One of my pet peeves has been the cronyism on Corporate America’s Boards of Directors. As I noted in Bailout Nation:

“But don’t for a moment think their terrible track record had a negative impact on their compensation. Despite their performance, these CEOs were paid as if they were enormous successes. The compensation figures that follow are enormous; that they were paid for such abject failure is a national embarrassment. It is also an indictment of three major corporate governance issues that have not been discussed widely enough.

The first is the crony capitalism that was rife in boardrooms across the United States. The cronyism of major corporate boards, especially those in the finance area, has become legendary. Rubber-stamp directors who rarely buck the chair man or challenge the CEO are unfortunately all too common. These boards did not serve either their companies or their shareholders well.”

That was all I had space for regarding criticizing Boards of Directors — barely more than a paragraph. It is a topic worthy of its own book.

And now, that book is here: Money for Nothing: How the Failure of Corporate Boards Is Ruining American Business and Costing Us Trillions by John Gillespie and David Zweig.

From the Sunday NYT Business review:

IT sounds like good work if you can get it, and thousands of people in corporate America do. On average, they attend 8 to 12 meetings annually. Although they are supposed to have fiduciary obligations, they often appear simply to warm their assigned seats, and to raise their hands when their leader calls for a vote. For that, they can receive as much as $640,000 a year . . .

“Underworked, overpaid corporate boards are doing serious harm to the shareholders of public companies and the economy. In the wake of the global economic debacle, the name of the game for authors of business books is assigning blame. Many recent books have pointed accusatory fingers at the problems of specific firms like Bear Stearns, Lehman Brothers and Fannie Mae, and of certain executives.

But “Money for Nothing” casts a much wider net, blaming the financial crisis on a systemic collapse of corporate democracy caused by the failure of many if not most corporate boards to simply do their jobs. “The boards were supposed to monitor risks, provide judgment and supervise managers on behalf of shareholders,” Mr. Gillespie and Mr. Zweig write. “Boards, at the very least, should have acted in the classic sense like a governor on an engine that measures and regulates the machine’s speed and, if necessary, turns it down to keep it from blowing up.”

They devote an entire chapter, “The Myth of Shareholders’ Rights,” to showing the heavily lopsided power of corporate managements in board elections and proxy votes. And they explain why so many companies incorporate in Delaware, where state laws exempt corporate executives — and directors — from financial liability for their actions.”

I could not agree more.

Being a Director of several small firms, I have learned quite a few things about BofDs. On the one hand, it is frustrating when you are unable to respond to certain criticisms due to the need for secrecy (for strategic or litigation reasons). But for the most part, it is a very interesting experience — working with very smart and experienced people, getting an education in all manner of legal/accounting/regulatory issues, watching how some CEOs can execute well. Oh, and it is also potentially lucrative, though I have yet to enjoy any windfalls from my board seats. (One day, I will write up those experiences, warts and all).

To fix the problem, I go even further than the authors of Money for Nothing do –  I would assign a fiduciary obligation on the parts of the big institutional holders of stock (on behalf of the actual owners): The mutual funds, pension funds, CALPERS, etc. I would assign an actual obligation to vote the shares (most don’t now), and mandate they perform true analyses of all board candidates. Mom and pop do not have the time, expertise or ability to analyze  and vote on every director for every stock they own. Put the burden on those who do have the staffing and ability — the mutual funds.

Lastly, the asset management needs to be separated from the business side — so mutual funds don’t whore out their clients (the investors) when pursuing 401k business and free money like syndicate/IPO.

The bottom line: A Board seat  is serious business, and most of America’s directors have done a lousy job discharging their duties.

>

Source:
Taking Away Directors’ Rubber Stamps
HARRY HURT III
NYT, January 16, 2010
http://www.nytimes.com/2010/01/17/business/17shelf.html

Category: Bailouts, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “Failure of Corporate Boards Is Ruining America”

  1. Fix the Boards – Fix the System, January 13, 2010

    Money for Nothing: How the Failure of Corporate Boards Is Ruining American Business and Costing Us Trillions by John Gillespie and David Zweig begins with a story familiar to just about everyone on the globe — corporate and economic collapse brought on by greedy CEOs. The authors look behind the headlines to reveal and document the systematic failure of corporate boards who are supposed to look out for shareowner interests but are still too often picked by the very ones they are supposed to advise and monitor… the CEOs.

    It is time boards stopped being the CEOs friend and instead took on the role of the CEO’s boss. After a thorough examination of the issues, documented with an abundance of real-life examples, Gillespie and Zweig close with a list of recommendations that could go far in changing the culture of the boardroom, strengthening accountability, reducing conflicts of interest, and getting shareowners involved. In a very abbreviated form:

    - Create a new class of public directors and a training consortium
    - Insist of gender, ethnic, and perceptual diversity
    - Limit directors to three or fewer boards and require substantial “skin in the game”
    - Initiate more communication between directors and shareowners
    - Split chair/CEO roles & learn lessons from nonprofits
    - Allow 10% of shareowners to call an extraordinary general meeting
    - Add clout to say-on-pay, reform executive compensation, and shareholder approval of golden parachutes
    - Ban staggered boards and require majority votes elections
    - Proxy access for shareowners, daylight nominating & election processes, & require real board evaluations
    - Require board risk committees & empower boards to gather independent information
    - End conflict of interest in mutual fund voting by allowing third party voters per Investor Suffrage Movement
    - Reform voting mechanics to end manipulation by management
    - Reform auditor business model & Fix “up the ladder” provision of SOX
    - Reform rating agency model, fully disclose lobbyist expenses, provide real funding for SEC enforcement
    - Federalize corporate law
    - Better coverage of governance issues by the financial media
    - Better financial education, including how corporate governance works

    Gillespie and Zweig hit all the bases for a solid home run. They tell us how the game is fixed and how the rules can be changed to play fair. After all, shareowners own the “ball” and all the other equipment. Will we listen? Even more importantly, will we act? The authors have even set up a website. Take a look; give it a read; ACT!!

  2. nweaver says:

    I wonder if this is yet another reason why Berkshire/Hathaway is so unusually successful.

    I remember a few years back in the letter to shareholders Warren Buffet was saying about there board. From the 2004 Letter to Shareholders (where he was decrying the sad state of most corporate governance):

    Measured by the biblical standard, the Berkshire board is a model: (a) every director is a member of a family owning at least $4 million of stock; (b) none of these shares were acquired from Berkshire via options or grants; (c) no directors receive committee, consulting or board fees from the company that are more than a tiny portion of their annual income; and (d) although we have a standard corporate indemnity arrangement, we carry no liability insurance for directors.

    At Berkshire, board members travel the same road as shareholders.

    (Page 23, 2004 letter to shareholders, http://www.berkshirehathaway.com/letters/2004.html )

  3. bmoseley says:

    another major problem is the so called ‘independent’ consultants regarding CEO compensation. the consultants just move from one high recommendation to the next. who’s going to hire a consultant who will recommend a low compensation.
    it really is sick.

  4. torrie-amos says:

    come on, this has been going on for 30 years, back in the early 80′s the board simply wanted to make the money that big turn around firms, or green mailers, or big start up funds did, they thought to themselves, why should we allow them too prosper off of our inability too change when we utlimately have control of the coffers, thus, a game of one-upsman started, who could take bigger and bigger bonuses to outpace the risk guys with no risk to them

    a mindset developed of those at the top, they will take a big cut no matter what the outcome, and an even bigger one in good times

    buffet is an oddity, a man of integrity………….he came from small midwestern background and his investors were his neighbors, he saw them all as equal

    the alpha male has no equal

    buffet is successful because he chooses partners carefully and he went all in at the 74 low with the biggest brand names with the longest history of earnings

  5. willid3 says:

    but isn’t the board of directors suppose to be the shareholder representatives? even thought they don’t pick them. management does. it essentially destroyed the corporate democracy . made it more of a myth than reality. and if you have ever owned stock and voted you discover you have almost no control over the company. none. which is probably why stocks tend to be sold as assets of their own and not as control for the company.

  6. Marcus Aurelius says:

    There is also a huge inequity in classes of stock (common vs. preferred). Most, if not all of the problems addressed in BRs post would be minimized if there was only one class of stock allowed by law, and that stock carried one vote per share. This is the only condition under which the ownership of a corporation become truly democratized.

  7. call me ahab says:

    “A Board seat is serious business”

    that’t a good one- and here all along I thought it wan an honorary position that comes w/ a sizeable stipend- for favors past and present-

    and of course for favors yet to be

  8. km4 says:

    Having worked for a board member of a F500 company I also could not agree more.

    “It’s a big club and you and I aren’t in it”
    - George Carlin

  9. Transor Z says:

    Let me add something else to the mix:

    RULE 1.13 ORGANIZATION AS CLIENT

    (a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.

    (b) If a lawyer for an organization knows that an officer, employee, or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization, including, if warranted by the circumstances, to the highest authority that can act on behalf of the organization as determined by applicable law. [Emphasis added]

    ——————
    Okay, so what does this have to do with anything? Every state has rules of professional conduct governing lawyers and most are along these lines when it comes to representing organizational clients. This is an excerpt from Massachusetts’ Rules. What it means, in a nutshell, is that a lawyer representing Corporation X, who uncovers or becomes privy to wrongdoing by corporate officers, has a duty to bring that to the attention of the BoDs. This is not unlike the SOX statutory duty to encourage “up the ladder” reporting of ethical/legal violations.

    Any corporate attorney (who was probably hired by the CEO/COO/CFO or works in-house) who obeys these ethical guidelines and rats out senior corporate officers to the Board WILL BE BLACKLISTED AND WILL NEVER WORK AS CORPORATE COUNSEL AGAIN. That’s the fact, Jack.

    Because the Board doesn’t want to know.

  10. sparrowsfall says:

    One of the authors’ suggestions should go at the top of the legislative list:

    Bar executives of publicly traded corporations from serving on their own boards. If they want to do that, they can go private.

    There are crux points in the financial system–ratings agencies also top the list–where regulatory changes can have profound effect. This prohibition is one of them.

  11. ACS says:

    The mutual fund managers, who hold large enough blocks of stock to make a difference, are MIA in this battle.

  12. wally says:

    A closely linked issue here is that stocks – and mutual funds that own stocks – have been sold to the American public for the last 25 years as the proper way to invest money. It is a huge industry and it promotes a ‘product’ that is dubious. If you carefully select a time period, you can show what a great thing it is. You can show that buy-and-hold is great, that trading is great, that some smart guys have great performance, that you can’t beat an index fund… anything you want. Yet the acclaimed best investor of our times – Buffett – has a twelve year record that basically stinks. He even tells his co-owners that not paying a dividend is a great idea.
    What this huge sales pitch does is pull in many small investors who do not follow what their board does and who could not influence it if they wanted to. They get fees sucked out of them, they get no dividends and they get the corporate profits spirited away by high salaries and stock options… and they still get told what a great thing it is too ‘invest’ like that.

  13. wally says:

    “It’s a big club and you and I aren’t in it”
    - George Carlin

    That’s our world. The people today who speak out for the common person, who point out the dishonesty of the system and the illogic of it are not our advisors or our elected representatives.
    They are the comedians.

  14. cewing says:

    I’ve always wondered how someone who sits on several boards (which seems to be the standard way of doing things) could possibly be effective at working with any of them.

    If a manager was working for five different companies at the same time, people would think that person was nuts, not to mention unfocused and disloyal. But the people supposedly making the big decisions can divert their attention to other completely different enterprises (as opposed to making it their full-time job), no problem.

  15. km4 says:

    wally both parties are owned by corptocracy lock, stock, and barrel

    Obama disconnected
    http://www.salon.com/opinion/feature/2010/01/13/sifry_on_obama/index.html

    Net Net: Meet the new boss, same as the old boss

    The MSM exists today to keep Americans focused on sex, sports, and sensationalism. If serious issues emerge they start spewing disinformation and biases to keep Americans confused or in a deep enough fog that most will not even try to see the ruse.

    Unless a populist 3rd party emerges ( assuming more Americans finally wake up ) I think we may become biggest banana republic in the world !

  16. km4 says:

    Bush warns: Watch out for ’shysters’
    http://rawstory.com/2010/01/bush-warns-watch-out-for-shysters/
    I had a good long chuckle !

  17. rktbrkr says:

    I remember when GM bought out Ross Perot to silence him when he joined their BOD -he asked too many questions – wasn’t that telling. GM wanted to be comfortably numb to their problems.

    Too few BOD members have skin in the gane, their own money not just corporate awards. You can be sure Michael Dell isn’t napping during Dell board meetings!

  18. DL says:

    Icahn has discussed this issue at some length

    http://www.icahnreport.com/

    The laws should be changed to give shareholders more say in what the boards do and who can be on them.

    As a “man of the people”, this is something that Obama could push for (although I’m sure he won’t).

  19. czander says:

    Many suggest Corporate Boards are broken. People who serve on boards need to be held responsible for overseeing their companies. But they are not. Take for example the mysterious Thomas Gerrity the former Dean of Wharton B-school. He was a director at Fannies Mae the loan giant that was seized by the government in September 2009. We must forbid anyone who was a director of a company that contributed to the financial crisis of 2008 from serving on any publicly held company. Gerrity represents a common scenario among directors, he has been a Sunoco director since 1990 and was a board member of Fannie Mae when its balance sheet took on enormous risk and accounting irregularities in 2004 prompted the ouster of Franklin Raines, Fannie’s chief executive (Morgenson, 2009a). At Sunoco, Mr. Gerrity serves on of all things the audit and governance committees. In addition to holding directors accountable and making certain their career suffers when they screw up we must demand that they have greater involvement in the hiring of Executives. When hiring, boards must look beyond the veneer of executive candidate and make certain stock holders can obtain information on the candidates experience, values, attitudes, and even mental health. Boards have the authority to carefully and deeply investigate the work of the CEO they appoint. The fact that the CEO functions at the service of the board must be taken seriously and no CEO should be allowed to appoint a board member or fire a board member. This is especially true for members of the board’s compensation committee. The practice must end where CEO’s appoint compensation committee members who are high salaried CEOs and /or have a history of maintaining CEOs should be paid well. CEO’s would love to have Ken Langone and Jack Welch publicly stated believers that CEO’s should be paid very well. If appointments to the board were the domain of stock holders Welch and Langone would never serve as directors.

  20. Marcus Aurelius:
    What do you do about a company like Comcast? The Roberts’ control the company with some shares that have more voting power than the rest of the shares combined(pretty much).

  21. another facet of: “It’s not the Rates. It’s the Rules.”

  22. “The MSM exists today to keep Americans focused on (G****** that doesn’t matter). If serious issues emerge they start spewing disinformation and biases to keep Americans confused or in a deep enough fog that most will not even try to see the ruse.(a.k.a. “All the News, That’s Fit to Print.)”
    –km4, above, (w/edits)

    x2
    ~~
    “…In a tapeworm economy a small group of insiders centralize political and economic power at the expense of people, living things and the environment, in a manner that destroys real wealth. A tapeworm economy is one in which it is considered acceptable to make money from our popsicle index going down. In investment terms, it is an economy with a negative return on investment. It is parasitic in nature.

    The way an actual tapeworm operates is to inject its host with a chemical that makes the host crave what is good for the tapeworm and bad for the host. So the Tapeworm Economy is adept at using media and education and numerous financial incentives to get us acting against our own strategic interests and instead supporting and depending on the Tapeworm.

    The symptoms of the Tapeworm are many – narcotics trafficking that targets our children, runaway exploitive and predatory corporate practices such as the patenting of life, terminator seed and the destruction of our topsoil and food supply, fraudulent inducement of debt to homeowners, students and consumers, suppression of knowledge and renewable energy technology, criminal mismanagement of government credit and resources, black budget operations and the manipulation of currency, financial and precious metal prices and markets. These practices introduce organized crime throughout all aspects of our lives… these transactions drain our families and neighborhoods on a daily basis – much like a tapeworm drains its host.

    As we understand the history of these drains in our lives – who is doing them and how we are complicit – we begin to understand the power of the opportunity to transform them in a manner that is safe and profitable for ourselves and those we love…”
    http://solari.com/realdeal.htm
    “This is an eye-opening interview with the remarkable Ms. Fitts by the gentleman who runs the Moneychanger website:

    MONEYCHANGER What is the American Tapeworm” or the “negative return on investment economy”?

    FITTS That’s an economy with two classes of players, the insiders & the outsiders. The insiders are constantly subsidized at the expense of the outsiders, like a tapeworm, a parasite that eats through the body. The parasites engineer the economy to drain it for their benefit, consolidating wealth & economic power by liquidating wealth, people, environment, & economic productivity, all to fatten the Tapeworm.

    MONEYCHANGER “Liquidate & transfer to others” isn’t exactly “transferring assets,” although that can happen as a privatization.

    FITTS The thousands of recipes in the Joy of Cooking cookbook are all still recipes. The “Tapeworm” doesn’t drain us by one recipe alone….”
    http://www.karavans.com/tapeworm.html
    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Tapeworm+Economy

  23. Transor Z says:

    MEH:

    See also Daniel Dennett’s presentation “Dangerous Memes” available on http://www.ted.com. He analogizes self-serving and destructive cultural messages to a parasitical brain fluke that hijacks ants’ CNS.

  24. JC in Va says:

    I have done consulting for http://www.moxyvote.com.

    I think this is the solution, but this is leading the horse to water. How do you make them drink?

  25. flipspiceland says:

    That’s putting it mildly.

    The governance of corporations, cities, countries, states, towns, families, even oneself, is nearly impossible.

    The more complex the organism the less likely it is to be governed wisely.

    The biggest problem with this fakery is the pay that the governors get for such dereliction of duty. Why CEOs, COBs, and others get so much compensation and never have to account for their performance as the underlings do is one more pointed stick poked in the eyes of justice, fairness and balance.

  26. km4 says:

    @Mark E Hoffer – I believe my characterization is accurate but your Tapeworn economy analogy shows how parasitic it is !

    George Carlin ~ The American Dream
    http://www.youtube.com/watch?v=acLW1vFO-2Q&feature=player_embedded#

    The game is rigged and nobody seems to notice. Nobody seems to care. Good honest hard-working people . . . white collar, blue collar it doesn’t matter what color shirt you have on. Good honest hard-working people continue, these are people of modest means . . . continue to elect these rich ***** who don’t give a ***** about you. They don’t give a ***** about you . . . they don’t give a ***** about you. They don’t care about you at all . . . at all . . . at all, and nobody seems to notice. Nobody seems to care. That’s what the owners count on. The fact that Americans will probably remain willfully ignorant of the big red, white and blue dick that’s being jammed up their ass everyday, because the owners of this country know the truth. It’s called the American Dream, ’cause you have to be asleep to believe it . . .”

  27. FrancoisT says:

    Can you imagine the screams of butchered pigs the reichwing nuts would howler if (gasp!…dare I write it?) UNIONS were involved in this kind of scam?

    OMFG!!!

    OWNAGE = 100%

    RED ALERT!!!

    Congress would be utterly ass over head, “working” furiously and without respite to redress this intolerable cancer undermining American businesses. It’d be considered tantamount to aiding and abetting the terrorissss because it would undermine our Great Nation economic security (cue is Glenn Beck crying on TV).

    Enough said!

  28. normal1 says:

    Don’t forget to look at the big picture (wink, wink) that tolerates this behavior. That would be the conventional wisdom that says the United States is a true blue capitalist country. And anyone who questions that statement or any of the questionable policies enacted by such capitalists can just go line up on the side of the socialist/commie/Democrat crowd. A line in the sand was drawn years ago: Republicans = capitalists, and anyone against them were obviously anti-capitalists. And that’s how the Democrats were cut off at the knees.

    This groundwork has held up for decades and helped define good and evil during the cold war. The fact that the Republicans strayed from true capitalism was overlooked by Americans as the threat of Commies(! )was more pressing. Companies eager to break pesky unions that wanted safe work environments among many other things found kindred spirits in their fellow false capitalists. Together they were able to write laws and trade agreements beneficial to both, and of course, to the U.S. as a whole in a trickle-down fashion. Soon enough, the conventional wisdom that government should be run like a business was born. After all, it was only natural that a capitalist country be run by capitalists, not government bureacrats. And that’s why we have a corrupted economic system.

  29. Pat McGroin says:

    No surprise here. Corporate America is chock full of talentless hacks who work the system (usually simply by “not rocking the boat” and flattering the right people)…within the ranks of both “upper management” AND the boards of directors (who, uncoincidently, happen to come from “upper management” at other companies). And jst as with the BODs, “upper management” often gets wildly overpaid relative to their actual performance (unless you classify “taking credit for other peoples’ work as your own” performance…in which case. they’re very good at their jobs).

  30. VennData says:

    No failure at the Tea Party boards. Just pure profit for the scammers running them:

    http://www.redstate.com/erick/2010/01/11/im-afraid-sarah-palin-might-be-ruining-herself-unintentionally/

    http://www.nytimes.com/2010/01/17/opinion/17rich.html?hp

    And Palin cashing in.

    http://blogs.nashvillescene.com/pitw/2010/01/tempest_in_a_tea_party_activis.php

    Too bad for the suckers that pay their hard-earned money

  31. TakBak04 says:

    Have some experience with Corporate and Biotech Start Up Investors and participants and the rest of the Angel Investors & stuff for YEARS….YEARS…starting with the late 90′s.

    Yeah….the Boards are Rigged and only those “compliant” with the “Powers that Be” get inducted into that Clique of ELITE who serve on the REVOLVING BOARDS of Companies in America.

    It all comes down to Money (did one’s FIRST “start up” during the Biotech and Internet Boom of the late 90′s make money)…and could you hold onto your investors because they were embedded with you to “tell no tales” or were you in league enough with the Original Investors that they’d keep recommending you and pushing you because of your Educational Affiliations which were necessary for Great Creds to sucker more people in after the implosions. And, if your creds were good…you could still keep sucking in investors…based on one good one with maybe five or more that were questionable?

    It’s a Game….and those BOD’s are a Circular Group who live to perpetuate themselves on More and More Boards so that it’s a CLUB….and to get the REC’s you need to always BE WHERE THEY ARE to get the SPOILS.

    It’s all a scam. And, so many have profited by it…it will likely never be changed…except for “tinkering around edges” to make it all look compliant with the political will of the moment..

    Enjoy your Boards Barry. Need more Questioners on them. I hope you will be a “thorn” in their side. And, we need good folks like you to be aware of what’s been going on. (Didn’t Marvin Gaye do a song about “What’s Been Goin’ On….What’s Been Goin’ On?” But, I suspect the minute you are seen as an “obstructionist” to the “Friedmanomics” you will be either “gently” or “forcefully” chucked out…. Once you are no longer useful to them (your blog giving you some veneer of respectibility…for change) they will throw you on the Ash Heap. There are those before who were in shoes before… that you might like to feel are your own.

    But…Good On You for Trying! Hope you will be more successful. But…the “revolving door” goes on and on…and maybe one day they will GET YOU, TOO! A knock at the door…a word placed here or there against you in a Big Media Publication…and even though you have your own Blog….you can see how hard it is…to make even the most minor changes..

    But…folks MUST HAVE HOPE…and MOVING ALONG…BUILDING on failures before… We Learn.. Folks get better at reporting and INFLUENCE CHANGES….because of keeping the SYSTEM WHOLE.

  32. philipat says:

    And specifically, the Chairman of the Board should represent the interests of Shareholders NOT Management. That is why, IMHO, having an Executive CEO is never a good idea.

  33. philipat says:

    APologies, I meant to say Executive Chairman. No edit function still.

  34. farmera1 says:

    THE BATTLE FOR THE SOUL OF CAPITALISM was written by John Bogle (founder of Vanguard). The main take away from the book is the American Corporation has moved from ownership capitalism to managerial capitalism. In that sense his book does cover the fact boards are no longer looking out for the owners, but in a broader sense his primary point is that American Corporations are managed to enrich the management not the owners.

    I’m also about half way through TOO BIG TO FAIL. Covers the main characters in the melt down of 2007-2008. Talk about royalty, these dudes running these banks/brokerages have all the trappings of royalty. Sad that it has come to this.

    Having been the organizer for one of these board of directors meetings at a major corporation, I can assure you the meeting was the ultimate dog and pony show with very few minutes dedicated to “business”. Wine and dine and entertain. Very little else. Nice gig if you can get it, since there is no limits on what they can make, let the “market” decide. Buffet has covered the executive compensation scam in his annual reports and how the game is fixed.

    Bogle’s book is a good read. It was published in 2005 by the way.

  35. d4winds says:

    Institutional “investors” are simply traders in the current era. They have no true long term interest in any company or stock.

  36. GeorgeBurnsWasRight says:

    Just yesterday cable was showing one of their “financial fraud” series on Tyco. It highlighted that one of their Directors was paid $10MM directly and another $10MM was paid to one of his “charities” for arranging a single meeting between Tyco and a company which they subsequently bought. The cable series didn’t answer two questions which could have made this story even worse: did the Director have any financial stake in the acquired company, and how did the acquisition work out?

    Apparently the SEC didn’t investigate since the deal was partially disclosed in the fine print in their annual report. That’s another piece of the puzzle- the failure of the SEC to file criminal charges against Directors for failing to do their jobs.

  37. 375HandH says:

    Barry:

    I often agree with you but not this time. Your solution to the problem:

    “To fix the problem, I go even further than the authors of Money for Nothing do – I would assign a fiduciary obligation on the parts of the big institutional holders of stock (on behalf of the actual owners): The mutual funds, pension funds, CALPERS, etc. I would assign an actual obligation to vote the shares (most don’t now), and mandate they perform true analyses of all board candidates. Mom and pop do not have the time, expertise or ability to analyze and vote on every director for every stock they own. Put the burden on those who do have the staffing and ability — the mutual funds.”

    This will do nothing. The underlying problem remains the same. Corporations are fictitious creatures of government. Their existence satisfied one and only one goal: to divorce ownership from liability. As long as that is true, you will have the same problems no matter how much government regulation there is; indeed, I would argue that further government regulation merely exacerbates the underlying problem.

    The fix for the problem: eliminate the corporate form.