This minor grammatical faux pas is the worst thing about the article. The lack of over-the-top stridency is the second: a legitimate choice while highlighting the issue sharply.

Boards of Directors ultimately have responsibility for Corporate Governance — compensation, business strategies, financial profile, ….

Wittingly or otherwise, these gentlepeople have allowed big banks and other firms to lever up risks to the moon, knowing that all they, and shareholders can lose is 100% of the money still in the firm — and a Too Big To Fail institution won’t lose that. I know it’s easier to look at the monster bonuses in the ranks, but here are the people who thought it in shareholders’ best interest to pay them.

In other words, here is ground zero of the breakdown, in the Boardroom. These guys get big insurance policies covering their being sued for malfeasance, and yet such suits almost never happen. Nobody looks at the “take the money and run” terms on Directors’ comp.

Ha ha ha, ROFLOL! Good luck with that one fellas!

Thank you for sussing this: Adam Smith pointed out the critical flaw in ‘joint-stock’ companies over two hundred years ago:

The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.

that is the underlying Thesis/Point v. Disintermediation.

crosey , adds: “Simplest solution….vote with your dollars. If you’re sick of the big boardrooms, find a smaller equity opportunity. Dinosaurs, without food (capital), will perish.”

It’s exactly Correct, There’s an Election — Every Day — that shapes You, and the World you live in..and We, each, and every, conduct it–by our conduct.

Simply put, board members and senior officers of public firms should be accountable for their actions and especially to shareholders. Good ol’ boy networks obviously get exploited potentially at a cost of shareholder value. It doesn’t seem that it would take much to make the case that there was a lack of governance and a even breach of fiduciary duty. Until officers and senior execs are criminally negligent and actually tried and convicted, I’m not sure much will change.

“….except for maybe big institutional investors- i don’t think most shareholders care- they are just “renting” the stock anyway-

no long term concern or vision of the company if you just hold a stock a few minutes, a few days or a few months…”

And how did that situation come about? Not thru the actions of shareholders, for sure. It was the dereliction of the Boards that has caused the mess for nearly every company in dire straits in the past and currently. When we see how a company with $260,000,000,000 in sales like GM can go belly up, and the Polaroids, Florsheim, and hundreds if not thousands of companies falling out of bed due to management that sucks beyond belief what incentive is there to now hold them for very long?

My dad used to hold stocks for decades and they did well. Until they didn’t. One I tried to talk him into selling back in the early 80s, when “the Board” passed a poison pill clause, ostensibly to protect the shareholders from a hostile takeover. I told him this was being done to protect the CEO solely. After that the stock languished for 10 years and fell to nearly what he paid for it in 1969 in last year’s crash.

Icahn may be a lot of things but he knows the shenanigans in upper management like the back of his hand.

I believe most comp consultants use performance (ROIC, ROE, ROA, etc.), intermediate (2-3 years) as well as long term (5+ years) payouts as the proper way to pay management, but most management teams & boards don’t pay attention to their findings/suggestions.

On another note. I am pretty certain an 1100+ page piece of legislation (as the one proposed by Dodd) will only exacerbate the current problems; how heavily gamed is the magnus opus?

I believe that some major culprits, that have so far gone unmolested in this ongoing crisis, are institutional shareholders (Mutual Funds, Pension Funds, etc.) These “professional” money managers (maybe if we started calling them asset aggregators I would be willing to remove the quotes from professional) rarely raise any objections to how management/boards run a company. Look at any component of the Dow 30 and you will see the major holders (i.e. Mutual Funds & other institutional players) hold 65%+ of these companies. The Mutual Funds, particularly, have been able to sneak through this crisis with very little criticism, yet they have completely dropped the ball when it comes to the due diligence they are supposed to perform.

Lastly, Carl Icahn has simple solution that could help. Icahn’s solution seems as though it could be a one line law (not hard to game that.) He is calling for a federal law that allows a simple majority to move a company’s incorporation to another state (i.e. a shareholder friendly state.) This makes some sense and it’s easily repealed if creates any real chaos.

Regards,
TDL

Icahn’s editorial from February.
http://online.wsj.com/article/SB123396742337359087.html

BATTLE FOR THE SOUL OF CAPITALISM by John Bogle (founder of Vanguard)

A good read. Bogle says we have moved from ownership capitalism to managerial capitalism where companies are managed for the benefit of management not the owners. Can you believe it. He also gives his recommendations on what can be done to fix this cockeyed system.

Until this changes insiders (boards, upper management etc) will continue to make hundreds of millions (like the CEO of Lehman did) all the while managing the company into the ground. What a system, what a country.

Simplest solution….vote with your dollars. If you’re sick of the big boardrooms, find a smaller equity opportunity. Dinosaurs, without food (capital), will perish.

Directors, CEOs, all the usual suspects move around within the S&P 100. Few new ideas, other than a variety of entrees on the clubs’ lunch menus.

Come to think of it, maybe we’ll get hit by a financial asteroid, the dinosaurs will ebb, and a more vigorous species will flow.