by Robert L. McMahon
January 22, 2009
If we ever needed more evidence that the subject of corporate governance really does matter, the past month provided multiple exhibits in the form of office furnishings. In January we learned that John Thain, the former Chairman and CEO of Merrill Lynch, had shareholders foot the bill for his office renovation to the tune of $1.22 million. As egos go, John Thain makes Dennis Kozlowski –of Tyco infamy – look like a rank piker for having his shareholders pay $6,000 for a shower-curtain; John had shareholders cough up nearly $180,000 for a rug and two chairs.
Listening to Charlie Gasparino on CNBC enumerate the lavishness of John’s executive cubicle we collectively giggled to ourselves at the juxtaposition of it all – a 53 year-old executive, a recognized financial leader, a hired reformer and cost-cutter – being outed as someone with an immense sense of his own personal grandeur; here’s a guy who takes himself very, very seriously. So serious in fact, that he requires a $1,400 “parchment” waste basket.
While watching this train-wreck though, the question that immediately came to my mind was, “where was the board during all this decorating?” Wouldn’t they have to approve this lavish embellishment of corporate ego? And then I remembered that John was both Chairman and CEO. Having held both positions gave him a very high-hand in matters of what actually gets revealed to the board for review and consideration, as well as what he could do without their consultation. What do corporate governance experts recommend? That the two functions, in fact, be separated for precisely these reasons.
In then reviewing the composition of Merrill’s old board, I was struck by the sheer lack of pertinent Wall Street know-how: there were two academic leaders, a college president and a former Cambridge provost, an “adviser” to a brewing company, a real estate development executive, a retired admiral and former diplomat, an insurance executive, a retired law partner (she did work for the SEC in the 80’s, but we know just how ineffective that place is), a private equity executive, and the co-founder and co-executive director for “The Center for Adoption Policy”.
Boards are extraordinarily important to our financial system. They are supposed to be working for the shareholders and investors in overseeing management and protecting shareholder wealth. Just how accountable and effective is a board that allows its CEO to decorate his or her office in a manner more accustomed to that of a monarch? And just how is this viewed by the investment professionals we trust our hard-earned retirement dollars to? Do they even care about the corporate governance quality of the companies they invest our money in? And just how is that demonstrated to us?
As an investor in mutual funds for my retirement I’m disgusted with what I have seen these last 10 years or so regarding Wall Street, corporate corruption and an impotent regulatory system. If our financial industry is to ever regain the trust of its citizen investors it had better start demonstrating that corporate governance quality genuinely matters. We have seen how figures lie and liars figure when assessing the usual suspects of financial analysis, but what is never quite expounded upon is the corporate character of the company being analyzed.
We were fooled by John Thain’s business persona and his resume when looking at him. It took the revelation of his office decorating to reveal the real man behind the suit. But what was also revealed were the intangible corporate character flaws of Merrill Lynch: an ineffective board, joined roles of chairman and CEO, lax disclosure, and limited transparency. The intangibles of corporate character form the foundation of our financial system and if we aren’t examining them, measuring them, and questioning them we will continue to be entertained by the John Thain’s of the world. And John, please write a check to Bank of America.
Listening to Charlie Gasparino on CNBC enumerate the lavishness of John’s executive cubicle we collectively giggled to ourselves at the juxtaposition of it all – a 53 year-old executive, a recognized financial leader, a hired reformer and cost-cutter – being outed as someone with an immense sense of his own personal grandeur; here’s a guy who takes himself very, very seriously. So serious in fact, that he requires a $1,400 “parchment” waste basket.
While watching this train-wreck though, the question that immediately came to my mind was, “where was the board during all this decorating?” Wouldn’t they have to approve this lavish embellishment of corporate ego? And then I remembered that John was both Chairman and CEO. Having held both positions gave him a very high-hand in matters of what actually gets revealed to the board for review and consideration, as well as what he could do without their consultation. What do corporate governance experts recommend? That the two functions, in fact, be separated for precisely these reasons.
In then reviewing the composition of Merrill’s old board, I was struck by the sheer lack of pertinent Wall Street know-how: there were two academic leaders, a college president and a former Cambridge provost, an “adviser” to a brewing company, a real estate development executive, a retired admiral and former diplomat, an insurance executive, a retired law partner (she did work for the SEC in the 80’s, but we know just how ineffective that place is), a private equity executive, and the co-founder and co-executive director for “The Center for Adoption Policy”.
Boards are extraordinarily important to our financial system. They are supposed to be working for the shareholders and investors in overseeing management and protecting shareholder wealth. Just how accountable and effective is a board that allows its CEO to decorate his or her office in a manner more accustomed to that of a monarch? And just how is this viewed by the investment professionals we trust our hard-earned retirement dollars to? Do they even care about the corporate governance quality of the companies they invest our money in? And just how is that demonstrated to us?
As an investor in mutual funds for my retirement I’m disgusted with what I have seen these last 10 years or so regarding Wall Street, corporate corruption and an impotent regulatory system. If our financial industry is to ever regain the trust of its citizen investors it had better start demonstrating that corporate governance quality genuinely matters. We have seen how figures lie and liars figure when assessing the usual suspects of financial analysis, but what is never quite expounded upon is the corporate character of the company being analyzed.
We were fooled by John Thain’s business persona and his resume when looking at him. It took the revelation of his office decorating to reveal the real man behind the suit. But what was also revealed were the intangible corporate character flaws of Merrill Lynch: an ineffective board, joined roles of chairman and CEO, lax disclosure, and limited transparency. The intangibles of corporate character form the foundation of our financial system and if we aren’t examining them, measuring them, and questioning them we will continue to be entertained by the John Thain’s of the world. And John, please write a check to Bank of America.
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