Tuesday, May 26, 2009

Breaking up the boards?

One of the major criticisms of public corporations over the last few years is the assertion that the Boards of Directors of these corporations aren't doing their job. Instead of truly overseeing the company management teams, critics assert that these boards are simply rubber-stamping whatever management wants, paying inordinately large bonuses for good performance and even larger bonuses for poor performance. The fact that the manager is often also the Chairman of the Board doesn't help matters much.

Several changes have been proposed to board governance, but this idea was floated last week:



The Securities and Exchange Commission proposed rules on Wednesday that would make it possible for a company’s shareholders to elect a limited number of independent directors....

The proposal would permit large shareholders — typically institutional investors like pension funds or hedge funds — or alliances of shareholders to nominate as many as a quarter of the directors. For the largest public companies, the proposal would require approval by 1 percent of the shareholders for a dissident slate to be nominated. For smaller companies, it would be either 3 percent or 5 percent, depending on the size of the business.


Personally, I would rather have something like this than a flat limit on executive pay, as has also been proposed. If there is a true business rationale (rather than insular groupthink) that justifies paying someone $100 million, then go ahead and do it.
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