The Executive and Board of Directors Discussion

So I’ve been commenting on a friend’s blog. I don’t think he reads mine though. But I thought I’d bring the conversation over here for future reference…

Who does a company’s board really represent?

General

So I get my proxy notice in the mail form one of the companies in which I hold stock. A certain telecom company. In the section for voting by mail, the board recommends a vote AGAINST the following:

  1. elimination of stock options
  2. an advisory vote on executive compensation
  3. reporting on charitable contributions
  4. shareholder approval of future severance agreements
  5. limits on the service of outside boards
  6. disclosure on compensation consultants
  7. shareholder approval of future poison pills

All these steps are designed to provide transparency of the board and executives to the shareholders, the owners of the company. But for some reason, the board and it’s chairman, who is also the CEO of the company, is against measures that should be rightfully given to the shareholders. Right now, we have unchecked executive compensation, no disclosure on compensation consultants who recommend compensation, and a host of other issues that leave shareholders in the dark.
Once again, I fully believe that no CEO or other executive within a company, should also have a board seat, let alone being the chairman. It’s the role of the board to ensure and watch over the CEO. How can that be done when the CEO controls the board? Essentially, they’re puppets.

-Tony Nelson

Comments:

By your statements, you don’t understand how a board of directors work. The share holders elect ALL THE BOARD OF DIRECTORS. Having the CEO as chairman or on the board is not a conflict of interest. The chairman of the board essentially only sets the agenda for the meetings of the board of directors. A CEO who is also on the board has no great advantage. In fact one would argue that the company needs the CEO to be on the board to better bridge communications from the board back to the company.
As with the election of our “great” politicians, the SHAREHOLDERS have the power and delegate that power to the board of directors when they elect them. If the board sucks and gives an executive 28 million dollars for four months of work then the board needs to be fired.
Just like politics if the true owners do not get involved with company business then they only have themselves to blame when things go wrong.
When or if you ever become CEO of a fortune 500 company I’m sure you will run it much better than the idiots you have mentioned in the past few posts. And I’m sure you will want as much  compensation as possible and a position on the board of directors so you can keep an eye on them.

By Herschel on 04.09.07 9:18 am

You don’t respond to comments T-Bone?

By Herschel on 04.12.07 12:55 pm

Yeah T-Bone (hehe), what is up with that?  If you are going to blog, you gotta read and respond to comments.  Especially when someone calls you out and says you do not know what you are talking about.  ;-)

By justisengard on 04.15.07 2:35 pm

Sorry for not replying, but I’m actually working my butt off now. So H2, I understand your point, and I do understand how a board is supposed to work. But what happens to be a charter, and what actually takes place is a very gray area. My point is simply that if a board is responsible for the oversight of a CEO and it’s executives, that CEO should in no way be on that board.

Now for example, a particular CEO of a telecom company. His compensation and goals for 2007-08 are not based on the overall profitability of the company, but for a specific initiative, the deployment of FIOS. And it’s an agenda he has set as a milestone for himself to be measured by.

Now again, depending on the strength of a company’s board, a CEO can muscle or “control” a board to the point where they are mere rubber stamps. WorldCom sound familiar?

My only point it that there should be complete transparency and oversight. And you cannot oversee one who oversees you.   

By tnelson on 04.19.07 9:15 pm

Ok… I’m not afraid of your specific examples to argue a general point.
You talk about strong CEO’s muscling the board to control their oversight. Fine, yes, I agree it happens more often as with Worldcom.
However, the CEO does not HIRE the board of directors. Specifically with Berne Ebbers he had so much sway with the big share holder’s groups that he could say “vote for Goofy Director Number 2 on your ballot as I know he will be a great director.”
The DUMB ASS mega shareholders vote those cronies as directors and the directors are beholden to Bernie for eternity.
So in my mind, just like in politics, the stupidity starts with the VOTERS.
You see, if you use your method of not allowing a CEO to serve on the board I don’t think it would change anything. Imagine Bernie not being on the board. He is still very successful and the shareholders think he is gold and anything he recommends they go for. He still gets his directors elected and he is still able to muscle them to a great extent.
There is no real answer to excessive executive pay or stupid politics in big business. Just like big government, big business is covered up with politically savvy people milking the system. Yet those same people who get in charge aren’t so smart at actually running a company and making it profitable.
Unfortunately, there are only a few Warren Buffet’s around that know how to manage big organizations.

By Herschel on 04.20.07 9:42 am

All true, but what are we to to? Just settle for it? Deal with it? I think that over time, as more investors get more disgruntled with not just exec pay, but their performance, action will start to happen.Did you receive the VZ proxy statement, and what the board recommends we vote against? Basically, everything against transparency and being more involved in setting exec compensation.

By tony nelson on 04.23.07 2:37 pm

There is no answer for us mere mortals… The individual investor’s percentage of ownership is so small compared to the large, mutual and commercial investment groups.
You see, for use small investors, if we try to trade like the big boys, we get killed with fees and such. Additionally, we don’t know all the ins and outs so we are told to invest for the long term. And herein lies the problem — most executives don’t focus on the long term. The commercial funds want year over year return so the mutual fund is highly ranked. Therefore, they pressure big companies to get quarterly returns up. This short sighted cycle is what’s killing innovation and value investing and value management.
Again, I go back to my comment about Warren Buffet. He is a value investor and only invests in companies that “HAVE GREAT MANAGEMENT.”
So I agree with you Tony – executive pay is messed up because the system supports a short sighted view of running a company. If a board of directors set realistic, long-term goals along with reasonable short term goals with the big payoff being ten years down the road for the executives I think we’d have much better decision making going on in these companies.

By Herschel on 04.26.07 10:23 am

Update…

Anyway, Verizon shareholders voted for Say-for-Pay for executives (http://www.nytimes.com/2007/05/19/technology/19verizon.html?ex=1337227200&en=e323a6218526440e&ei=5088&partner=rssnyt&emc=rss).

Exactly how will this work? Will the shareholders have a new compensation committee? Will they hire a outside “independent” firm to propose five packages that the shareholders vote on?

It is a shame that the board of directors can’t do the job they were hired for and really represent the shareholders by managing this issue within the available structures of a corporation.

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1 Comment

Filed under All Posts, Business, Ethics

One response to “The Executive and Board of Directors Discussion

  1. DANIEL FROMHOFF

    AS CEO OF MY COMPANY, CATCH THE WIND, I FULLY UNDERSTAND THE POINT BEING MADE.

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