Posted by Carl Icahn September 17, 2008 : 3:48 PM
With the monster financial meltdowns of the past month, the time has clearly come for shareholders to exert their rights and bring about major changes in corporate governance in America.
I intend to use this blog as a forum and a focal point to push for legislative changes to make corporate managements more accountable to shareholders, who are the true owners of America’s corporations.
I don’t claim to know what went on inside the boardrooms of these companies. However, based on my close involvement and knowledge concerning how many boards operate, it is difficult to see how one could reach any conclusion other than that the boards of directors of a number of these imploded financial firms utterly failed to successfully implement some of their primary tasks - to oversee management and monitor and evaluate risk controls.
This is unacceptable and intolerable. The financial pain and job losses these meltdowns have caused is now reverberating through the economy and this will likely continue for months or even years.
What has transpired in recent weeks with Lehman Brothers, AIG, Fannie Mae, Freddie Mac and Merrill Lynch is shocking. The dominoes keep falling on Wall Street from a mismanaged credit crisis, causing economic disarray, huge job losses and pain on a global scale.
In each case, the root cause seems to be excessive risk-taking by managements, or worse, managements that weren’t sufficiently aware of the risks their companies were taking and how it may impact their businesses.
Who was supposed to be watching these managers? Where were the boards of directors that are supposed to be overseeing these executives? I’m not going to judge the individual boards of these companies in what they did or should have done, but consider the following.
All too often compliant boards are intimidated by managements in their cushy, well-paid worlds and refuse to rock the boat by asking hard questions and demanding CEO accountability. Why is this so? Because of excessive board compensation and allegiances to those who provide it.
A new study shows that total remuneration for directors at the top 250 U.S. companies has risen 22% over the last three years. Many large companies pay board members almost $10,000 a week and what do these members do? In many cases, their job is simply to attend four to five board meetings per year.
Total director remuneration at the largest American corporations is running over $1,000 per hour, according to the study by Steven Hall & Partners. With many U.S. corporations struggling, why are we paying board members all this money? Lehman's board members, for example, were paid just short of a half million dollars each last year.
Given the massive bankruptcy filing at Lehman, I would appreciate it if someone would advise me of what those board members did to deserve that compensation? Can any board member of these collapsed financial institutions claim to have truly monitored the risks their companies were taking? Did any of them speak up? We may never know, but the effects of their action or inaction is apparent.
Maybe the loss of these cushy board seats and compensation packages will be a lesson to board members everywhere. What did they do to prevent these great ships from going down? Were they enjoying lavish lunches and fine wines in the officers' dining rooms or were they on the bridge challenging the captain? Or was the captain even there?
If the boards did their jobs, many of the problems today would probably not exist. Unfortunately many boards have failed miserably. (Just count the corporate jets at the Superbowl or at Augusta.) Boards fail because of a pernicious symbiotic relationship between members and the CEO. Amazingly, in many cases board members are afraid the CEO will terminate them if they are too critical.
I’m not the only one attributing events of the last week to a failure in corporate governance. Dealbreaker’s John Carney spoke about it in a post as did Larry Ribstein of Ideoblog. Even John McCain and Barack Obama have expressed concern. "I warned two years ago that the situation was deteriorating and was unacceptable, and the old boy network … is directly involved," McCain said. Said Obama, "This isn't 9/11. We know how we got into this mess. What we need now is leadership that gets us out."
Why are we paying boards so much to oversee CEOs who are doing a terrible job? To be a board member is a job- not a privilege - and board members should be compensated according to their performance. To continuously increase boardroom pay for dismal performance is outrageous. But more preposterous is the fact that boards allow so many of our companies to deteriorate.
It is time to stand up. Join the blog and join my cause.