The State Of Corporate Governance
The net is we go through economic cycles of excess and then corrective phases where the excess is removed from the system. That excess is not simply reflected in overpriced stocks but is also reflected in our lifestyles, our ability to assume more risk, our appetite for taking on more debt and our ability to let certain behavior slide. This options scandal is a reflection of the go-go 90's when we were in the final phases of a tremendously positive economic cycle. CEO behavior at the end of this cycle was full of excesses and now the general public wants a pound of flesh for losing money, losing confidence and seeing the type of inexcusable extravagance which took place.
I believe corporate governance is in need of a major overhaul. To say that CEOs can benefit from options granted before announcement of news is absolutely the same thing as insider information. It is an illegal and unfair advantage given to an investor. Option grants to a CEO are no different than me purchasing options with unfairly gained information. In such a situation, I would be accountable to the laws surrounding insider information so why isn't a CEO or the CEO compensation committee held to the same law? It is also no different than a CEO dumping shares before bad news gained by simply being the CEO and we all clearly understand this is illegal. The bottom line is these are all forms of investment and CEOs should be held to the same level of accountability as all investors. Now, if the laws are unclear, let's make them clear and make those CEO's give their entire booty back to the corporations of options granted under such methods.
This type of behavior along with all of the "foot noting" of corporate details needs to end. All investors absolutely need more transparency into the dealings of the CEO compensation packages, financial shenanigans of companies and independence of boards.
I am most terribly disappointed at the chummy nature of the typical CEO/Board relationship. We need a new way of nominating and electing board members as well as holding them accountable because right now the majority are simply a rubber stamp for the CEO and, likely, were nominated at the request of the CEO because he/she knew that person would support the CEO's agenda. Being a board member should be taken with more seriousness. Improved oversight and shareholder rights would help to focus many of these members with their fiduciary responsibility.
I want an independent thinking board which will question where necessary and challenge when appropriate. And, if the CEO is not performing, I want the board to put together an improvement plan, which, if not met, means the CEO is removed in a timely fashion. Receiving a large stipend for an honorary rubber stamping position is not in the best interest of shareholders, employees or customers.
More direct involvement by shareholder rights laws would clean up alot of this foolishness. Enron was allowed to happen because of the lack of transparency. GM has gone from a million employees in the
And, while we are at it, how about a few changes I would like to see. Let's make any stock or option grants to CEOs exercisable only when they leave and have achieved the outlined performance measurements. There's another pet peeve of mine as well. It's being positively compensated for cutting tens of thousands of jobs. A CEO has a mandate of shareholder return and to their employees. There is seldom any strategy which does not encompass both and is long term positive. I'm tired of CEOs being positively compensated for failed policies resulting in massive layoffs. And make no mistake about it. Wholesale layoffs, while cheered on Wall Street, is nothing more than an admission that current CEO performance is a failure. These policies would allow a CEO to be compensated by their cumulative performance, not the sentiment of the moment on Wall Street.
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