Category — corporate governance

The board of director’s role in corporate America needs to be rethought.  Instead of providing oversight and accountability, most are entrenched cheerleaders for the company’s management team.  Take General Motor’s Rick Wagoner in the perennially troubled US auto industry as a classic example.

Mr. Wagoner has been a C-level executive at GM since 1992.  He was steadily promoted until he became the CEO in June of 2000.  Unfortunately, Rick’s rise and GM’s performance were negatively correlated as this chart of GM’s stock price over the last decade notes:

How does the board feel about his leadership given the current woes?

Mr. Wagoner still has a strong voice in crafting details of the new strategy, a person close to him said. He also has support on GM’s board. Key directors still believe the management team under Mr. Wagoner is capable of delivering a turnaround and insist “we will win or lose together,” this person said. Despite GM’s mounting troubles, the board is anticipating management will soon notch “some victories under our belt,” one director said, asking not to be named.

What a nice sentiment.  Senior management and the board are going to shuffle the deck chairs on the Titanic together.  After all, the 10 year “turnaround” plan is just about to yield results.  Have faith.

Of course, if the predominant trend continues, the company will hit bankruptcy or require a huge government bailout.  Either way, the stockholders, employees, and taxpayers lose while executives walk away with millions in previous compensation and buyouts.

Therefore, the board should understand that some of us are more “together” in this than others.  And maybe, just maybe, they should get off their asses and start analyzing the situation and holding the executives accountable.  It’s something they should have done 5 years ago.

Sadly, the scene at GM is repeated far to often in corporate America.  Boards need to be far more active in steering the company and holding executives accountable for results.

Unrestrained Capitalism is ferocious, a thing to be avoided. Liberal Joe Investor knows nothing of how brutal the corporate world is. They believe all should be fair, equal and of course green and sensitive, which is why Socialist economies always fail. Also, those convinced markets should forever go up fit the above definition of clueless.
In the days of the Gould, Mellon, Carnegie, Rockefeller and Vanderbilt dynasties, lying and cheating each other was routine business practice. Only after small investors involved themselves in the market did some laws come about to control the more rampant thievery. That is Capitalism, not pretty but it works.
A small-scale example is the bakery business in NY for hard rolls (A crusted roll shaped like a Kaiser-sold for breakfast and sandwich service). Profits per roll are measured at ¼ to ⅛ of a cent delivered to the business.Could you make a go of business in this fashion? All food stores work on the same margins.
All well run corporations pay COO and CFO’s to maximize profits while controlling expenses. Would you do that for $15.85/hour?

Insiders Selling at Bear Stearns

As news broke yesterday that the chairman of Bear Stearns, James Cayne, sold his entire stake in the brokerage earlier this week for $61.3 million, experts were reminded of an earlier stock sale, when nine insiders sold nearly $50 million worth of shares just three months shy of the firm’s near collapse.

According to documents filed yesterday with the Securities and Exchange Commission, Mr. Cayne sold 5.6 million shares at $10.84 a share on Tuesday.

Bear Stearns’s fall has been brutal, with the firm’s shares tumbling from a 52-week high of $159.36 to a recent low of $2.84 following the March 16 announcement that JPMorgan Chase & Co. would buy the bank for just $2 a share. [snip]

The other Bear Stearns insiders who sold stock in December were Jeffrey Mayer, executive vice president; Samuel Molinaro, chief financial officer; Michael Minikes, treasurer; Jeffrey Farber, comptroller, and directors Paul Novelly, Vincent Tese, and Alan Greenberg.

The heavy December selling took many pros by surprise. “It was a clear sign of bearish insider activity,” according to Jonathan Moreland, who has been tracking the buying and selling actions of corporate insiders for nearly two decades and currently heads up research at InsiderInsights, a weekly New York newsletter that monitors insider activity. The sales “relayed a message that Bear Stearns was a stock to avoid or to short,” he said. [snip]

Wall Street has been abuzz with talk that the SEC is looking into Bear Stearns’ December insider transactions, but a knowledgeable source at the brokerage tells me the agency has not contacted the firm. The SEC declined comment.

Insider trading is legal. Owning stock in a company for which you work isn’t a suicide pact with that company. Published insider transactions are on the financial sites of most Internet portals. Pick your company and engage in research. I agree with this.

What is unlawful is trading on information that isn’t available to the investing public. I agree with this also. The balance of regulation is government meddling, to wit, the Sarbanes Oxley Act which stopped foreign investment in America, causing many companies to buy up their stock and go private. The rest raised their prices to cover the cost of this legislation.

The law responded to the problems at Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. Laws exist(ed) to cover this malfeasance via fraud through the IRS and the SEC; state fraud laws are on the books too. Notice how well they stopped the fraud. Companies that went private are now doing business with no SEC oversight.

Liberals believe corporate officers are overpaid; they rant over corporate greed, corporate welfare or any profit making operation except candle makers, macramé shops and other cottage “industries.” Most of those close their doors just for being worthless without contributing to the community employment.

Bear Sterns collapse has sparked a lot of discussion about executive pay. Liberals, ever eager to stoke the class warfare fire, seize on the latest headline to bemoan excessive executive payouts. Sadly, in many cases, they do have a point. You’d be hard pressed to find a bigger capitalist and believer in free markets than yours truly. But how can you justify CEO James Cayne and his top brass leaving with $917.2 million in compensation while stockholders and employees are left holding the bag?

Executives shouldn’t be walking away from companies with 100s of millions win, lose, or draw. The market rewards performance, and that’s how an executive should be rewarded too. But few executive compensation committees, some might argue the board in general, are fulfilling their fiduciary responsibilities to the shareholders. Instead, most boards focus on overall compensation, a keep up with the Jones philosophy, with little thought for providing incentives and rewards to encourage executive performance.

If the regulations and taxes come, the executives and boards have nobody to blame but themselves. They need to start designing compensation systems that more closely link company performance with executive pay. A good way to snare CEOs like James Cayne would be vesting his pay in 1 year increments over a 5 year period after he retired based on Bears’ performance. That’d provide a large incentive for executives to keep an eye on the future as well as today.