Sunday, July 18, 2010

Bored of Directors

Thank goodness for BP. That is probably what all the executives on Wall Street are thinking. Not only did they skate by on the soiled tatters of their underwear the first time around, but they escaped the potential, “hey, wait a second…” the second time around because BP had to go and pollute the Earth. Wall Street, remember? The people who created labyrinthine risk vehicles that distributed the risk of investment to the public. And how many of these executives actually got in trouble? Do you remember seeing the names of any Wall Street executives next to words “convicted” or “indicted”? I thought not. Funny how the executives of Lehman, AIG, Washington Mutual, Bear Stearns, and others managed to keep their noses clean and collect bonuses and golden parachutes at the same time. You can make as many arguments as you want explaining why some banks should not have been allowed to fail, but if they did fail, there at least might have been a chance that these executives would not have gotten multimillion dollars payouts.

But that is not even the “what?!” point. We already know that the executives of these banks need to be stripped of all worldly possessions to even begin to makes things right. The “what?!” point is that no one has even considered the Board of Directors of these banks. Or Board of Trustees. Or Board of Managers. Or Executive Board. Whatever you want to call it, everyone seems to have forgotten about these perpetrators of deception. In a stock corporation, which the four abovementioned banks are or were, the Board has the utmost power. That means they have final approval over the actions of the corporation, whether active or passive. The Sarbanes-Oxley Act was designed to hold responsible the people who wield this power. Yet no Board member has received any negative press to date.

My goal is not to rail on the Boards of Wall Street, though someone certainly should (preferably the Department of Justice). My goal is to ask what purpose a Board of Directors truly serves. Whenever there is a problem with a company, the people we blame are the executives. The CEO, COO, CFO, President, VPs, and so on. No one ever talks about the Board. It is as though they suddenly vanished or had no real part in their company’s wrongdoings or missteps. And yet Board members are traditionally paid (stocks and options ultimately become money), especially if you are on the Board of say, Apple or Starbucks, Yes, yes, there are nonpaying Board seats, but we are not talking about those companies here.

Let us take Apple. A juggernaut of a company poised to be to technology what China is poised to be to economy. And when you boil it all down, it is because Steve Jobs steered Apple in the right direction. All credit will ultimately go to Jobs and not more than one sad little ounce will go to the engineers. But what about the Board of Directors for Apple? I am sure they all have very sore shoulders from patting themselves on the back for Apple’s meteoric rise in the industry—either for believing they helped lead Apple or for congratulating themselves for choosing Jobs to run the company. So what is the job of the Apple Board anyways? Are they involved in the decisions of the direction of the company? Did they discuss Apple’s/Jobs’ foray into the iPad? Given everything we know about Jobs and his micromanaging behavior, I would guess a big fat no. So what do they do? We know that they authorized a personal jet for Jobs as a bonus for his success with the iPod. In fact, most of what me know through the press is that the Board okays bonuses to Jobs for Apple’s success, which the world has come to synonymously associate with Job’s success. I am pretty sure Al Gore, who is on the Board at Apple (and whom I do like), know very little about what goes on at Apple. The man wrote a book and made a movie about global warming and toured the US for a lecture circuit. If Steve Jobs works close to seven days a week on Apple projects, I think Gore would be lucky to remember a three digit code to get into the Board of Directors private bathroom.

Let us look at another Board member. How about Mellody Hobson? You know her. She is on television always dishing out sane financial advice. She started Ariel investments. She also sits on several Boards for several companies, such as Dreamworks, Estee Lauder, and Starbucks. Those are just three of the ones of which I know you have heard. How much time do you think she spends for each of these companies? Mind you, these are giant companies in billion dollar industries. If the Board has this kind of power in a stock company, why do its members pay so little attention to it?

In Apple’s and probably Starbucks’ case, you are probably thinking, “who cares?” and honestly, I did too. But let us look at a more extreme case. How about Lehman Brothers? How about BP? These two companies were run into the ground and in the process destroyed a large chunk of America and its families. But in the end someone crafted the CDOs and skimped on the leak backup plan. Then someone wrote off on it. And then someone okayed the writing off of it. So who is responsible? You would think the people that are getting paid the big bucks to actually run the company would be responsible. They were chosen because they knew and understood what the company needed. The Board, who supposedly knew and understood what the company needed, in turn selected them. So if that was their job, when did plausible deniability become an acceptable excuse? Should it not have been their jobs to know what was going on?

Clearly not, as history would tell us. This is the clearest and best example of the fat getter fatter. So the only question is, “how can I get in the action?”