Recidivism on corporate boards

The New York Times is shocked, shocked that the directors of failed companies end up directors elsewhere:

For 16 years, Marshall A. Cohen served as a director of the American International Group, stepping down just months before the company’s near-collapse in 2008. Several months later, Mr. Cohen was again in demand, joining the board of Gleacher & Company, a New York investment bank.

Gleacher expanded its board last year to include not only Mr. Cohen but Henry S. Bienen, who served as a director of Bear Stearns from 2004 until its rescue by JPMorgan Chase in March 2008.

On the second anniversary of the Lehman Brothers bankruptcy, appointments like those of Mr. Cohen and Mr. Bienen highlight how the directors of the companies at the center of the financial crisis — A.I.G., Bear Stearns and Lehman itself — still play an active role in the governance of corporate America.

“In too many cases, the radioactivity of a board member of a collapsed company has a half life measured in milliseconds,” said John Gillespie, a longtime Wall Street investment banker and the co-author of “Money for Nothing” (Free Press), a recent book on corporate boards.

Geez, what’s the big deal? It’s not like their golf handicap rose.

Snark aside, my quite brief exposure to corporate board members showed me that they are bright overachieving people who possess a lot of business skills, but not necessarily relevant ones. (I’m talking about independent members. Board members who are also company employees know the business but have an obvious conflict of interest – though they would hasten to point out they don’t abuse it.)

The indepedent board member I’m thinking about is, say, a banker or a lawyer on an insurance company board. The banker and the lawyer are clearly quite good at banking and lawyering, sometimes even regarding insurance matters. That’s how they got to the board level.

But it’s a bit of a stretch to believe they can understand the business well enough to know what direction it should be led. Marshall A. Cohen, cited by the Times, trained as a lawyer, but ran the Molson Companies – yeah, the Canadian brewer. Here’s a list of companies he has served on the board of:

  • Director of Barrick Gold Corporation (since 1988)
  • Director of American International Group Inc
  • Director of Lafarge Corporation
  • Director of Toronto-Dominion Bank
  • Director of Collins & Aikman Corporation
  • Director of Haynes International
  • Director of Metaldyne Corporation
  • Director of Premcor Inc, The Premcor Refining Group, Inc, Premcor USA Inc.

He has also been a member of the International Advisory Committee at The Blackstone Group and on the Dean’s Advisory Council of Schulich School of Business at York University, Canada.

That’s an impressive resume, and I’m sure he brings a hefty Rolodex to the table – and that’s no small thing, as he has contacts that broaden the company’s reach.

But how well do you think he understands credit default swaps? Enough to stare down the CEO?

I’ve had extensive, enjoyable conversation with outside directors on a wide variety of topics. When it came time to discuss insurance, I had to take things real slow, like explaining the difference between accident year and calendar year. (If you’re not in the industry, just know that the difference is pretty much learned in Insurance 101.)

Now I don’t mean to pick on Mr. Cohen, he’s just the guy I Googled. I think it’s unrealistic to expect an outside expert to run a company better than a person who has spent a lifetime running it, just as it’s unrealistic for me to quarterback better than Peyton Manning.

Personally, I’d like to see more accountants and auditors on corporate boards. Those people are used to seeing a wide variety of situations and have investigative noses. It also helps to be facile with numbers and the documents that support them. You can’t bury the truth in quantitative reports.

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One thought on “Recidivism on corporate boards

  1. soniajaspal says:

    Very well said, the directors carry on rotating and one really wonders what value add they do.

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