Magazine

Where Should the Buck Stop?


Our May 6 Cover Story, "How to fix corporate governance," drew a wide variety of reader comments relating to executives, boards, shareholders, auditors, and lawyers, plus many additional suggestions for reform. "How to fix corporate governance" misses the point. A competent leader is responsible for the organization and responsible to its owners. If leaders are doing their job, then disasters such as Enron cannot occur. Competent leaders would not allow the topics you mention--accounting, executive pay, the board, and leadership--to be handled in a way that is not accurate, equitable, responsible, and effective. External solutions such as changing or adding rules will not improve the internal leadership, nor fix, in any meaningful terms, the problem.

Tom Rancich

Vineyard Haven, Mass. Your suggested remedies do not go far enough to eradicate the now deeply implanted feelings of CEOs that they must become centimillionaires or billionaires within a few years and that anything else is of secondary importance. The federal U.S. corporation laws must be changed in a hurry [to] either abolish boards or ensure that board members are solely nonexecutive outsiders, including the chairman. Only shareholders should be able to submit candidates and appoint the directors. If boards exist at all, directors should serve for a maximum of five years, and CEOs must step down after seven years. And whether a board exists or not, the CEO and CFO should be personally responsible for the accuracy of financials and should be liable to the company if they have exceeded the prudent man's rule to be interpreted in a narrow manner.

Heinz L. Gundlach

Palm Beach, Fla.

The suggestion to limit boards to two insiders may be a major improvement for some companies, but there should be no insiders serving on boards of directors. Granted, the president and CFO must attend board meetings to provide necessary information, but they should not and must not be voting members.

Joe Colmie

San Diego

The chairman of the board and the CEO should never be the same person. There should be no more stories about "Chairman" and CEO Jack Welch designating a new "Chairman" and CEO Jeffrey Immelt.

Eric J. Evans

New York

I applaud your cover story but found your punitive recommendations for reforming corporate boards disheartening. While too many of the bad actors you cite (top executives, auditors, analysts) are tempted by huge financial gains, even today's best-paid board members make tip money by comparison.

The directors I work with have not shown themselves to be the clueless, sleepy CEO lapdogs painted in your criticisms. Instead, they are aware, active fiduciaries, frustrated more than even the most vocal investor activists over the built-in failings of our current system. Too little time for governance, too little information, and a conflicting, ever-growing job description leave even the best boards outmatched by management. Without a total rethinking of the nuts and bolts of how boards function, directors will remain hopelessly outclassed amateurs competing in a professional league.

Ralph D. Ward

Riverdale, Mich.

Editor's note: The writer is publisher of Boardroom Insider newsletter. Generally accepted accounting principles (GAAP) are a moving target, subject to constant lobbying pressure by business, labor, and politicians. What is needed is a simple, unambiguous opinion by the auditor that [a company's] financial statements are a fair presentation, in all material respects, of its financial status. Presumably the "independent" auditor's opinion as to fairness cannot be subverted by these groups.

George Barratt

Rancho Palo Verdes, Calif.

The recession gave many firms an opportunity to clean up their books following years of accounting gimmicks. But this is only a momentary reprieve. Eventually the market will have to accept that uncertainty is a part of business and adjust its expectations for risk accordingly. Then CEOs could be more honest about earnings and not be put in the position of engaging in period-to-period tactical manipulations of earnings in order to dodge short-term risk.

Robert M. Wisman

East Lansing, Mich. The individual investor, having been sandbagged by the corporations and the analysts, is sitting on his hands. You refer to "shame" in "Corporate Governance: The road back" (Editorials, May 6) as possibly an effective method for getting us back on track. I'm afraid our current culture doesn't put much stock in shame. Money and power are the goals of our time, and remorse is for the fainthearted. It's going to take more than legislation or "bully pulpits" to rebuild public confidence in American business and the securities markets.

Melvyn S. Rifkind

Encino, Calif.

Executives have access to information concerning the future prospects of their company that analysts and investors do not have. Put any spin on this that you wish, but this is indeed a form of insider trading. Some regulations and company policies allow upwards of 120 days before publicizing these transactions. This puts investors months behind in knowing when material activity is affecting their investment. Given the opportunity, I'd sell my options at known peak prices, too.

Murray Hawthorne

Utica, N.Y.

As mutual funds accumulated larger and larger percentages of stocks, the controls of stockholders decreased. Funds are interested only in price appreciation, and show no signs of fiduciary responsibility. This leaves management free to operate in its own interest. If one were to ban fund voting and count the votes only of individual stockholders, you might get a better picture of stockholder opinions.

Robert Miller

Elmhurst, Ill. As a graduate in literature of Bard College and as a lawyer who specializes in executive compensation, I would like to set the record straight about an often misconstrued and misquoted concept of Plato.

Simply put, Plato's concept was that no member of society (i.e., property owners) should amass or possess more wealth (i.e., property) than four or five times the wealth of the lowest member of such society. This related to politics, power, corruption, and general societal "checks and balances" in ancient times. If this concept were applied today, then the compensation of not just CEOs but also of entertainers, politicians, athletes, writers, artists, inventors, etc. should be added to the mix.

Stewart Reifler

New York In my corporate career, the attorneys both in-house and outside were expected to step up to management if they felt a corporate action was wrong, whether ethically or legally. In that respect, their role was more important than that of the auditors. Where were they? Surely, they knew what was going on if they drafted the partnership agreements, wrote 401(k) instruments, and approved the executive contracts.

Tom Potts

Houston

Lawyers are not hired by business to protect shareholders but to protect management with the perennial concept of "defensible positions." Auditors feel that making reference to the fact that they are using data given by management in good faith is sufficient to validate. We do not need new laws or more oversight. What we need is accountability, hard jail time for violators, and rigid enforcement of the rights of shareholders.

Juan A. Vega Sr.

Coral Gables, Fla.


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