Declining bonuses this year? How about boards showing a little spine and demanding that executives give back a chunk of the oversized paychecks that were awarded in the years when these ill-fated decisions were being made.
It’s dangerous to be walking around Wall Street these days. You never quite know when another company will hit the ground with a walloping loss or some CEO will tumble out of his job. Is it not astonishing that when chief executives are elevated to god-like status, with a commensurate compensation package, sometimes they are a little light in the miracle production department? Many are appearing a bit too human in the wake of the subprime fiasco. It is not a role to which they have been accustomed.
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Never have so many directors of a single publicly traded company been convicted on criminal charges in connection with their duties as board members.
With the formal sentencing yesterday of F. David Radler today on one count of fraud following the prison terms set last week for Conrad Black, Peter Atkinson and Jack Boultbee, a formal record was set in the annals of modern corporate history. Never have so many directors of a single publicly traded company been convicted on criminal charges as were these four one-time directors of Hollinger Inc. (more…)
It may be better to let these damaged and discredited names sink ignominiously into the history books as a cautionary lesson to all stakeholders in how not to run a company.
The National Post recently took a look at the pitiable state of Hollinger Inc., and its subsidiary, Sun-Times Media Group, formerly Hollinger International. They call it the “untold story.” We have detailed many of the issues associated with Hollinger’s demise on these pages over the past year, but the most important point seems to have eluded the Post.
There has never been a publicly traded company with as many current and future felons sitting around the boardroom table as there was with the Hollinger group. (more…)
When a board gets to the point where it feels it needs to have a widespread automatic stock sales program, maybe it’s a sign that it’s giving out way too many stock options to insiders
I’ve been receiving a number of calls from the press regarding Research In Motion’s new automatic stock selling plan for insiders. RIM has a problem, it seems, in managing its abundance of insider wealth. With so many directors and officers having so much stock –much of it gained by an extraordinarily generous stock option plan that saw millions of shares awarded through option grants– it has had to set up a program to sell insiders’ shares in a way that avoids any hint of impropriety. RIM is still recovering from the backdating scandal that involved the company’s co-CEOs, the CFO and a number of directors. For several months in late in 2006 and into 2007, insider stock trades were frozen because the company could not produce accurate financial statements due to option-related accounting problems. During that period, co-CEOs Jim Balsillie and Michael Lazaridis exercised more than 750,000 options between them alone. And that was just a fraction of their total awards. We’ve had some thoughts on RIM’s accounting/backdating fiasco on a number of occasions. This latest move, which will see nearly $400 million worth of stock sold over the next 12 to 18 months, is no doubt also intended to help shore up RIM’s image with the SEC, which apparently is still investigating the backdating episodes. Finlay ON Governance was the first to raise the issue of RIM’s noticeably deficient corporate governance practices that were also implicated in the backdating scandal. The company has since scrambled to repair some of its board practices, as well.
You may recall at the time the company produced the report on its internal investigation (which we thought might as well have been written on Swiss cheese because of all the holes it contained in the form of unanswered questions), Mr. Balsillie, RIM’s co-founder, who, as his company’s bio boasts, holds the Canadian chartered accounting profession’s highest certification, and Dennis Kavelman, RIM’s former CFO, who is also a professional accountant by training, both claimed not to know that undisclosed backdating was a no-no under accounting rules. RIM’s board, some of whose members also received backdated options, did not keep complete records of stock option decisions and transactions, according to the internal report. They never explained who approved the backdating for directors.
As a rule, investors like to see management and directors buying stock, not selling it. This is especially the case in a company where most of the top people are still under 50 and aren’t planning to leave anytime soon. Insiders selling significant blocks of their company’s stock en masse is not something the market sees very often and is seldom prepared to overlook.
Here is an excerpt from what I told today’s Financial Post:
I am never a fan of companies where there is a lot of insider stock selling. They are the leaders. Would they like other stockholders to sell too? The market is entitled to view mass selling by insiders as an indication of a lack of confidence in the future, since, if the price of the stock is expected to rise, a rational investor –even an insider– would not want to sell.
The fact that the plan is being unveiled at a time when RIM’s shares stand at record levels might prompt some prudent investors to wonder if the company’s insiders have a less than bullish vision of the future. Maybe RIM’s shareholders should begin to contemplate their own systematic sale of shares.
One final thought for investors to ponder: When a board gets to the point where it feels it needs to have a widespread automatic stock sales program, maybe it’s a sign that it’s giving out way too many stock options to insiders.
Finlay ON Governance made its way into the top business story in the New York Post today. I’m quoted by reporters Zachery Kouwe and Paul Tharp in connection with Citigroup’s handling of the events (and its staggering losses) that culminated in the resignation on Sunday of former CEO Charles O. Prince.
Here’s an excerpt (complete with the misspelling of my name —no ‘d’ in Finlay please.)
Governance experts said the brunt of the blame for Citigroup’s problems and turmoil rests with its 13 directors, excluding Prince, who collectively earned $43.8 million in compensation last year.
“Directors are not like some kind of 1950s housewife who was always the last to learn about the misadventures of her husband,” said J. Richard Findlay, head of The Centre for Corporate & Public Governance.
“Their job is to oversee the CEO and to be aware of key events in strategy and risk at every stage along the way,” Findlay added.
It’s nice to be in New York again, even if it is just the virtual me. The on-line version of the article is available here.
Boards don’t just anoint an emperor CEO and remain a hapless bystander of events. Their job is to assess and oversee issues of risk, as well as the CEO’s performance.
First it was Warren Spector, co-president of Bear Stearns. Next it was Merrill Lynch’s E. Stanley O’Neal. Yesterday it was Charles O. Prince of Citigoup. In the space of a few months, the subprime meltdown that is producing calamitous losses in the banking and financial services sectors is also producing suddenly-empty corner offices. More will doubtless follow. But isn’t there an idea that maybe boards have some role in helping to prevent these disasters, too? They don’t just anoint an emperor CEO for a period of time and remain a hapless bystander of events. Their job is to assess and oversee issues of risk as well as the CEO’s performance. It seems too many boards have been a little slow to adjust to that heightened level of responsibility. (more…)
