the lowest amount. It is fair to assume that he, at the least, did not discourage the BOD from appointing Chinn while knowing that he Chinn does Chinn-ups. Lipton and Chinn are members of the same law firm. Lipton probably benefits from each fee Chinn earns for the firm. The BOD tries to justify its act of hiring Chinn by claiming "time and confidentiality" considerations.
Does Lipton's rolodex contain the name of at least one competent non-Wachtell attorney who has a reputation for being parsimonious when dealing with executive payoffs?
Couldn't Lipton have asked Chinn for a referral? Did the BOD not know that attorneys, even non-Wachtell attorneys, have a duty to maintain confidentiality?
Purcell decided he should step down…. The tale serves as a caution for boards in an era when their role in corporate governance is drawing more scrutiny. The damage from delay when directors fail to spread their antennae widely is especially great at a Wall Street securities firm like Morgan Stanley, where the most valuable assets can walk out the door and never return.
At a mid-March board meeting, Laura D'Andrea Tyson , a former Clinton administration economic official who is dean of the London Business School , said directors should take the criticism of Mr. Purcell's record more seriously.
Tyson, calling her comment inappropriate … The board took steps to interview more employees. Knight, the director who had clashed with Ms. Purcell and didn't see any reason to discuss the matter since the board had already decided on it…. The attempt to cut off debate bothered some other directors, people familiar with the meeting say. Knight and Zumwinkel left, the discussion turned more freewheeling. Knight's conduct is reminiscent of that of a school yard bully who made it to the big time.
Institutional Shareholders do much "discussing an effort to out the directions," but, when push came to shove, they faded. Knight and Zumwinkel, who should be their first targets, need not lose any sleep.
Bostock , had a family connection to a hedge fund that does business with the firm. They generally worry that the indirect connections can impair the directors' abilities to serve as independent advocates for shareholder interests. Is this what is meant by "the ties that bind"?
If this is what Morgan Stanley does when it is under a corporate governance microscope, imagine what might occur when the spot light turns elsewhere business as usual. Yet during that time, the company's stock has slid 12 percent while shares of its archrival, Lowe's , have climbed percent.
Why would a company award a chief executive that much money at a time when the company's shareholders are arguably faring far less well? Two of those members have ties to Mr. Nardelli's former employer, General Electric. Nardelli's lawyer in negotiating his own salary. And three either sat on other boards with Home Depot's influential lead director, Kenneth G.
Langone , or were former executives at companies with significant business relationships with Mr. In addition, five of the six members of the compensation committee are active or former chief executives, including one whose compensation dwarfs Mr.
Governance experts say people who are or have been in the top job have a harder time saying no to the salary demands of fellow chief executives. Moreover, chief executives indirectly benefit from one another's pay increases because compensation packages are often based on surveys detailing what their peers are earning. To its critics, the panel exemplifies the close personal and professional ties among board members and executives at many companies — ties that can make it harder for a board to restrain executive pay.
They say this can occur even though all of a board's compensation committee members technically meet the legal definition of independent, as is the case at Home Depot. Langone's circle of friends and associates… [T]he Home Depot board decided … Mr. Nardelli, who had no retail experience, should become CEO. Nardelli might not hit one of the few performance goals the board had set to cause payment of a long-term incentive plan, the board lowered the goalposts….
More than a dozen U. Several factors are spurring such appointments, recruiters and management consultants say. Boards are quicker to fire poorly performing CEOs, often before potential internal successors are ready for the job.
Many of these companies have deep-seated problems, making it harder to recruit outsiders. And increasingly, there's a deep pool of outside executives in the boardroom. They contend that a chief chosen from the board signals cronyism and weak succession planning. A director's comfort with a colleague obscures 'a clear view of the individual's suitability to be a successful CEO,' says Richard Breeden, an activist investor and former chairman of the Securities and Exchange Commission.
Franks , the former chief of the Public Broadcasting System and the publisher of a Spanish newspaper would seem to have nothing in common — except for one thing. They all sit on the board of Bank of America.
But as they and 13 of their colleagues meet Wednesday to discuss how to steer the bank through its troubled merger with Merrill Lynch, they are likely to be united by something else: Their shareholder scrutiny has also turned an unusual spotlight on the oversight role played by the board members, many of whom were picked by Mr. Lewis from several companies that the bank, based in Charlotte , N. Bank of America's board is an eclectic group, and it will grow larger this week when it adds three members from the board of Merrill.
The bank's two most powerful directors, O. Spangler , are close to Mr. Lewis's predecessor, Hugh L. Lewis, only two people on the board — the former chief of FleetBoston and a former senior executive of MBNA — have roots in banking. While Wall Street is rife with tales of bank and brokerage directors who deferred to executives seeking faster growth through ever-riskier business, Bank of America's shareholder advocates have grown increasingly concerned about the board's ability to understand financial risks and rein in managers.
While critics charge that Bank of America's board has been little more than a rubber stamp in the empire-building campaign of Mr. Lewis, others describe it as independent and willing to push back against the chief executive. Its members are expected to vote Wednesday on the addition of three directors from Merrill Lynch Their approval would raise the number of board members to 20, and would tighten the web that already binds many of the board's current representatives.
Yet some board members are connected in other ways that reveal strong cross-pollinations with other company boards. Nothing could get the attention of Directors more than the prospect of being held personally accountable for their lack of diligence in performing their duties to Shareholders. Board members also acknowledge they are struggling to rein in bloated executive compensation, but are counting on investors to lead the cause to knock it down.
Those conclusions aren't a decade old, but are part of a recent survey from the consulting firm PricewaterhouseCoopers and the Corporate Board Member magazine , which culled responses of more than 1, directors at U. Directors still don't have as much control over corporate dealings that many believe is needed to curb supersized compensation.
While more boards are independent of management, there are still plenty of cases of directors using flawed judgment or kowtowing to demanding executives who are pushing their own agendas. Part of the problem, it seems, is that boards are still controlled by CEOs, with 50 percent of directors surveyed saying that board leadership flows from the company's top executive who is also board chairman.
Those individuals, therefore, set the agenda as well as the flow of information at board meetings and among members. In the area of compensation, two-thirds of responding directors believe that U.
Separately, a third believe that stockholders are the group most likely to get pay pared down. But it is hard to reduce pay when the directors themselves don't know how much they've even agreed to pay executives. Less than half of those surveyed said their boards use tally sheets to add up total compensation, and about one in five directors said that they didn't know what the CEO would collect if he or she is terminated, retires or should there be a change in control.
Among the bigger shockers in these filings are the tallies showing how much money executives will cart away if they are terminated or agree to a merger. Buried in these figures is one of the most contentious items in all of payland: Michael Kesner , principal at Deloitte Consulting in Chicago said, 'Boards are now just getting a sense of how big that number is.
If directors are surprised by gross-ups, you can imagine how stockholders will react. And given how ubiquitous gross-ups are -- surveys say 75 percent of chief executives have such arrangements with their companies -- the shocks could be far and wide. Training the spotlight on gross-ups may help stamp them out. As long as they were kept under wraps, directors didn't have to justify them to angry shareholders. Six days later, its chief executive, E.
Underlying the situation at Merrill is the nagging question of what a Wall Street board is expected to know about complex financial markets where asset values can shift drastically and where many directors are not in the business of managing trillion-dollar balance sheets — or perhaps have little experience in doing so. Directors should know what independent risk controls are in place, who is overseeing that function After every market crisis Case law, lawyers say, has affirmed that directors have to be informed and make sure that obvious red flags are not ignored.
There were certainly some red flags waving in front of directors. One issue should have been the revolving door of talent in the upper echelons of the firm And, like everyone else, directors knew about the bank's very public shift into riskier business areas, which until this summer were delivering handsome profits.
Merrill had become the top issuer of collateralized debt obligations in the marketplace, and its profitability soared; fixed-income revenue in the second quarter was up percent.