Trying to Turn Up the Heat on Boards

Posted by: Nanette Byrnes on April 1, 2009

Million dollar AIG bonuses and CEO grillings on Capitol Hill make the headlines, but one root cause of the breakdown in corporate governance has gotten scant attention, and that’s the board of directors. Though responsible for both executive compensation and enterprise risk, this group has yet to bear the brunt of public outrage.

The AFL-CIO, AFSCME and the Treasurer of the State of Connecticut are now trying to stir some up. On March 31, the trio of investors sent a joint letter to Jill M. Considine, Chester B. Feldberg and Douglas L. Foshee, trustees of the government’s $85 billion stake in the insurer, asking them to withhold support for the AIG director James Orr III at AIG’s upcoming annual meeting. Orr is a long-serving member of AIG’s compensation committee.

“It is incumbent on you to send a very clear message that the decisions made by the committee were wrong and an inexcusable misuse of corporate assets,” they write. They also want the government to disclose its vote publically.

If the AFL-CIO actually succeeds in getting Mr. Orr off the board, it will be a rarity. New York data-tracker Liberum Research reports that director turnover was down 37% in February.

That’s frustrating to investor activist Nell Minow of the Corporate Library. “It’s unbelievable to me that these people are still sitting on these boards,” she says. To Minow, excessive executive compensation is just the symptom, “bad boards are the disease.”

Reader Comments

Richard Jacovitz - Liberum Research

April 1, 2009 5:32 PM

Nanette,

You are right on point. Directors deserve a great deal of the blame. For far too long they have been giving top management, particularly CEOs free rein. Unfortunately, except for a few rare occasions, directors continue to defer to top management.

Just to add to the February changes in Board of Directors, Liberum's totals for March 2009 remain sobering as well. March 2009 board of director changes declined 30% from the totals registered by Liberum for March 2008. Let's hope directors begin to take their responsibilities more carefully.

Forrest Breyfogle

April 1, 2009 11:31 PM

Boards need to require that companies use an overall generic system for management governance that is no nonsense and blends with healthy policy creation scorecards, strategic planning, business improvement activities, and control so the overall enterprise as a whole benefits. However, this is not being done.

The common-place business practice of setting strategic goals, quarterly targets, business unit objectives, quotas, bonuses and incentives for performance can lead to very detrimental behaviours. Our current management system is broken and needs reinvention now!

A system to accomplish these objectives is described by the American Management Association (AMA) in a 2008-2009 winter issue article. This article (http://www.smartersolutions.com/blog/forrestbreyfogle/?p=711) describes a system that can become the foundation for the making of good, healthy analytical determined organizational decisions.

Boards can then oversee CEOs and other executives who implement this system and become the conductors of an orchestrated, no-nonsense system that is long-lasting through leadership change.

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