In the News | The Finlay Centre for Corporate & Public Governance

Quoted In Today’s New York Post on Citigroup

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.

My Maria Bartiromo Moment

Maria .jpg

They say timing is everything. There was quite a response to my comments in the major AP report on executive compensation, which was picked up by hundreds of newspapers in dozens of countries. All kinds of journalists, academics and TV producers began contacting me and sending emails —a minor bombardment actually. Plain speaking about the realities —and dangers— of CEO pay abuse from a pro-business advocate of responsible capitalism is something media folk seem to find refreshing, if not rather unusual. But all this reaction came in exactly the week I long ago arranged to take some vacation time. I wouldn’t have minded so much until CNBC called wanting me to be on The Closing Bell the same day —with Maria Bartiromo. Needless to say, being some distance from anything even remotely resembling a TV studio made the invitation impossible to accept and the Maria moment flew as fast as it arrived.

Still, it was nice to be asked. Some people return from a week in the wilds with a big fish story. I have my Maria story.

AP Survey Confirms CEO Pay Out of Control

There is a comprehensive report on CEO compensation prepared by Ellen Simon of Associated Press which appears in hundreds of newspapers around the world beginning today. The Los Angeles Times and the New York Times are running the report as well. I was interviewed for the piece a couple of weeks ago. The thoroughness of the study makes it one of the better efforts in an area that is finally gaining wider public attention. The survey confirms what we have long contended here: there is no rhyme or reason to CEO compensation, other than the fact that CEOs are demanding and getting outrageous amounts, and boards, composed mainly of likeminded past and current CEOs, are more than happy to oblige. It’s not really more complicated than that.

I’ve had a few things to say about out of control compensation in the boardroom for a number of years and more recently here —and I’m actually a defender of capitalism and have spent my entire career working in it. I think that may be one of the reasons why the press has been rather curious about my views for the past couple of decades. When I started to raise concerns about this subject there was virtually no one else in business who would say a word about it —and there are still relatively few today, given the significance of the issue and the size of the business community.

I’ll have a further post on some of the ideas that formed the basis for the AP interview in the days ahead.

Melnyk’s Resignation from Biovail: When the SEC Comes Knocking at Your Door it Tends to Concentrate the Mind

I had an interview with Peter Brieger yesterday about the sudden resignation of Biovail head Eugene Melnyk. It’s in today’s Financial Post. Mr. Melnyk’s is a familiar story where a dynamic entrepreneur founds a company, does well, tends to dominate its affairs and places less emphasis on the checks and balances of sound corporate governance practices than is advisable. Then problems arise. Right now, the results of a similar scenario are being played out in a Chicago courtroom in the case of the United States vs. Conrad Black. It should be said that Mr. Melnyk had far fewer advantages starting off than did Mr. Black, as we have noted previously. To me, a significant portent of the problems Mr. Melnyk and his company are now facing came when he received an annual compensation package of $122 million in 2001 alone.

The Melnyk/Biovail case is interesting from another perspective. While Mr. Melnyk was being investigated by Canada’s Ontario Securities Commission, he held on to his post. Just days after receiving the “Wells Notice” from the SEC, he threw in the towel. Members of the Hollinger International audit committee have also received Wells Notices, and judging by their recent testimony regarding the nature of their directorial “oversight, ” the SEC’s actions can’t come fast enough in my view.

As I said in the interview, when the SEC comes knocking at your door, it tends to get your attention. It’s another example of how differently the two regulators are viewed even in Canada by Canadian business figures and a further indication that the OSC has a problem being taken seriously and that Canadian investors have a problem being adequately protected by it.

In the News on Private Equity Risks

Germany’s popular Focus magazine is just out with an extensive interview I had with the publication on the current wave of private equity deals sweeping North America. I will have more to say about this in a future posting (in English). The gist of my views on the subject for my German-speaking friends follows below.

“Größte Bedrohung des Stabilität“

Doch der kanadische Unternehmensexperte J. Richard Finlay sieht den derzeitigen Trend zum „Going Private“ mit großer Skepsis: „Dies ist eine der größten Bedrohungen für die wirtschaftliche Stabilität und das Wohlergehen der Anteilseigner im vergangenen halben Jahrhundert“, sagt er. „Wenn es an Offenheit in den Firmen fehlt, werden Probleme oft so lange versteckt, bis die Lage so kritisch wird, dass niemand mehr etwas tun kann. Und dann können die Folgen für die Mitarbeiter, die Zulieferer und die Gemeinden verheerend sein.”

Als Beispiel nennt er den kanadischen Immobilienkonzern Olympia and York, der in den 80er-Jahren zu einem der größten Grundbesitzer der Welt aufgestiegen war. 1992 implodierte das Unternehmen unter der Last seiner Schulden von mehr als 20 Milliarden Dollar und der Inkompetenz seiner Bosse, der Brüder Albert, Paul und Ralph Reichman. „Es gibt wenige Beweise dafür, dass private Beteiligungsfirmen besser geführt werden oder weniger zu Dummheiten und Machtmissbrauch an der Spitze neigen“, meint Finlay. „Und den Chefs große Summen von Geld nachzuschmeißen, hat sich noch nie als zuverlässige Formel für den Erfolg erwiesen.“ Der Chef der Baumarktkette Home Depot, Robert Nardelli, der für sein Scheitern auch noch mit 210 Millionen Dollar belohnt wurde, sei das beste und nicht einzige Beispiel dafür.

Corporate Governance, also die Unternehmensführung unter Aufsicht, ist für Finlay nach wie vor die beste Methode, ethisches und verantwortungsvolles Verhalten an den Firmenspitzen zu gewährleisten. „Es ist kein Zufall, dass die größten Firmen mit der eindrucksvollsten Geschichte von Einkommen, Innovation und Fairness gegenüber den Anlegern, etablierte Aktiengesellschaften sind, die sich über lange Zeit entwickeln konnten.“ Private Beteiligungfirmen hingegen seien wie der Ozeandampfer Titanic: „Jeder glaubt, sie seien zu groß, um versagen zu können, und zu raffiniert, um nicht erfolgreich zu sein. Und dann, eines Morgens, wacht man auf und muss entdecken, dass das Undenkbare geschehen ist.“

In the News Over the Apple Stock Options Fiasco

Today’s on-line version of Germany’s popular Focus magazine contains excerpts of a media interview with The Centre for Corporate & Public Governance on the Apple Computer options manipulation story. There will be a follow-up in the next print edition. I will be commenting further on today’s statements by Apple’s board, which The Centre called for yesterday, over the next few days.

Perhaps the next time a scandal erupts, it could choose a less hectic time than the Christmas – New Year’s period.

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