Evaluating the 'Doofus Factor' In Corporate Governance 204
PolygamousRanchKid writes with this quote from an article in the Economist:
"The directors of Yahoo! were 'so spooked by being cast as the worst board in the country' that they fired Carol Bartz as chief executive 'to show that they're not the doofuses that they are.' That was Ms Bartz's typically blunt verdict, offered to Fortune after she was dismissed with a phone call by the internet firm's chairman, Roy Bostock, on September 6th. She would say that. Yet Ms Bartz's criticisms of the board have been sympathetically received. Firing a chief executive by phone smacks of hasty, panicky decision-making. And Yahoo!'s board already had a poor reputation, having turned down an offer from Microsoft that valued the firm at several times what it is worth today. It is not just Yahoo!'s board that is feeling the heat. The directors of HP, another stumbling Silicon Valley giant, have been accused of serial ineptitude spanning the appointment and dismissal of Carly Fiorina as chief executive, the firing of her successor, Mark Hurd, and the selection of his replacement, Léo Apotheker. ... There is growing demand for boards to undergo a formal evaluation process, to assess both the performance of each individual board member and how they work together as a group. The European Union is considering new regulations that would require an independent evaluation of the board every three years."
Money (Score:5, Insightful)
Interesting problem (Score:4, Insightful)
Interesting considering that board members are elected BY stockholders, and are supposed to represent their interests. Let them vote for the craziest folks they dare, as long as they vote for them. It seems silly that you would subject board members to arbitrary tests when they've won the acclamation of their shareholders.
Of course this highlights a big problem with corporate governance, namely that boards are elected by stockholders, but a combination of stockholder disinterest and large institutional and mutual fund investment in firms has led to the composition of the board ballot being decided by the CEO and management.
There's no such thing as a free lunch. If you don't want "doofuses" on your board of directors, don't vote for them. Setting up some sort of independent review system is simply going to present stockholders with another stream of information to ignore. If you believe in democratic corporate governance you have to let people vote for who they want, and accept the responsibility for what happens to the business. The fact that Carol Bartz did a pretty lame job running AOL, and that the company has been on a death spiral ever since the Time Warner merger -- and for practical reasons will probably never figure out how to make their combined business a going concern -- has a lot more to do with the poor performance of the firm, notwithstanding the board.
boards don't really make any sense (Score:5, Insightful)
They don't run companies effectively because they aren't really in charge of the company. Most board members do completely different things as day jobs. Some are on five or six boards. You cannot effectively run six multinational companies and also have a day job at a seventh, though you can surely succeed at pulling in seven salaries.
For example, when there were some shady stores about Cisco coming out earlier this year, I looked up their board to see who I could contact. Oh, one of them is the President of Stanford University. How much time do you think the President of Stanford spends keeping tabs on Cisco's corporate affairs, making sure that the company is run properly? Another one is, uh, Carol Bartz, until recently the CEO of Yahoo being discussed here. How much time do you think Carol Bartz took out of her Yahoo day job to make sure Cisco was being responsibly governed? Yet another Cisco board member; Michele Burns, CEO of Mercer, the world's largest H.R. consulting firm. Do you think she spent lots of her free time, when not running Mercer, to make sure Cisco is doing things right?
No, in practice, the boards don't have any idea what's going on, the CEOs all sit on each others' boards anyway, and the boards therefore leave things to the CEO, ignorance-is-bliss style, until someone forces them to care, either because the stock price is tanking, there is bad media attention, or unwelcome attention from prosecutors.
Re:Interesting problem stockholders have no real s (Score:3, Insightful)
Actually the courts have restricted the nomination of directors on the corp proxy statement to those nominated by the incumbents. Unless you have a lot of money you can't win a proxy fight. The club protects itself with nominating committees picking only those good ole persons who fit their mold. The SEC tried to let 5% of shareholders nominated director candidates on the corp proxy, but the incumbents said it would be the end of the world and went to court and won that the SEC did not do the job right. So a shareholder (small) really can only sell. Now if you have 15% of the company or more you can probably get the boards attention. Today board elections remind me of elections in the old soviet union, one candidate in most cases. So corp america is really an ole (boys and girls) club.
Firing always works (Score:5, Insightful)
James Carville, who was Clinton's right hand man just wrote advice to Obama, on how to look more compentent [cnn.com]. His advise was to do lots of firings to appear in charge and for them to be scapegoats.
It works for past presidents like Reagan, Clinton, and Bush Jr. Surely, the board did this for the same reason to appear like they are doing their jobs etc. Many in upper management reading this can relate to newer guys coming and firing people in order to appear all scary and powerful to their new employer.
Most of the smart people who pay attention can see right through this.
Re:Money (Score:5, Insightful)
In Ireland, there were only around 40 or so company directors amongst all the major bank, company and state boards. Most of these were also businessmen, CEOs, or managers. As you can imagine, nest padding was a primary activity. When the state property agency NAMA was created, one of the first acts of the board was to increase the chairman's salary by 70% [www.rte.ie]. I imagine similar outrages occur in the US.
The proper here isn't "doofus factors" or anything to do with individual boards. The problem is that the entire business and governance culture of the western world is no longer functioning properly. It has become mired in corruption, greed, fraud, and mismanagement. Yet still we tolerate crooks and doofuses because seemingly everyone agrees that this is the best way to run things. Our prevalent financial worldviews are unable to explain or understand why things aren't working anymore.
Personally, I feel that a "financial reformation" is needed in our society. Something literally of the magnitude of the Protestant reformation in the 1500s. We need to turn away from the corrupt established church of business and economics and find new business philosophies. We need to find a system which prevents doofuses, grubbers, and psychopaths from running our companies. We need a system in which shareholders are investors instead of gamblers.
We need a new way of doing business, and even of thinking about and understanding business. Otherwise we'll end up with companies like Yahoo, Microsoft, NASA, and Bank of America being run into the ground by directors, managers,and shareholders who at best have no idea what they're doing, and who at worst will actively destroy the company for personal gain.
Re:Money (Score:5, Insightful)
Re:Do a test to find the psychopaths/sociopaths... (Score:4, Insightful)
Re:Money (Score:5, Insightful)
Supporting the small business and individual entrepreneurship that actually employs over half of the workforce would be a good start. Small businesses don't just pull up stakes and go to China and tend not to do as much offshoring (it simply doesn't make as much sense, even in the short term for small business). They don't (and can't) throw a tantrum and threaten the regional economy unless they get special treatment. They're not too big to fail and they're not too big to punish when they commit crimes.
Re:Do a test to find the psychopaths/sociopaths... (Score:2, Insightful)
When you start studying the political left under a critical eye, you will see all sorts of bizarre ignorance, which is protected with the same bloody-mindedness that we see from the far Right.
Re:I'm confused... (Score:5, Insightful)
People who have the ear of the press have seen one their own callously fired by voicemail. That is, they have seen one of their own treated exactly the same way they have treated millions of peons year after year and that frightens them and bursts their psychotic delusion that they are somehow intrinsically better than the people they treat like garbage.
Re:Money (Score:2, Insightful)
As such it hardly comes as a surprise when you tell a CEO that they basically have free reign to convert the companies assets into their own personal assets, that they go ahead and do so. And even the ones that are so incompetent and/or greedy that they get fired still get a huge severance bonus. Of course the bullshit Republican response is that they "earn it", but like 99% of the modern Republican party's talking points, this one again is blatantly false. The S&P has essentially gone nowhere the past 10 years but CEO salaries have skyrocketed. Meanwhile, a lot of countries where CEOs don't earn massive amounts of cash for little to no work, such as Germany, are out-performing the S&P and Dow considerably. I'm not even going to get into developing markets. The massive amount of executive salary US companies dole out is a huge competitive disadvantage. It creates a huge cost burden for the company without really showing a whole lot for it. But of course, since Republicans despise capitalism, since unlike cronyism it actually allows someone who wasn't born rich to succeed, they are doing everything in their power to destroy it.
... new way of doing business (Score:2, Insightful)
In this current down economic climate (referring to the time period 2008 to 2011) neither boards of directors, nor management nor the government looks good.
Sort of incidentally (following on a college education that had about 4 semesters of American history and American culture classes) I have been puzzling about the American corporation and reading the occasional book on the subject. The first thing I feel these books show is that American corporations are creatures caught within the economic and cultural currents of the time. Sorry but I am naming the titles from memory.
The last book on the list is The Decline and Fall of the American Auto Industry, published around 2009 a few months after the General Motors bailout. Here is a book that principally tells the story of the decline of General Motors Corporation with vignettes of decisions and policies forced upon top management and the GM board of directors from about 1970 down to the bailout. These are the years where General Motors could do everything except build a good small car. At the board of directors level, the choices kept being matters of avoiding the more awful.The board of directors finally wound up with a General Manager whose speciality was promising things would be better. The problem that was never ever solved (and still isn't solved in my opinion) is how to make a 4 cylinder engine as good as the 1700 cc Honda (and keep it in production even if it costs a few dollars more.). No board of directors can solve that problem.
The next two corporation books are: My Years with General Motors by Alfred P. Sloan (mid 1960's) and the 1950 vintage classic about General Motors, The Concept of the Corporation by Peter Drucker. These books are the classic duo about a big corporation and a really gifted and eloquent Chief Executive Officer. The only problem is both books were written in the middle of a 40 year richest in the world expansion of the mass production automobile. In the present down economy,the same high quality people sitting on the Board and occupying the top management simply do not look as good... no matter what they do.
Regarding your wish for a new way of doing business, I would say look back at the 1980's... The Regan Presidency Years... where job security began to evaporate. That was the era when the conglomerate corporation began to operate. This is when the process of buying up smaller corporations and doing obscene things to their balance sheets and business plans began. A social history of this era up to the present (not focused very clearly on Corporations) is The Great Inflation and It's Aftermath by Samuelson.
So one way of looking for a new way of doing business is to ask, how can we change the economy of scale back so that stable, quality, relatively low profit and low debt Corporations are not subject to being bought up, stripped of their cash, move the manufacturing to contract offshore factories, loaded with debt and resold on the stock market to investors. Recent corporations worthy of study are Sunbeam, Mr. Coffee and Kidde (fire extinguishers).
Re:Money (Score:3, Insightful)
Personally, I feel that a "financial reformation" is needed in our society.
You can't change the entire world's way of doing business in one go. Note that the Protestant movement resulted in several wars, which I'm sure isn't something you're prescribing here. :)
No, passing a couple of laws would probably suffice. For example:
1. The primary responsibilities of the board should be to customers, employees and ethics, and *then* to shareholders.
2. The system of share trading should be slowly wound back, so that the value of a company is not defined by the value of shares on a share market.
The share market is what causes, in my mind, 90% of the problems in capitalism, as it forces public companies to ensure their profits *increase* over time.
A family business is happy with a consistent profit. A public company must have increasing profits - continual growth. We should know by now this is a completely toxic situation for everyone. It forces companies to find ever cheaper labour and materials, etc. until something gives.
Eventually the board and CEOs get the feeling it's all coming unstuck, and that results in panic moves to ensure their own personal financial security. Which is understandable in a way, because they were trapped into doing what they did, by a system that demands the impossible - continual growth.
Re:Money (Score:3, Insightful)
Since they have no incentive to make a profit, they usually don't have any incentive to run thing efficiently either.
Incentives no longer work, anyway. The only reason, any progress happens at all, is that smart people would die of boredom otherwise. This is the only thing that motivates me and everyone I know.
Which is basically what you get with municipal run companies
This is a situation where Socialism gets leftovers from Capitalism.