When I was young we had to rotate the dial on the telephones.
Climate is not the only thing that changes!
The Captain
Yes, some people really do have “the vision thing” going for them, and many of these visionaries are not very good businessmen, and the company fails. William Durant assembled General Motors, and pretty much invented the modern concept of car dealers, but he overextended, and was forced out of the company. It was Alfred Sloan who made GM what it was in the 50s and 60s.
A mistake is “oops, should not have done that” and taking corrective action. Policy is doing something, year after year, decade after decade, intentionally. Does the Board have a responsibility to ensure the sustainability of the company, for the benefit of all it’s stakeholders? Or is the Board’s responsibility only enriching the CEO, to the detriment of the other long term stakeholders?
Steve
3 Likes
I got that. The problem I have is that no one is providing specifics. I’m sure what you say happens, what I am not sure about is how frequently it happens. That’s the info I am curious about. I’m not convinced that irresponsible Boards of Directors are the reason for the perceived increase in market volatility as seems to be implied in this thread.
What companies do you believe have Boards that are acting irresponsibly as you describe?
I have served on two boards (non-profits). Both had an audit committee. Both had a compliance committee. There were plenty of others, and yes, we got into the minutiae of how the organization worked.
Perhaps not “day-to-day”, but we knew if the CEO was honest, we knew if the policies being followed were ethical, we knew if there was shady-stuff going on with the fund raisers, with harassment, with management.
I am not saying that all of these corporate disasters would have been prevented (I listed well over a dozen) by have a more independent board, but I suspect when Nardelli broomed most of the HD board and replaced them with his buddies that there was no one to say “Hey, does getting rid of the knowledgable staff make sense?” I would think somebody paying attention at Wells Fargo might have picked up on the ginormous number of fictitious accounts (and complaints thereof) being opened for no apparent reason. I’m hoping that somebody might have said to Sam FTX, hey, maybe you shouldn’t be spending a billion dollars on houses in Bermuda that nobody uses except to party.
That’s what a board does: it pays attention. Maybe the answer is to deny a couple of claims of Errors & Omissions for board members to get their attention: they’re being paid to represent the shareholders , not the guy in the C suite.
5 Likes
Keep in mind that all my comments come from ignorance on this issue.
My impression of a Board of Directors is that it is not like a regulatory agency that looks for violations. The Board pays attention if it has a reason to, like if company performance is problematic in an area. But if VW diesel vehicles are passing the emissions tests as expected, why would they investigate for cheating?
That objective may be part of the problem. I suspect that Board of Directors often find out about a problem after the fact. They are then faced with the choice of dealing with it openly and watching the stock price tank, or covering it up and hoping no one notices enough to affect the stock price. Which option is in the best interests of the shareholders? That’s not obvious.
Perhaps it should be explicitly stated that the top priority of the Board is to make sure the company behaves ethically, with shareholder interest secondary to that.
As a first criteria, any company that claims to be making profits, but equity falls, year after year, due to stock buybacks. I started barking about that going on at Boeing, long before their planes started falling out of the sky and the shoddy build quality came to light. A lot of companies fail that test, including Honeywell and RTX. Another governance criteria I look at is if officers of the company are on the Board, especially the CEO as Chairman, as the conflict of interest is obvious. I have told the story before of how long time Tandy Corp Board member Jessie Upchurch started complaining about the performance of CEO, and Chairman, John Roach. Upchurch was removed from the board by the simple expedient of not being nominated for reelection. Another Board member, and Roach critic, had been pushed out of the Board a year earlier.
I met Roach, saw him in action. The guy came across as a moron, but, clearly, he was skilled at office politics. He oversaw the Board, rather than the Board overseeing him.
Interesting TIkTok about the cereal aisle. The creator goes down the aisle and colors the cereal boxes by corporate owner. Pretty much everything is owned by General Mills, Kelloggs, Post, and Pepsi.
He then asks who owns these corporations and concludes the cereal aisle is really the Blackrock, Vanguard and Kellogg foundation aisle.
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Denny,
Totally agree. We need liquidity.
Fools and money must be parted.
Carry on! But without me. Meaning rallying the fools makes one a fool.
Conservative Leaps!
Yes it is different clienteles in the marketplace.
It is a service to those who have assets when they go to sell. That is all I am after.
Didn’t you say something earlier about the dangers of democratizing media and such?
Would that be irony?
2 Likes
Only if I make investments based on what is written here. Otherwise it is just making conversation.
I’m sure that’s true. OTOH, part of the duties are to insure the CEO (and corporation) are doing the right things. For instance, if employees are being treated badly, unions form. If unions form, competitiveness may suffer. If competitiveness suffers, share price will be hurt. Therefore it is in the interest of everyone for the Board to be involved in all aspects of the company’s performance.
Now that doesn’t mean they are responsible for everything that goes wrong, but they should be alert and aware of the internals of a company, not just “is the share price increasing” and “is the CEO happy.” Unfortunately, with the CEO appointing the Board, there is an obvious conflict of interest, and no one is doing anything about it, with the exception of raiders and greenmailers who raise a stink and try to secure board seats to push the CEO into doing things he probably doesn’t want to. Even with that, they are usually focused only on very short term (read: cost cutting) fixes and generally care less about the long term health of the enterprise.
I think I it’s obvious that finding a problem earlier would have saved Countrywide a world of hurt. If the audit committee on the Wells Fargo board found out about the millions of phantom accounts *(perhaps by comparing “new accounts” with “money deposits”, a fairly simple exercise) there would have been a short term dip but not a wholesale scandal. Possibly if a less-than-sycophantic board had pushed back on Nardelli’s not so brilliant ideas Home Depot wouldn’t have had a lost decade.
Also, I am first to admit, maybe not. But it’s clear there were massive Board failures in all of the above; how many more are flying just under the raider because of the system that remains in place?
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Was the past any better than today? I wonder. A quick Google led me to a Harvard Business article about how Boards firing and replacing CEOs have historically been remarkably ineffective. The main reason being that the typical Board lacks the expertise to make a good hiring or provide oversight. Note that this article was written two decades ago, so it is a description of past Board of Directors. Sounds no different from what you folks are describing today.
The blame for the poor results, my research indicates, lies squarely with boards of directors. Boards often lack the strategic understanding of the business necessary to give due diligence to the CEO selection process. Consequently, they rely too heavily on executive search firms, which are even less informed about the business than they are. Concern over restoring investor confidence quickly—rather than doing what’s right for the company—drives the selection process. And board members’ ignorance about the factors that drive company performance undermines their ability to provide strategic oversight after the CEO is dismissed. While boards have become accustomed to firing CEOs, they have not yet become adept at making the dismissals pay off.
The researcher goes on to say:
The sad fact is that few board members fully understand the businesses they supposedly oversee. In good times, they attend quarterly meetings, absorb the reports that the CEO prepares, give their approval to strategic initiatives, and leave. The CEO screens all the information they receive and controls the meeting agenda, which means that board members are unaware of many of the complex challenges the company faces and lack sufficient information to actively question the firm’s direction or performance. Many critical decisions are never aired before the board. Directors rarely hear about the fierce disagreements over strategic direction that take place among members of the management team, for example; they hear only what the CEO wants them to hear after the disagreements have been resolved.
If this is standard operating procedure then Boards of Directors are not designed to handle the responsibilities they are given.
Twenty years ago was 2004. Jesse Upchurch was tossed from the Tandy Board for criticizing the CEO’s performance in 1997. In 2004, I wrote the “General Rants” about redistribution of wealth and theocratic police states. The trends we are discussing were already well established twenty years ago.
Steve
1 Like
That is kind of my point. The title of this thread is that Corporate governance doesn’t work any more. I am suggesting it is no different today than it has ever been. For example, I found this statement from a 1972 Harvard Business Review article:
“In addition to the qualifications of prestige titles in prestige institutions—both business and academic—outside directors are selected because they are noncontroversial, friendly, sympathetic, congenial, and because they understand the system. Boat-rockers and wave-makers generally are not the choice of presidents with de facto powers of control and with freedom of choice as to who should serve on their boards.”
The President and the Board of Directors
1 Like
Indeed. I remember one of my Tandy Corp proxies, in the 80s, having a management proposal up for a vote to amend the corporate bylaws so that all the members of the Board would be shielded from personal accountability for their actions as Board members. Clearly, considering what happened to Upchurch a decade later, the "shield’ was only against shareholders, customers, and low level employees, not against a CEO who they dared to criticize.
You would think that, given the abuses perpetrated by the honchos at Worldcom, Enron, Adelphia, and Tyco, you would think Board members would be required to perform their job, as representatives of the shareholders, to see to it that the CEO did not abuse his position. Nope. If anything, Boards today are even more willing to look the other way, as the CEO hollows out the company, to enrich himself.
Steve
Read my recent post on Boeing manufacturing problems.
intercst
I donno Steve,
A friend of mine working with an insurance company out of the Midwest just got an HR call. He is in CT running a marketing operation here. Turns out the executive VP overseeing him was pocketing his territory’s marketing funds. Obviously, they figured it out at HQ.
Basic honesty internally either exists or does not. The Exec VP probably has kids. He is about to be out on his rear.
That was an executive VP, not the CEO. A few days ago, I heard an interesting comment, how so many crooked CEOs walk away, not only free, but with all the money they stole, and some don’t. He said the difference was, the ones that were convicted, like Bernie Madoff and another “thought leader”, stole from banks and financial companies, rather than their own employees or small shareholders.
Example, a “university” fraud, where Proles lost their money, was settled for $25M, while financial companies, whose loans were paid back in full, but information on the loan applications was false. are due to receive 15 times what the Proles who actually lost money received.
There was a recurring theme in shows like “Magnum PI” where dead bodies start showing up. What is going on? Someone stole from the mob.
Steve
I thought Elizabeth Holmes was on the board of Theranos.
Theranos founder Elizabeth Holmes begins 11-year prison sentence
News Flash:
It might matter if the major shareholders are hedge funds with short-term outlooks. A Board member concerned that the 30% returns from subprime mortgages was too risky over the long-term might very well be voted out.
What constitutes the “best interests of the shareholders” may be in the eye of the beholder.