Lehman Chairman and CEO Speaks to Congressional Hearing about Corporate Board Failure
This post is a follow-up to Examining Recent U.S. Corporate Board Failures at Banks and Wall Street Firms.
Yesterday the former Chairman and CEO of Lehman, Richard Fuld Jr. testified in front of the House Oversight and Government Reform Committee. There were some disturbing revelations about the actions (or inactions) that management, and at some level the corporate board of directors took before Lehman failed, that provides further insight on what I would call massive CEO and corporate board failures.
At this point there has been so much focus on the CEO's and their "golden parachutes" it has even become a campaign slogan. ABA is more focused on the corporate board's role in all of this and how our clients can learn from these mistakes. That is why we highlighted the backgrounds of the Directors of this board and other failed and successful companies in our last blog posting. As I pointed out in that blog posting I am still amazed that the Corporate Boards of these companies have come out somewhat unscathed. After all it is ultimately the Compensation Committees that have designed and approved these packages. I think that is about to change based on the testimony and the tone of the hearings.
Two interesting facts that we learned from Lehman's Corporate Board perspective:
- The panel found documents that on Sept 11th Lehman planned to approve over $23mm in "special payments" for three senior executives that were leaving the firm 4 days before the firm went under and while they were trying to get the feds to bail them out. It is also estimated that the CEO was paid about $350mm between 2000 and 2007 (although we are somehow supposed to feel sorry for him losing over $100mm in the collapse). Obviously this should have been and probably was approved at a board level.
- The committee released an internal email chain that was sent to Mr. Fuld in June suggesting that Executives at Lehman forgo their bonuses to show employees and investors that management was taking some responsibility for mistakes that had been made to get the firm in this position. Not only did he blow off that email while telling those concerned, "Don't worry", another member of the Executive Committee actually emailed his counterparts on the committee apologizing that someone on his staff was even asking such an absurd question. How the board did not come up with this suggestion themselves or know about this email chain is really frightening.
It leads me to wonder where the board was with these issues and I am sure many others that will come out as well. Either this was a "rubber stamp" board of yes people that did exactly what the CEO and Chairman wanted or they had no idea any of this was going on. Either way they obviously had the wrong board "leaders".
As I pointed out in our last blog posting about the Lehman Corporate Board of Directors, I am not implying in any way that the board was the only reason Lehman failed, but I feel that they do need to take some responsibility for it. Based on the board leadership that has been shown to this point it doesn't seem like this is going to happen for Lehman. Mr. Fuld opened his testimony declaring "I take full responsibility for the decisions I made and for the actions I took" but when he testified he didn't own up to any miscalculations or misjudgments about anything that happened. Even worse he passed the buck by saying, "We had a compensation committee that spent a tremendous amount of time making sure that the interests of the executives and the employees were aligned with shareholders".
ABA is a firm believer in and I have mentioned in past posts that at some level you can tie every success and failure of an organization to the senior leadership team including its corporate board of directors. This is why it is our belief that it is critical to have board "leaders" not board "members". Individuals that are not there because they are part of the "old boys network", have impressive resumes or are well known but that they understand how to help the organization get to the next level. They have knowledge of the issues, the business and the industry and can leverage that knowledge and their contacts to bring value to the organization and its shareholders. No matter a Corporate Board of Directors or an Advisory Board in our process it is the same and the member first and foremost has to provide that value.
It is because of situations like this that I often wonder why corporate boards are built this way or why anyone would choose to be a Director of a company that built their board this way. Just ask Mr. John Akers, Ms. Marsha Evans, Sir Christopher Gent, or Mr. John Macomber, they were all Directors and on the Compensation Committee of the Board of Directors of Lehman Brothers Holdings Inc.
