Some interesting corporate governance reforms have been announced at Marsh & McLennan Companies, the huge financial services and consulting conglomerate with $12 billion in reported annual sales. Many of the reforms, like mandating the appointment of an independent director as board chair, provision for continuing education of directors and annual board and director evaluation, are ideas The Centre for Corporate & Public Governance, along with other governance experts, has been urging for nearly two decades. Few break any new ground, but even adopting reforms that have been on the shelf for a decade or more is progress in what is essentially a glacial environment.
The company claims the changes came about through an ongoing process of review. Hello? These reforms were the result of events leading to a deal struck with U.S. regulators and New York State Attorney General Eliot Spitzer in January 2005 to settle charges of price fixing, bid rigging and payoffs in the insurance industry which saw the company pay out more than $850 million in restitution. A separate settlement with MMC’s Putnam unit resulted in that company paying out more than $100 million in April 2004 in connection with a market trading scandal that worked to the exclusive benefit of some of Putnam’s biggest clients.
It was a wave of scandals and criminal probes that came as a shock to Marsh’s board at the time and brought my one-time next door neighbor and former MMC chair and CEO, A.C.J (Ian) Smith, out of retirement to head the Putnam board during its period of turmoil and rebuilding.
But it shouldn’t take more than 18 months to do the obvious and what common sense has demanded for years. The current reforms were so long in coming that they raise concerns that MMC’s board is still less than the model of the energetic vigilant watchdog its stakeholders require. The uber-lame statement regarding directors being urged not to hold more than four additional board positions (but allowing for exceptions with the current group and any director in the future who requests it) is a travesty. What kind of responsible director could possibly take on governing duties at Marsh & McLennan and still do justice to several other board positions, or vice versa? This is the kind of state of denial that boards regularly stumble into and is arguably one of the reasons why MMC’s board failed to detect or prevent the previous scandals. As long as boards are composed of people who are not entirely connected with the pace of changing values in the wider society and who take their cues from who is in and who is out of the cozy club, these tragedies will continue.
Marsh & McLennan’s boardroom reforms are a step forward. But they are an expensive one. The price tag to investors should not have been the billion dollars paid out in restitution and penalties and hundreds of millions more in lost business and reputational treasure.