Sound governance is not some abstract ideal or utopian pipe dream. Nor does it occur by accident or through sudden outbreaks of altruism. It happens when leaders lead with integrity, when directors actually direct and when stakeholders demand the highest level of ethics and accountability. ~ J. Richard Finlay in testimony before the Standing Committee on Banking, Commerce and the Economy, Senate of Canada.
Earlier in October we commented on Countrywide Financial CEO Angelo Mozilo’s accelerated sale of shares gained from a generous stock options program. We thought the timing was interesting and noted: (more…)
CEOs today make an estimated 400 to 500 times the average U. S. worker. When they made just 40 times the average paycheck five decades ago, and apparently had about one-tenth the incentive they have today, it makes you wonder how anything important got done. They just helped to change the world. That’s all.
“It is not a coincidence that the Dow Jones industrial average, which stood at 5,000 in 1996, is now well above 13,000,” the authors write. “While U.S. executive pay practices do not entirely explain this rise, there is little doubt that it would not have occurred without them.” (more…)
The SEC has apparently commenced an informal investigation into Countrywide Financial CEO’s sales of stock in recent months. Angelo Mozilo’s miraculous sense of timing captured our attention at Finlay ON Governance. We’re glad the SEC has been watching too.
Last week we had some thoughts about Countrywide Financial’s subprime corporate governance and the phenomenon of miraculously timed stock sales on the part of CEO Angelo Mozilo. For him, the miracle was in pocketing millions from the sale of his shares just months before the subprime disaster jolted the market and hammered its stock. (more…)
Over the past four years, the board of Countrywide Financial paid CEO Angelo Mozilo nearly $400 million. If he had made, say, just $100 million during that time, would the company be facing any greater crisis than it is today. If he had been paid twice as much, would his interests have been so much better aligned with investors in avoiding the current disaster that he would have invoked superhuman skills to do so? It is against the gales of logic and reason that the self-serving arguments of profligate boards and New Gilded Age CEOs quickly become demolished and shown for the rubbish they are.
Countrywide Financial is a name that has become synonymous with the fiasco in the subprime loan market. It rode the wave of dubious mortgages with apparently little regard for, or understanding of, the laws of economics or physics. When it was working, it paid off handsomely for many in the company, especially CEO Angelo Mozilo. Last year, Mr. Mozilo received $43 million in pay and a further $79 million from the exercise of stock options. (more…)
We predicted last year there would be more surprises in connection with RIM’s backdating scandal. We have been following those developments regularly at Finlay ON Governance, with an admitted degree of skepticism. Most of the time it seemed we were the only ones to be doing so, as so many reporters, analysts and investors appeared to have fallen under the RIM spell that deprives certain people of the ability to think clearly.
Now, apparently some investors and analysts, like the legendary Captain Renault, are “shocked, shocked” to find that backdating has been going on here and that the U.S. attorney for the Southern District of New York and the SEC are taking it seriously. Both have opened formal investigations.
The history of this thing is tailor-made to raise the suspicions of investigators. We identified a number of them, starting with the feeble way the so-called internal probe began, RIM’s appalling state of corporate governance and antiquated board structure, the sudden bailing by some RIM directors after the investigation commenced —directors, as it turns out, who also received backdated stock options— and the flimsy, self-serving report that the company eventually produced which raised more questions than it answered. Remember how RIM’s estimated accounting restatement of between $25 million and $45 million suddenly shot up to more than $250 million? That’s some accounting.
Journalists and analysts in Canada, where RIM is headquartered, are sometimes surprised to find that the U.S. system of securities law enforcement and regulation doesn’t operate like the Ontario Securities Commission. In the U.S., they actually believe in enforcement. We have noted here before that the OSC is little more than a delayed echo of what the SEC does —and sometimes not even that— despite its top officials and staff being paid hundreds of thousands more than their counterparts at the SEC. The OSC has been meeting with, and regularly receiving updates from, RIM for nearly eight months. There is still no indication that they see anything amiss at the high tech icon. They have scheduled their next get together for June.
Here’s just one of the big problems facing RIM: The SEC gave Apple’s Steve Jobs a pass on his role in options backdating because he claimed he had no knowledge of the accounting implications of what he had done. Jim Balsillie, RIM’s co-CEO, has tried that line too. And the board committee investigating his actions —which, by the way, was also investigating its own members’ receipt of stock options and had nothing to say about how they were backdated— agreed with Balsillie. Except, as we have noted before —and Mr. Balsillie boasts about this on his company’s website— he is a chartered accountant holding the highest designation in that profession. RIM’s then CFO, Dennis Kavelman, also involved in backdating options, is an accounting professional, too. So it’s hard to see how the Jobs defense will work at RIM. They also tried the “we’re still young” defense, the “we grew too fast” defense and the “we only had metal desks when we started” defense, which we discussed here. Maybe the SEC and the U.S. attorney will be more impressed with those lines. Maybe Donald Trump will suddenly follow the teachings of Mother Teresa.
Shaken over the sudden loss of BlackBerry service last week, and now hit with formal investigations by tough regulators and prosecutors, RIM’s shareholders, customers and cheerleading chorus of journalists and stock analysts may now be poised to take a second look at what they seemed to think was a perfect company. We said there would be more surprises. Stay tuned.